Economic activity in Sweden is improving but do some risks remain?

7th August 2015

Can you give us an update of economic activity in Sweden?
The national accounts released on 31st July, point to solid growth in Q2 2015. Output growth accelerated to 1% q-o-q and was up by 3% y-o-y. The main contributors to growth were household spending and external trade. The depreciation of the krona combined with acceleration in external demand has boosted the export sector. On the consumption side, earlier deflationary pressures and the fall in oil prices have boosted household purchasing power. Like in other European countries, the recovery is consumer-led. In Q2 2015, investment slightly decreased although it remained around 4% higher than a year ago. The relative stability of capacity utilisation since the beginning of the year is the main reason behind the slight erosion of investment despite the low level of interest rates. Near term prospects are better oriented with demand accelerating across all sectors in the last three months to July. The construction and manufacturing sectors are set to be the key drivers of activity in H2 2015 according to the latest survey from the Swedish national institute of statistics.

Continue to the other two articles in this edition of the Global Outlook...

Global monetary policy starts to diverge.

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Is there still value in Tokyo real estate?

The medium-term outlook for Japan’s economy is improving but is it supportive enough for the recovery in real estate prices to continue?
Harry Tan, Head of Research, Grosvenor Asia, shares his views on the matter. Click here to read more.

Is deflation still a risk?
Uncertainty related to a potential Grexit has been translating into a weaker euro and a stronger krona over the past few months, reviving the threat from deflationary pressure. Consequently, the Riksbank (Central Monetary Authority of Sweden) cut the repo rate by 10 bps to -0.35% and has extended the purchase of government bonds by a further SEK45 billion. One of the risks associated with this expansionary decision (and one of the Riksbank’s concerns) is the rising household indebtedness ratio and an overheating housing market. The low level of interest rates has fuelled residential prices and has indirectly created a positive wealth effect. In Q2 2015, house prices rose in 17 of the 21 Swedish counties with Greater Stockholm increasing by 12% y-o-y and by 7.5% p.a. since 2007. The risks to the housing market are strongly monitored by the Riksbank.
Is the stronger consumption trend reflected in the Swedish retail real estate market?
With household confidence improving, spending has been increasing especially for large ticket items. Household consumption bounced back by 0.7% q-o-q in Q2 2015 and turnover for durable goods increased by around 6%. The turnover for household items increased by almost 8% since the beginning of the year while fashion turnover was weak. E-commerce continued to show a strong outperformance of 15% in H1 2015. Like in the UK, retailers have put in place a click and collect offer to boost sales. In the last three months to July, the retailer confidence index has continued to rise. Prospects are upbeat across all sectors including fashion; the fashion retailers’ confidence index has continued to improve underpinned by a strong decrease in stock. The real estate market response has been positive. On the letting side, retail rents show a strong positive trend in H1 2015, especially in Stockholm. On the investment side positive news continue to feed investor’s appetite and increase market competition with prime yields in Stockholm hardening again to 4.85%. As a reminder, 2014 was a historic year for overall investment volumes with more than SEK 135 billion invested of which SEK 13 billion was invested in retail. The pricing of some recent transactions suggests that some investors have either very low returns expectations or are missing a piece of the returns equation. As usual, local knowledge is important in evaluating opportunities and enhancing returns.

Note: Grosvenor Fund Management has been active in Sweden since 2012 and currently has around €800 million of AUM in the region

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