Business | Economy
Swedish May retail sales undershoot expectations
While the market is uncertain whether central bank will raise rates again, economists say it underlines how cautious consumers have become.
- Reuters
- Published: 23:37 June 30, 2008
Stockholm: Swedish shoppers bought more in May but not as much as expected, data showed on Friday, signalling growing consumer pessimism and giving the Riksbank another reason to think twice about raising interest rates.
While the market is uncertain whether the central bank will raise rates again when it meets next week, economists said Friday's 0.9 per cent increase in retail sales underlined how cautious consumers had become.
The market had expected a 1.0 per cent increase after a dramatic tumble in April, first reported as a 1.9 per cent drop but revised to a 1.7 per cent fall in the latest figures.
"There was a rebound, but not as hefty as the market had expected, and that confirms our view that the domestic Swedish economy is gradually deteriorating," said Karl-Johan Bergstrom, economist at Swedbank.
On an annual basis, retail sales were up 1.3 per cent in May, less than the 1.9 per cent predicted by markets but healthier than the revised 0.5 per cent climb for April. But Bergstrom said there were signs consumers have become pessimistic, pointing to a weak confidence survey this week.
"It's really likely that retail sales could actually fall in year-on-year terms in fixed prices in the coming months, so it's not encouraging for the Swedish economy," he said.
Swedish consumer confidence slumped to a 12-year low this month, according to data from the National Institute of Economic Research. Annika Winsth, chief analyst at Nordea, said strong clothing sales had pushed up the May data.
"But the figures today aren't a reason for any celebration and with the news we see in the media today, there's a great risk that consumers will become cautious with their spending," she said.
"The stock market is in turmoil, the labour market is in turmoil, there's a risk that the Riksbank will raise interest rates and it's already expensive for consumers to borrow money."
Bergstrom said the figures underlined the need for the Riksbank to tread carefully. "It will contribute to keeping their attention on the balancing of higher inflation and lower growth," he said.
Markets had been expecting the Riksbank would announce an interest rate rise on July 3, the day after it meets. Rates are currently 4.25 per cent after the latest increase in February.
Although the economy has clearly been slowing down, the Swedish central bank - like many central banks around the world - faces the dilemma of what to do about rising price pressures as oil and food prices have jumped.
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