Preliminary data show that Sweden’s economy contracted by 0.1% q/q in the third quarter, far below the consensus expectation and the Riksbank’s forecasts (0.5% and 0.2% respectively). At face value this may suggest that policymakers should cut the policy rate by 50bp next week in order to boost economic activity. However, we think they are more likely to cut by just 25bp to 3.0%, not least because household consumption data for July and August were very strong, rising by an average of 1% m/m.
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