* Household consumption up 0.7% in July m/m * Private production up 2.0% m/m * GDP indicator 0.5% in July m/m (Adds production figures, GDP indicator) STOCKHOLM, Sept 8 (Reuters) - Sweden’s economy powered into the third quarter as the government eased COVID-19 restrictions and the badly hit service sector picked up speed, data showed on Wednesday. The Swedish economy has bounced back more rapidly from the pandemic than many others in Europe, with activity returning to pre-COVID levels in the second quarter when the economy expanded 0.9% from the first three months of the year. Flash figures showed the recovery stretching into July, with growth of 0.5% from the previous month, according to the Statistics Office. Separate figures showed that the easing of some restrictions during the summer boosted household consumption, which rose 0.7% in July from the previous month. Consumption rose by 6.4% in volume and working day adjusted figures from a year earlier. The government said earlier this week it would remove most of the remaining restrictions toward the end of this month. “Going forward we expect that household consumption will continue to improve, driven by pent-up demand and high savings,” Swedbank said in a note. Private sector production, which kicked into gear before households, remained strong in July, figures from the Statistics Office showed, up 2.0% on the month and 10.5% on the year. Industrial production increased 1.2% on the month, despite global bottlenecks and supply shortages, for example in the semi-conductor sector. Supply-side problems have contributed to concerns that inflationary pressures will be stronger and longer-lasting than many central banks currently forecast. The service sector grew 2.9% on the month and 10% on the year. “Given the strong economy and the inflation outlook, the risk picture has changed for monetary policy, from a risk of further stimulus to a risk of the Riksbank taking its foot off the accelerator sooner than forecast,” Nordea analyst Torbjorn Isaksson said. Reporting by Simon Johnson; Editing by Jan Harvey Our Standards: The Thomson Reuters Trust Principles.