Sweden stumbles into recession

Seasonally adjusted data shows that Sweden’s gross domestic product (GDP) contracted by 0.1 percent in both the second and third quarters, technically putting the country in a recession.

• Record number of tourists flock to Sweden (3 Feb 10)
• Swedish car sales on the rebound (1 Feb 10)
• Fifth of Swedish population foreign (29 Jan 10)

Third-quarter GDP was unchanged from the corresponding period of last year, according to figures released on Friday by Statistics Sweden (SCB).

The figures compared with forecasts for a 0.1 percent contraction in the quarter and 0.4 percent growth from a year earlier, according to a Reuters survey of economists.

“What we’re seeing now is a strong negative trend in the Swedish economy which will have major consequences for the labour market,” said Swedbank economist Cecilia Hermansson to the TT news agency.

Spending by households decreased by 0.2 percent, while government spending increased by 2.2 percent.

“Such low consumption data was a disappointing surprise. People are keeping a tighter hold on their wallets. Reduced car sales have had a major impact,” said Hermansson.

Gross fixed capital formation was up 2.8 percent, a result that Hermansson said exceeded expectations.

“It’s certainly the weakest increase since 2004, but we’re surprised that the numbers came in so high. The worsening situation for manufacturing has obviously not started to show up in the numbers, as we will soon see a serious weakening,” she said.

International trade figures increased slightly as well, with exports up by 2.2 percent and imports up by 1.9 percent.

Meanwhile, industrial production was up 0.1 percent, with production of goods up by 0.1 percent and the service sector up by 0.2 percent.

Total employment increased by 0.6 percent, as measured by number of hours worked, according to SCB.

Hermansson thinks the Riksbank should cut interest rates by at least 0.75 percentage points in December.

“It’s appropriate. The interest rates we have no are way too high in relation to the major weakening in the economy we’re seeing now,” she said.