What does Sweden’s GDP drop actually tell us about lockdown and the economy?

What does Sweden's GDP drop actually tell us about lockdown and the economy?
The economy is just one of many areas affected by the coronavirus pandemic. Photo: Isabell Höjman/TT
Did Sweden's comparatively mild coronavirus restrictions spare the country the worst of the economic impact of the crisis, or was the effect only marginal? It's hard to say, but here are a few factors to consider.

What's the latest?

Sweden's gross domestic product (GDP) – one of the main indicators of the health of the national economy – fell by 8.6 percent in the second quarter, and by 8.2 percent compared to the second quarter of 2019.

That's according to national number-crunchers Statistics Sweden's report on Wednesday.

Note that these are preliminary statistics only and a complete report is expected on August 28th. Several experts did point out that the flash estimates are often prone to change, so interpret them with caution.

Sweden's GDP growth from the first quarter of 2018. Photo: Statistics Sweden

How dramatic was the fall?

In terms of size, it's pretty dramatic. It's the largest downturn in a single quarter since at least 1980, from when there are figures available that are directly comparable, according to Statistics Sweden.

That means we have just seen an even bigger single-quarter drop in GDP than during Sweden's financial crisis in the 1990s and during the global financial crisis in 2008.

But in terms of how surprising it is, it's in fact fairly undramatic. The drop is mostly in line with expectations, with some experts saying it is slightly better than expected and some saying it is slightly worse.

(article continues below)

See also on The Local:

Is Sweden now in recession?

No. When Sweden reported its GDP figures for the first quarter of the year, the impact of the pandemic was not yet apparent and the country reported growth of 0.1 percent. That means Sweden is not yet in recession, which is defined as two consecutive contractions in quarter-on-quarter GDP.

How does this compare to the rest of Europe?

These are the latest available flash estimates of GDP growth in the second quarter from Eurostat:

EU average: -11.9
Belgium: -12.2
Czechia: -8.4
Germany: -10.1
Spain: -18.5
France: -13.8
Italy: -12.4
Latvia: -7.5
Lithuania: -5.1
Austria: -10.7
Portugal: -14.1

A quiet evening at a Stockholm restaurant in March. Photo: Anders Wiklund/TT

How much of an effect did Sweden's lack of a lockdown have?

That's the million-dollar question. Swedish decision-makers have repeatedly insisted that they based their strategy on health and safety concerns, not the economy. That said, the economy also affects people's lives so it is not unsurprising that this is a question that has been debated by people and pundits worldwide.

It is extremely difficult to answer, since there are so many factors at play.

First of all, Sweden's economy was generally in a fairly healthy state prior to the pandemic (although it had just started to see a small slowdown after years of economic growth) so it had a decent starting position.

The country largely allowed businesses to keep running (with restrictions such as no public events of more than 50 people and rules on social distancing) during the pandemic, unlike some countries that locked down almost completely. But the main factors behind the drop in GDP according to Statistics Sweden were a decrease in household consumption and exports, which suggest a change in people's behaviour.

As the above statistics show, Sweden has managed better than many countries, especially in southern Europe. However, tourism and restaurants are some of the industries that have been hit the hardest in almost any country including Sweden. Those industries are much more crucial to for example the Italian or Spanish economies, so it makes sense that their downturn would contribute to a larger GDP drop there.

But any economic advantages Sweden may have gained do not seem huge compared to several other countries, which also had much harsher lockdowns than Sweden, only on average rather less bad.

It is also worth pointing out that although Norway and Denmark have not yet posted their GDP results for the second quarter, they are expected to see a yearly 3.5 and 4.1 percent drop, respectively, at the end of 2020, which would be better than the six percent GDP drop the Swedish government has previously predicted. Norway and Denmark both had far tougher coronavirus restrictions than Sweden.

The lack of a lockdown did not mean that business did not slow down in Sweden. Swedish health authorities urged people to avoid travelling, avoid seeing people beyond their closest circle, and work from home if possible. The fall in GDP suggests they did, which contributed to less consumer spending.

Additionally, we live in an inter-dependent world, and Sweden is a highly export-focused country, so any economic downturns on an international scale would inevitably have a substantial effect on Sweden.

Swedish Finance Minister Magdalena Andersson. Photo: Fredrik Sandberg/TT

What's next?

The pandemic has affected people's lives in many different ways. Some reading this may have lost a loved one and GDP may be the least of your concern; others may have lost your job, or struggling to keep your business going, and the state of the economy may have a direct effect on your future in Sweden.

These are turbulent times, and it is almost impossible to say with certainty what will happen next. So much depends on how the coronavirus itself develops, and controlling the virus has proven hard.

But in terms of economic prediction, here are a few indicators:

The Swedish government believes that GDP will fall -6.0 percent this year, but recover 3.0 percent in 2021 followed by 4.4 percent in 2022 and 3.7 percent in 2023. It predicts that unemployment will rise to 9.3 percent this year, followed by 10.3 next year, then 9.9 and 8.1 percent in the following two years.

Regardless of what the future holds, if you have any thoughts, feedback, or a story you would like to share with The Local's readers, we would love to hear from you. And if you run a small or medium-sized business, please fill out our short survey to tell us how you've been affected.

You can always get in touch with our editorial team at [email protected].

Member comments

Become a Member to leave a comment.Or login here.