'Mild recession' likely despite Swedish GDP dropping less than expected

The Local Sweden
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'Mild recession' likely despite Swedish GDP dropping less than expected
Swedish GDP dropped lower than expected last quarter, but it's not all good news. Photo: Henrik Montgomery/TT

Financial experts believe Sweden is heading for a mild recession, despite GDP dropping just 0.8 percent last quarter according to fresh figures from Statistics Sweden – less than the 1.3 percent drop experts had predicted.


"The second quarter of 2023 was generally weak with declines in several of the main components of GDP," Jessica Engdahl, head of section at Statistics Sweden's National Accounts Department, wrote in a statement.

"Household consumption expenditure was negative for the fourth consecutive quarter."


The downturn in GDP can mainly be explained by reduced export of goods and a decrease in inventories, Statistics Sweden writes, which contributed negatively to GDP growth by 0.5 and 0.4 percentage points, respectively.

Household consumption decreased by 0.2 percent, mainly due to decreased expenditure on housing, recreation and culture, and households' real disposable income decreased by 3 percent compared with the second quarter of 2022.


Employment increased by 0.4 percent, but the number of hours worked decreased by 0.8 percent across the economy as a whole and by 1.1 percent in the business sector.

Sweden heading for 'mild recession'

In a written comment responding to Statistics Sweden's new figures, economists from Handelsbanken forecast that Sweden is "heading for a mild recession", as they believe GDP will continue to decline in the second half of 2023.

Economists generally define a recession as two consecutive quarters of decline in GDP.

"Inflation has started to taper off, but underlying inflation is still far too high," the comment reads.

The bank's experts believe therefore that Sweden's Riksbank is likely to raise the key interest rate twice this autumn, in order to curb inflation.

"We therefore stick to our forecast for two further 0.25 [percentage point] hikes, in September and November, taking the policy rate from 3.75 to 4.25 percent."


Nordea's chief economist Torbjörn Isaksson agrees that the new GDP figures, although better than expected, do not make it less likely that the Riksbank will raise the key interest rate in September.

"The sluggish growth is definitely an argument for the Riksbank to proceed with caution," he writes, "but the too high inflation and in particular the weak SEK means that the Riksbank will still hike rates in September".


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