Sweden’s economy shrinks on quarter as rates remain restrictive

SWEDEN’S economy contracted in the second quarter for the first time in a year, as high borrowing costs continue to weigh on spending and investment in sectors such as homebuilding. 

In the three months through June, gross domestic product declined by 0.8 per cent on quarter, according to preliminary data published by Statistics Sweden on Monday (Jul 29). The median forecast in a Bloomberg survey was for GDP to be unchanged from the previous three months. The drop in output was the first since the second quarter of last year, and followed a stronger-than-forecast expansion of 0.7 per cent in the first quarter.

“The Swedish economy grew in June but figures for the second quarter as a whole were weighed down by weak figures in April,” Mattias Kain Wyatt, an economist at Statistics Sweden said in a statement. 

Sweden’s central bank began lowering its benchmark rate in May as one of the first in the rich world since the pandemic. Easing is expected to resume at a faster pace in the second half, as officials have indicated that they could trim borrowing costs by as much as 75 basis points before year-end. 

That would provide much needed relief to consumers who have cut back on spending as well as to construction companies that almost stopped building homes as demand weakened and costs surged. 

Following cautious signs of a recovery, an indicator of housing starts from data provider Byggfakta weakened again in recent months, showing that the nascent recovery in residential construction remains fragile. BLOOMBERG