SWEDEN’S economy posted a fourth consecutive quarter of contraction as interest-rate cuts that could spur activity in the largest Nordic nation are yet to materialise.

Seasonally adjusted gross domestic product declined by 0.1 per cent in the three months through March compared with the fourth quarter of 2023, according to an preliminary estimate published by Statistics Sweden on Monday (Apr 29). The median forecast of economists surveyed by Bloomberg was for 0.2 per cent growth, while the central bank had projected no change in its March monetary policy report.

The largest Nordic economy has been hit harder by rising borrowing costs than most of its European peers, as many households have large debts with interest rates fixed on short terms. That has led to lower spending at the same time as a plunge in housing construction has pushed the economy into a contraction, with output shrinking since the second quarter of last year.

The central bank has hinted that relief is on the horizon, as it expects to cut its benchmark rate from 4 per cent either at a meeting next week or in June. Along with slower price increases, that has made households somewhat more optimistic, with a gauge of consumer confidence rising to its highest level since February 2022.

A separate release from the statistics agency showed that retail sales still declined by 0.4 per cent in March from a month earlier.

The data shows that the Swedish economy had a “sluggish start of the year,” according to Torbjorn Isaksson, chief analyst at Nordea Bank Abp, who expects the Riksbank to launch into a series of rate cuts in May.

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“Looking ahead, household consumption should start to recover, but it will hardly affect inflation,” Isaksson said in a note.

“Moreover, the improved outlook is based on expectations of rate cuts. If the Riksbank stays on hold in contrast to expectations, then the growth outlook would darken again.” BLOOMBERG