Swedish economy in recession as consumers pare back

SWEDEN’S economy fell into a recession in the third quarter as inventories declined and households cut back spending amid increasing borrowing costs and rising prices.

Calendar-adjusted gross domestic product shrank by 0.3 per cent in the three months through September, compared with Q2, as indicated by figures published by Statistics Sweden on Wednesday (Nov 29). An initial estimate published last month had indicated stagnation in the quarter. The drop marks the second consecutive quarter of contraction after a 0.8 per cent decline in Q2.

A rapid increase in prices and borrowing costs is weighing heavily on the Swedish economy, as households are forced to reduce spending and housing construction has plunged. Most forecasters now expect the largest Nordic country to see its output contract for two consecutive years, and the European Commission forecasts that Sweden will be the only member state that will see its output decline next year.

“The outcome confirms a weak development in the Swedish economy,” Swedbank’s analysts Pernilla Johansson and Maria Wallin Fredholm said in a note to clients. “A development that we think will continue during the winter.”

They pointed out that a negative contribution from household consumption for the fifth straight quarter matches the previous longest decline in 1992 to 1993.

Still, it was mainly the slump of inventories that pushed GDP down by 1.4 per cent, while household spending contributed 0.2 per cent to the decline, the same as investment, the statistics office said. Net exports had a 1.5 per cent positive impact.

The krona – which has been the best performer in the G10 space of major currencies in the second half – eased following the news, trading 0.1 per cent down at 11.3608 versus the euro at 9.20 am in Stockholm.

The development in Sweden mirrors those in neighbouring Denmark and Finland, where economy also contracted in Q3. In fossil-fuel rich Norway, GDP eked out a gain in the period, thanks in part to wetter weather boosting hydropower output.

The Swedish central bank raised its benchmark interest rate to 4 per cent from zero in 18 months of back-to-back hikes, before deciding to keep borrowing costs unchanged at a meeting earlier this month. As a majority of Swedish mortgages have rates fixed on three-month terms, the time it takes for rate increases to hit borrowers is relatively short.

SEE ALSO

Sweden’s property owners need to cut debt further: watchdog

Swedish central bank keeps interest rates on hold in surprise move 

Despite the pressure from rising rates and elevated inflation, the country’s labour market has shown resilience, with the share of people who have jobs hitting record levels earlier this year. However, recent data has showed that weakening demand is starting to translate into more joblessness.

Danske Bank’s economist Michael Grahn said the report indicates industry is “doing very well” based on net exports, while final demand is “not as weak as suggested by the GDP overall print”. BLOOMBERG