Swedish economy in recession as Q3 GDP shrinks more than expected

By Johan Ahlander

STOCKHOLM (Reuters) – Sweden’s economy entered recession in the third quarter, which contracted 0.3% from the previous one, as higher interest rates hit consumer spending and investments.

“GDP decreased for the second consecutive quarter,” the statistics office said in a statement.

Figures from the statistics office showed GDP contracted by 1.4% compared to the same quarter last year, more than a flash estimate that had indicated GDP would shrink 1.2%. The flash estimate had indicated flat growth compared to the previous quarter.

Two consecutive quarters of negative growth is the widely adopted definition of a recession.

In its statement, the statistics office said the general downturn was “counteracted in part by strong exports of services”, but household expenditure had been negative for a fifth consecutive quarter.

The Riksbank, Sweden’s central bank, has hiked rates in rapid succession to 4% from zero 18 months ago, although it held rates steady at the latest monetary policy decision this month.

The rates have hit households hard as a majority of Swedish mortgage-holders have floating interest rates, meaning rate changes immediately reduce their spending power.

Housing starts have also collapsed as construction companies struggle with higher funding costs.

The Riksbank has said it expects negative growth of 0.7% this year and a contraction of 0.2% in 2024.

“The weak growth reduces inflationary pressures and strengthens our view that the Riksbank is done hiking rates,” Nordea said in a note.

Household consumption fell by 0.6% in the third quarter compared to the second, with reduced expenditure in most categories. Changes in inventories contributed negatively to GDP by 1.4 percentage points, mainly because of decreased industrial inventories.

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