The Swedish economy is facing a mild recession as its GDP dropped by 0.8% in the second quarter of the year compared to the previous three months, according to Statistics Sweden. The decline in the country’s largest economy is attributed to reduced exports of goods and a decrease in inventories.
While the contraction was less severe than the predicted 1.3% decline, experts warned that the Swedish export motor is in trouble. Michael Grahn, chief economist at Danske Bank, expressed concern about the state of Sweden’s exports.
The Swedish economy has been impacted by stubbornly high inflation since last year, leading to the country’s central bank increasing interest rates. As a result, the cost of goods and loans has risen, prompting households to reduce their spending.
Jessica Engdahl, head of the section at Statistics Sweden’s National Accounts Department, described the second quarter of 2023 as generally weak, with declines observed in several key components of the GDP.
One of the determining factors for the depth of the contraction will be household consumption expenditure, according to SEB, Sweden’s largest bank. So far, household consumption has decreased by 0.2%, primarily due to reduced spending on housing, recreation, and culture. Real disposable income also dropped by 3% compared to the second quarter of 2022.
SEB warned that Sweden is likely to continue to underperform compared to other countries, signaling a troubled economic outlook. Economists from Handelsbanken share this view, predicting that Sweden is heading for a mild recession and that GDP will continue to decline in the second half of 2023.
The current economic challenges for Sweden highlight the need for policies aimed at supporting exports and boosting household consumption. As the country navigates this period of uncertainty, it will be crucial for policymakers to address inflation and create an environment conducive to increased spending.
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