(Bloomberg) -- Sweden’s economy may have contracted last quarter for the first time in a year, according to a flash indicator, as high borrowing costs weigh on spending and investment.
If the flash estimate — often subject to large revisions — holds, it will be the biggest contraction since the last quarter of 2022.
In the three months through June, gross domestic product declined by 0.8% on quarter, weighed down by weak data for April, Statistics Sweden said on Monday, without specifying. The median forecast in a Bloomberg survey was for GDP to be unchanged. That followed a stronger-than-forecast expansion of 0.7% in the first quarter.
The data indicates that an initial interest-rate cut by the country’s central bank is not enough to spark an expected recovery in the largest Nordic nation.
Handelsbanken economist Anders Bergvall said the flash estimate should be taken “with a pinch of salt,” while “the underlying trend is a continued stagnation in the first half of the year due to weak domestic demand.”
However, he noted, there are signs that growth picked up toward the end of the quarter, with an 0.9% gain indicated for June, at the same time as “sentiment indicators imply that growth is recovering.”
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.
“There are few domestic reasons for the Riksbank to keep the foot on the brake,” Torbjorn Isaksson, chief analyst at Nordea Bank Abp said in a comment on the GDP indicator.
He expects the Riksbank to reduce borrowing costs at its meeting next month, followed by three more cuts that would take the benchmark rate to 2.75% by 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.
--With assistance from Mark Evans.
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