(Bloomberg) -- Sweden’s output contracted less than indicated by an initial estimate in the second quarter as the Nordic country’s economy is set to see a recovery buoyed by interest-rate cuts and fiscal stimulus.
Gross domestic product shrank by 0.3% from the first three months of the year, according to seasonally adjusted data published by Statistics Sweden Thursday. While that was the weakest outcome in a year, it was still better than the agency’s previous estimate for a 0.8% contraction.
“The downturn in the economy was wide but offset by the foreign trade in goods, where exports increased and imports decreased,” Jessica Engdahl, head of National Accounts at Statistics Sweden, said in a statement.
What Bloomberg Economics Says...
“Sweden’s lackluster second-quarter GDP figure may be the last negative growth print for this year, but the overall performance will remain feeble. We maintain our expectation of a 0.8% expansion for the year overall – a subdued rate given past trends. The weak performance will support further rate cuts from the Riksbank.”
— Selva Bahar Baziki, economist. Read her full comment here
Despite the contraction, Sweden’s economy is on track to end almost three years of stagnation, helped by lower borrowing costs as well as more government spending. A declining pace of price increases has also provided relief to households, whose disposable income grew in real terms in the second quarter, for the first time since early 2022.
“Today’s outcome confirm that domestic demand remains weak, and we continue to expect that the Riksbank will cut the policy rate at each of its meetings for the rest of the year,” Swedbank AB analysts Pernilla Johansson and Maria Wallin Fredholm said. “Toward the end of the year, we expect the Swedish economy to start a recovery that will gather momentum in 2025 as economic policy will become less restrictive.”
The Riksbank last week reduced its benchmark rate to 3.5% from 3.75% and said it could cut three more times before the end of the year. At the same time, the government, which has made it a key priority to avoid policies that could fuel price increases, has said it plans to boost spending next year as inflation has fallen below the central bank’s 2% target.
The second-quarter contraction was driven by changes in inventories and subdued consumer spending, as households that are enduring interest rates at their highest in more than a decade restricted other expenses. While homeowners’ mortgage rates remain elevated, the impact of the Riksbank’s cuts should be relatively rapid as most have interest rates fixed on three-month periods.
--With assistance from Joel Rinneby.
(Adds details and economist comments from fourth paragraph)
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