Sweden Slips into Technical Recession as GDP Contracts Again

According to the latest preliminary data, the Swedish economy has entered a technical recession. In the third quarter, the gross domestic product (GDP) contracted by 0.1% compared to the second quarter. This decline follows a contraction in the second quarter, indicating that the economy has experienced negative growth for two consecutive quarters, which is the technical definition of a recession. On an annual basis, GDP recorded a slight decrease of 0.1%.

The figures released today surprised analysts, who had anticipated a growth of 0.4% from the second quarter to the third quarter and an increase of 0.7% compared to the same quarter last year. The statistics office noted that these figures may be revised when final data is published.

In September, GDP showed a marginal growth of 0.1% compared to the same month last year but declined by 0.4% compared to August. The statistics office indicated that the negative growth in the third quarter was partly due to weak performance in July and that the data for September contributed to an overall contraction compared to the second quarter.

Sweden's economic performance has been stagnant over the past year, prompting the central bank, Riksbank, to forecast interest rate cuts in its September meeting. Riksbank anticipates that it may lower the policy rate in the remaining two meetings of the year, potentially by half a percentage point, and may make further cuts once or twice in the first half of 2025.

In a note, Swedbank addressed the stagnant state of the Swedish economy and stated that the recent data could increase the likelihood of a larger interest rate cut in November. The bank maintains its forecast of a 50 basis point reduction in Riksbank's upcoming policy meeting.