Swedish economy bounces back in Q2, but slowdown ahead

Sweden's economy bounced back after a weak start to the year with gross domestic product expanding 1.4% in the second quarter compared to the previous three months, flash figures published by the Statistics Office on Thursday showed.

Sweden's economy bounced back after a weak start to the year with gross domestic product expanding 1.4% in the second quarter compared to the previous three months, flash figures published by the Statistics Office on Thursday showed. Compared to the second quarter the previous year, the economy grew by 4.2%. Analysts in a Reuters poll had forecast growth of 0.7% quarter-on-quarter.

The economy contracted a revised 0.4% in the first quarter. Nevertheless, the outlook is cloudy as Sweden, like many other countries, faces soaring inflation and higher interest rates that are expected to squeeze the economy.

Consumer and business sentiment is weakening and retail sales have slowed sharply, data on Thursday showed. Households were more gloomy in July than at any time since measurements started in 1996, the National Institute of Economic Research said. The central bank hiked the benchmark rate by a half-percentage point to 0.75% at the end of June. Its forecasts point to a similar hike in September and another in November.

Markets expect it to be even more aggressive as inflation continues to overshoot forecasts. "We expect the Riksbank to hike rate by 75bp in September and by 50bp in November, bringing the policy rate to 2.00% year-end," Nordea said in a note on Thursday.

Headline price increases hit 8.5% in June, the highest in more than 30 years. At its last meeting, the central bank cut its forecast for GDP growth this year to 1.8% from an earlier 2.8% and halved its expectations for 2023 to a growth of 0.7%.

The government expects the economy to expand by 1.9% this year and 1.1% in 2023. Sweden is not alone. Earlier this week, the International Monetary Fund cut its forecast for global growth to 3.2% for 2022 from its previous forecast of 3.6%. It also cut its outlook for 2023.

 

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