Sweden’s economy had its biggest contraction since the pandemic in the second quarter, reviving prospects of a hard landing.
Gross domestic product, adjusted for seasonal swings, dropped 1.5% from the previous three-month period — the steepest decline since the second quarter of 2020, according to data from Statistics Sweden on Friday. The contraction followed an expansion of 0.6% at the start of the year and exceeded the decline of 0.5% forecast by economists and the Riksbank.
The data is likely to renew gloomy predictions about the largest Nordic economy, which has been pegged as one of the worst performers in the European Union this year by institutions such as the European Commission. Along with some recent strengthening of the weak krona, it may cool pressure on the Swedish policymakers to further tighten monetary policy.
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Prospects for Sweden’s economy have recently looked dire after a yearlong slump in its housing market spilled over into the commercial real estate sector, where a number of landlords are struggling to refinance maturing debt after years of leveraged growth.
Earlier this month, an indicator of Sweden’s residential construction declined to the lowest level in almost nine years, signaling that the decline in home values is weighing on building activity. The pace of borrowing by Swedish households has also slowed to a record low as rising credit costs weigh on loan demand.
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Still, the country’s labor market continues to hold up, which could boost disposable incomes and domestic demand, improving the economy’s prospects.
The central bank sees the economy shrinking through the end of this year, for a calendar-adjusted contraction of 0.2% that would be followed by stagnant output next year. That compares with a median estimate of a 0.3% decline this year and 0.7% growth in 2024 by economists in a Bloomberg poll published last week.
--With assistance from Mark Evans and Joel Rinneby.