Sweden’s economy shrinks much more than expected on exports

Sweden’s economy shrank far more than anticipated in August, driven by a slump in exports, raising concerns the recovery of the largest Nordic economy may be cut short.

Gross domestic product contracted 3.8% in August, the biggest fall since the monthly indicator was launched in February, according to a flash estimate from Statistics Sweden. Economists surveyed by Bloomberg predicted a 0.5% decline.

The Swedish krona extended its decline to trade 0.5% weaker against the euro after the data, which may vindicate the central bank view that it’s still too soon to dial-back the pandemic-era stimulus. The Riksbank has resisted the temptation to signal when it would raise borrowing costs above zero, defying a hawkish turn among major central banks. 

“Today’s reading is obviously not in favour of an upwards move of the rate path,” DNB economist Oddmund Berg said in a research report. He said the Riksbank’s projection for 2.3% rise in third-quarter GDP now looks “a bit too optimistic.” Still, “the overall outlook for the Swedish economy is good,” he added.

Sweden’s economy, which regained its pre-pandemic size faster than most industrialized nations, is being increasingly hit by supply-chain bottlenecks. The trade deficit widened last month to highest level in five years, with exports falling to the lowest level since January.