GDP records sharpest contraction in a year in Q2

GDP reading: A second national accounts release showed that the Swedish economy contracted 0.3% on a seasonally adjusted quarter-on-quarter basis in Q2. The result came in above the preliminary estimate of a 0.8% sequential decline, but below the upwardly revised 0.8% expansion seen in the first quarter and marked a one-year low. On a seasonally adjusted annual basis, economic growth gained momentum, accelerating to 0.6% in Q2, following the previous quarter's 0.5% growth.

Drivers: The quarterly downturn was largely due to a fall in inventories, which detracted 0.6 percentage points from the reading—they tend to be volatile and are therefore not necessarily representative of the underlying health of the economy. Looking at other expenditure components, on the domestic front, fixed investment contracted 1.7% in Q2 (Q1: +0.2% s.a. qoq), marking the worst result since Q1 2022. Additionally, public spending growth ebbed to 0.1% in Q2 (Q1: +0.3% s.a. qoq). More positively, private consumption fell at a milder pace of 0.2% in the second quarter, above the first quarter's 0.5% contraction. Turning to the external sector, exports of goods and services rebounded and increased 1.0% on a seasonally adjusted quarterly basis in the second quarter, contrasting the first quarter's 0.1% contraction. Conversely, imports of goods and services deteriorated, contracting 0.6% in Q2 (Q1: +0.6% s.a. qoq). As a result, net trade contributed positively to the overall GDP reading, adding 0.9 percentage points.

GDP outlook: Our panelists expect the economy to rebound in the third quarter, with GDP expanding modestly in sequential terms in Q3 and posting a similarly sized increase in Q4. There should be a continued recovery in purchasing power, which has been ongoing since Q3 2023, when annual pay gains outpaced inflation for the first time in over two years. Moreover, the trickling through to the real economy of the Riksbank’s loosening cycle will add further impetus, largely by lowering variable-rate mortgage payments. The strength of key export markets, like Germany, is a factor to watch.

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