Economy unexpectedly contracts in Q3

Economy disappoints markets again: The Swedish economy’s downturn appeared to bottom out in the third quarter: GDP contracted at a softer 0.1% in seasonally adjusted quarter-on-quarter terms, according to preliminary figures from Statistics Sweden. The reading was an improvement from Q2’s upwardly revised 0.4% sequential decline. However, it fell notably short of market expectations for a rebound. Meanwhile, in annual terms, the economy flatlined, deteriorating from Q2’s upwardly revised 0.5% year-on-year increase.

Domestic demand recovers: While details of the release are still pending, the quarterly improvement likely reflected healthier consumer spending. Monthly data revealed that private consumption rebounded 1.0% in sequential terms in Q3, swinging from a 1.0% contraction in Q2. Higher real wages in the quarter likely supported household finances, as did the Riksbank’s monetary policy easing cycle; the country has a large share of variable mortgages. That said, the external sector appeared to have prevented a recovery in GDP, as goods exports swung into contraction in Q3. A more comprehensive breakdown of national accounts data for Q3 will be released on 29 November.

Recovery to take hold ahead: Our panelists are optimistic regarding the outlook, expecting GDP to rebound in sequential terms in Q4. Private spending should be at the helm of the improvement, fueled by robust real wage growth and laxer borrowing conditions; the latter should also aid investment at the tail end of 2024. Our panel expects the Swedish economy to then build a healthy head of steam in 2025.

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