Sweden Economic Forecast

Q2’s sequential economic downturn was softer than initially estimated, a second national accounts release showed. The GDP deterioration was chiefly due to the external sector, as growth in imports contrasted a drop in exports. On the domestic front, fixed investment flatlined quarter on quarter following Q1’s decline, while private consumption fell at a milder pace than in Q1; increasing employment, softer price pressures and continued nominal wage growth likely alleviated pressure on consumers’ budgets and prevented a sharper spending contraction. Meanwhile, the economy is expected to be entering a technical recession, with GDP dropping—albeit by less than in Q2—in Q3. That said, available data paints a more optimistic picture: GDP grew 0.5% month on month in July, and private spending returned to growth in the same month as inflation receded further.

Consumer price inflation with a fixed interest rate (CPIF) fell to an over one-year low of 4.7% in August (July: 6.4%). In the remaining months of 2023, CPIF is expected to ease slightly from current levels amid tighter monetary policy and sluggish activity. This year, CPIF will soften from 2022 but still be more than triple the Riksbank’s 2.0% target.