Sweden: Economy contracts in Q3 on weak household consumption and changes in inventories
According to data released by Statistics Sweden (SCB) on 29 November, the economy shrank 0.2% in seasonally adjusted terms in the third quarter over the second quarter, contrasting Q2’s revised 0.5% increase (previously reported: +0.8% quarter-on-quarter) and confounding market expectations of a 0.3% uptick. This marks the first quarterly contraction since 2013 and came amid a notable slowdown in the European Union as a whole. However, several temporary factors depressed the third quarter reading, and the underlying economic picture is still fairly positive.
The third quarter’s reading was partly driven by a marked fall in household consumption (Q3: -1.0% qoq; Q2: +0.7% qoq), potentially on higher inflation dampening purchasing power. This fits with disappointing retail sales figures during the quarter. However, the decline was likely exaggerated by lower car sales, following changes to the vehicle tax which took effect on 1 July and led to a front-loading of vehicle purchases in Q2. Moreover, crucially, changes in inventories drove the Q3 headline GDP figure down by 0.4 percentage points. In contrast, fixed capital formation expanded 0.8% (Q2: -0.9% qoq) amid low interest rates, high capacity utilization and solid business confidence. Government consumption, meanwhile, was flat (Q2: +0.5% qoq).
The external sector strengthened in Q3, with exports up 0.3% (Q2: +0.2% qoq) and imports declining 0.6% (Q2: +0.3% qoq). As a result, the external sector’s net contribution to growth went from minus 0.1 percentage points in Q2 to 0.0 percentage points in Q3.