Sweden GDP Q4 2020

Sweden

Sweden: GDP contracts mildly in Q4; records worst annual contraction since 2009

February 26, 2021

GDP contracted 0.2% on a seasonally-adjusted quarter-on-quarter basis in the fourth quarter, contrasting the 6.4% expansion recorded in the third quarter and falling notably from the 0.5% growth estimated in the preliminary Q4 release. Meanwhile, on an annual basis, economic activity dropped 2.2% in Q4, matching the previous quarter's contraction. As such, Q4’s decline means GDP fell 2.8% in 2020 as a whole, which compares very favorably with most major European economies.

The quarter-on-quarter downturn reflected a broad-based weakening across both the domestic and external spheres of the economy. Domestically, private consumption fell 0.8% in the fourth quarter, which contrasted the third quarter's 6.3% expansion. Moreover, government consumption flatlined in Q4, thus slowing from Q3’s 1.9% rise, while fixed investment growth moderated to 0.1% in Q4 from the 2.5% increase recorded in the prior quarter.

On the external front, exports of goods and services increased 4.5% on a seasonally-adjusted quarterly basis in the fourth quarter, which was below the third quarter's 14.9% expansion. In addition, growth in imports of goods and services moderated to 3.0% in Q4 (Q3: +10.3% s.a. qoq). As such, the external sector contributed 0.8 percentage points to the overall reading, down from 2.7 percentage points in Q3.

Looking ahead, recent data indicates an improving albeit muted picture in the first quarter of the year. PMIs for January showed a continued improvement in the manufacturing and services sectors, while retail sales grew strongly amid improving consumer confidence. However, both exports and imports fell in the first month of the year—likely reflecting weakening demand dynamics both at home and abroad—while tighter restrictions amid slowly rising daily coronavirus infections bode ill for activity in the coming months.

Nevertheless, looking further ahead, Torbjörn Isaksson, chief analyst at Nordea, is fairly optimistic regarding the outlook, commenting:

“Near term, the recovery will slow due to the rising infection rates and the tighter restrictions in Sweden and abroad. But the slowdown in Sweden is expected to be mild. It will not lead to any persisting economic problems and thus not impede the future recovery. The situation is uncertain, and further restrictions affecting growth cannot be ruled out near term.”

Likewise, Andreas Wallström and Maija Kaartinen. analysts at Swedbank, see a robust recovery this year, stating:

“Indicators suggest that the economy has grown somewhat in the first quarter. […] However, lagging vaccinations and worries over a 3rd corona wave are expected to weigh on the near-term outlook. This puts downside risks to our forecast of a strong recovery in Q2 but given the resilience the overall economy has shown so far, we judge that our forecast of GDP growth at 3% for this year remains well in play.”

Nevertheless, looking further ahead, Torbjörn Isaksson, chief analyst at Nordea, is fairly optimistic regarding the outlook, commenting:

“Near term, the recovery will slow due to the rising infection rates and the tighter restrictions in Sweden and abroad. But the slowdown in Sweden is expected to be mild. It will not lead to any persisting economic problems and thus not impede the future recovery. The situation is uncertain, and further restrictions affecting growth cannot be ruled out near term.”

FocusEconomics Consensus Forecast panelists project GDP to grow 2.9% in 2021, which is up 0.1 percentage points from last month’s forecast, and 3.3% in 2022.


Author:, Economist

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Sweden GDP Q4  20 20 1

Note: Quarter-on-quarter changes of seasonally adjusted GDP and year-on-year variation in %.
Source: Statistics Sweden (SCB).


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