Sweden: GDP records largest contraction on record in Q2
August 28, 2020
GDP contracted a record 8.3% in the second quarter on a seasonally-adjusted quarter-on-quarter basis (Q1: +0.8% s.a. qoq), worsening markedly from the 0.2% expansion clocked in Q1, but above the 8.6% contraction estimated in the preliminary Q2 release.
The downturn was spearheaded by tumbling household consumption, as social distancing measures, restricted international travel and limits on public gatherings curtailed spending, despite the lack of a widespread lockdown as seen in other countries in the region. Private consumption fell 7.7% in the second quarter, well below the first quarter's 2.9% contraction. Public consumption dropped at the sharpest pace since Q4 1992, contracting 2.4% (Q1: +0.3% s.a. qoq) as municipal governments struggled to maintain pre-pandemic levels of activity. Meanwhile, fixed investment contracted 4.5% in Q2, marking the worst reading since Q1 2009 (Q1: -0.7% s.a. qoq) amid heightened uncertainty and plunging business confidence.
On the external front, exports of goods and services fell 18.2% on a seasonally-adjusted quarterly basis in the second quarter, which contrasted the first quarter's 4.0% expansion. The closing of international borders, disruption to global supply chains and impaired consumption in key export markets all dampened demand for Swedish exports. In addition, imports of goods and services dropped at a more pronounced pace of 12.9% in Q2 (Q1: -0.2% s.a. qoq), indicating a marked reduction in domestic demand. As such, the external sector subtracted 2.9 percentage points from the overall reading.
On an annual basis, GDP dropped 7.7% in Q2, contrasting the previous quarter's 0.7% expansion.
Looking ahead, recent data indicates a recovery is likely already underway: In July, retail sales surged, the unemployment rate ticked down and PMIs for both manufacturing and services indicated expansion in their respective sectors. However, a fragile international backdrop presents a key risk going forward, with particularly weak exports in July indicating that the recovery will be gradual and potentially uneven.
Author: Stephen Vogado, Economist