Sweden’s economy contracts in Q2 on high borrowing costs

Sweden’s economy contracted in the second quarter of 2024 for the first time in a year as high borrowing costs continued to pressure spending and investment, particularly in the homebuilding sector.

According to preliminary data from Statistics Sweden released Monday, gross domestic product (GDP) declined by 0.8 per cent from the previous quarter.

This contraction contrasts with a median forecast from a Bloomberg survey, which expected GDP to remain unchanged, and follows a stronger-than-expected 0.7 per cent expansion in the first quarter.

“The Swedish economy grew in June, but figures for the second quarter as a whole were weighed down by weak figures in April,” said Mattias Kain Wyatt, an economist at Statistics Sweden.

Sweden’s central bank, one of the first in the developed world to reduce rates post-pandemic, began lowering its benchmark rate in May.

The bank has indicated plans to cut borrowing costs by as much as 75 basis points before the end of the year, providing potential relief to consumers and construction companies struggling with surging costs and weakened demand.

However, recent data from Byggfakta indicates that housing starts have weakened, suggesting that the recovery in residential construction remains fragile.