- The biggest Nordic economy is hurting as consumers cut spending
- Riksbank is seen raising rates next week to counter inflation
Sweden’s economy unexpectedly contracted in the fourth quarter as weaker purchasing power erodes consumer spending in the biggest Nordic economy.
Gross domestic product shrank 0.6% in the three months through December from the previous quarter, on a seasonally adjusted basis, according to preliminary data from Statistics Sweden. Economists surveyed by Bloomberg had on average expected an expansion of 0.2%, while the Riksbank had forecast a contraction of 0.8% for the quarter.
Sweden’s economy has been projected to enter a recession this year as higher borrowing and living costs weigh on consumer spending. The country’s housing market is in one of the worst routs globally, reducing demand for new homes and hurting the construction industry.
“Supposedly, it is a slew of negative factors hitting the consumers that are now taking its toll,” said Michael Grahn, chief economist at Danske Bank A/S, noting that no details are provided in the flash estimate release.
The krona, the third biggest decliner over the past six months versus the dollar among the major currencies, shed 0.1% against the euro after the release, and the cross traded at 11.2222 as of 9:10 a.m. in Stockholm.
The weaker-than-expected data came as the economy shrank in December, at the same time as estimates for the two previous months showed that activity started to decline on the month already in October.
Economists said the figures will complicate the trade-off for the Riksbank, which is balancing between inflation at a three-decade high and a rapidly decelerating economy. Analysts are widely forecasting a half-point interest-rate hike next week. That’s after the central bank jacked up borrowing costs to 2.5% in a sequence of hikes since April, when the rate rad been at zero.
“Now the task becomes even more difficult for Erik Thedeen and the Riksbank: dare they raise by 0.5 percentage points next week?” asked Robert Bergqvist, senior economist at SEB AB, on Twitter.
Nordea Bank Abp’s economist Torbjorn Isaksson said the bank continues to expect increases of 50 basis points in February and 25 basis points in April.
“This could make the Riksbank think twice when hiking rates,” he said. “However, inflation is still far too high, the krona is weak and the European Central Bank is steaming ahead with rates hikes.”
Source: Bloomberg
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