Swedish Economy Experiences Unexpected Contraction in Q1 2025
Sweden's economy unexpectedly contracted by 0.2% in Q1 2025, driven by declines in investments and consumption.
Key Points
- • GDP fell by 0.2% in Q1 2025 compared to the previous quarter.
- • Annual growth forecast revised down to 0.9% from 1.7%.
- • Fixed investments dropped by 3.8%, impacting overall economic performance.
- • Increased likelihood of interest rate cuts suggested by analysts due to weak economic data.
The Swedish economy faced an unexpected contraction of 0.2% in the first quarter of 2025, according to recent data from Statistics Sweden (SCB). This decline, noted as both year-on-year and compared to the previous quarter, has prompted a significant revision of growth forecasts, now projecting an annual growth rate of only 0.9%, down from earlier expectations of 1.7%.
The contraction in GDP is primarily attributed to a marked decrease in domestic investments, which fell by 3.8%, heavily influenced by reduced construction activities. Additionally, household consumption saw a slight decrease of 0.2%, which further contributed to the economic slowdown. Meanwhile, public consumption experienced a marginal uptick of 0.1%, and employment in the economy dropped by 0.1%. Interestingly, exports saw some growth at 1.8%, while imports increased by 0.3%, indicating that trade dynamics did not prevent the overall contraction.
Torbjörn Isaksson, chief analyst at Nordea, highlighted that these disappointing figures have raised the likelihood of an interest rate cut by Sweden's central bank, the Riksbank, although no immediate changes were expected at the upcoming policy meeting in June. Economists from other major financial institutions, including Handelsbanken and SEB, have also integrated potential rate cuts into their forecasts, with some, like Swedbank, predicting two cuts over the year as a response to ongoing economic challenges.
Commenting on the situation, Susanne Spector, chief economist at Danske Bank, noted that the economy has been characterized by fluctuations in recent years, suggesting, “It is quite similar to the development we have had in recent years, where there are slight ups and downs. We have begun to move in the right direction, but it is slow.” This sentiment reflects the ongoing struggle of the Swedish economy and the cautious optimism amid the current downturn.
As Sweden navigates these economic challenges, analysts will be closely monitoring consumer behavior, investment trends, and central bank policy decisions in the coming months to gauge potential recovery efforts and sustained growth.