Swedish Economy Faces Recession Despite Stable Inflation and Growing Exports
Swedish economy faces recession with GDP decline in Q1 2025, but inflation stabilizes and exports grow.
Key Points
- • GDP declined by 0.2% in Q1 2025, signaling a recession.
- • Unemployment rate stands at 8.9% as of April 2025.
- • Inflation remains stable at 2.3% in May 2025, prompting rate cut considerations.
- • Exports grew by 1.8% in Q1 2025, offering a positive outlook.
As of June 9, 2025, the Swedish economy is grappling with a recession, reporting a GDP decline of 0.2% in the first quarter of 2025. This economic downturn, however, is contrasted by a modest year-over-year GDP increase of 0.9%. The decline in GDP has largely been driven by a substantial drop in private investments, which fell by 5.1%, and a dip in household consumption, despite a slight reduction in disposable income of 0.6% year-on-year.
Torbjörn Isaksson, chief analyst at Nordea, emphasized that the underwhelming GDP growth speaks to sluggish domestic demand and uncertain growth prospects, especially in light of ongoing trade conflicts and low consumer confidence. In April 2025, the unemployment rate climbed to 8.9%, with a seasonally adjusted figure of 8.5%. Although the unemployment figures are troubling, there are indications of stabilization, with Anders Bergvall of Handelsbanken noting that layoffs and hiring trends are returning to more normal levels. Nevertheless, ongoing shifts in U.S. trade policy could negatively influence job stability, leading to potential further increases in unemployment.
On a more positive note, Sweden’s inflation rate, measured by the KPIF, held steady at 2.3% in May 2025. This figure is slightly below the expectations of major banks which had anticipated a rate between 2.4% and 2.5%. Johan Löf from Handelsbanken pointed out that the stable inflation could prompt the Riksbank to consider lowering interest rates. Both Nordea and Handelsbanken expect a policy rate cut in June, likely reducing it to 2.0% as a response to the lackluster GDP performance and stable inflation rate.
Consumer sentiment, however, remains low as households view their economic situation pessimistically, a sentiment driven by concerns regarding inflation. The Konjunkturbarometern indicated that growth outlooks continue to be subdued. Despite these challenges, exports have emerged as a bright spot, with a 1.8% growth in the first quarter, which highlights Sweden’s dependence on external markets. Importantly, household consumption, which constitutes over 45% of GDP, has seen a decline of 0.2% during this quarter, reflecting cautious consumer spending as economic uncertainty looms.