Sweden Economic Forecast

According to a preliminary estimate, the Swedish economy expanded 0.2% quarter on quarter in Q1 (Q4: -0.4% s.a. qoq), thus avoiding a recession. Looking at the monthly data, Q1’s upturn was chiefly due to the economy’s robust performance in January, when it grew by 1.6% month on month thanks to rebounds in exports and household spending. This more than offset declines in February and March. In Q2, the economy is likely heading towards a contraction. In April, the manufacturing PMI revealed that conditions deteriorated sharply again, while interest rates rose further, likely hurting credit and dampening business sentiment. On the other hand, both headline and core inflation eased in April, while the unemployment rate fell to a four-month low, hinting that household consumption could have been robust so far in the quarter.

Consumer price inflation with a fixed interest rate (CPIF) eased to an 11-month low of 7.6% in April (March: 8.0%). Core inflation cooled to 8.4%—surprising the Riksbank on the downside. Tighter monetary policy and declining activity will further dampen inflation in 2023, although CPIF will exceed the Riksbank’s 2.0% target until H2 2024. Currency weakness is a risk.