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Financial News: Sweden Economy Unexpectedly Shrinks In Q2

Sweden Economy Unexpectedly Shrinks In Q2

07/30/2019 - 07:12:00 (RTTNews)

(RTTNews) - Sweden's economy contracted for the first time in three quarters during the three months to June, defying expectations for modest growth, preliminary data from Statistics Sweden showed on Tuesday.

The latest slowing in growth casts doubt on Riksbank's plans to hike interest rates this year.

Gross domestic product decreased a seasonally adjusted 0.1 percent from the previous quarter, when it grew 0.5 percent. Economists had expected 0.3 percent growth.

The latest contraction was the first since the third quarter of 2018, when GDP decreased at the same rate.

The GDP decline was mainly led by a 1.1 percent slump in gross fixed capital formation, a 0.3 percent fall in exports and a 0.5 percent drop in imports.

Household consumption grew 0.6 percent, while state spending decreased 0.1 percent. Changes in inventories deducted GDP by 0.1 percentage points.

On a year-on-year basis, GDP rose a working-day adjusted 1.4 percent in the second quarter following a 2.1 percent growth in the previous three months. Economists had forecast 1.9 percent expansion.

The pace of expansion was the weakest since the third quarter last year, when the economy grew at the same rate.

While holding the repo rate unchanged early July, the Riksbank reiterated that it plans to raise rates by the end of this year or early 2020.

The repo rate, currently at -0.25 percent, was raised last in December, which was the first such move since mid-2011.

The central bank raised the growth forecast for this year to 1.8 percent from 1.7 percent, but cut the outlook for next year to 1.6 percent from 1.9 percent.

In June, the National Institute of Economic Research said there are signs that the Swedish economy is in a slowdown phase and the weaker consumer confidence is set to damp household consumption in coming months, despite a strong labor market and stabilizing housing prices.

The think tank warned of possible significant negative consequences for the economy if the UK leaves the EU without a deal.

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