Sweden in recession

The standard definition of a recession is two quarters of declining GDP, gross domestic product. By that measure, Sweden is in a recession. Sweden’s GDP in the third quarter of 2023 was 0.3% lower than the previous quarter, which in turn was 0.8% lower than the quarter before. Sweden’s GDP (bruttonationalprodukten) is expected to sink 0.4% even next year, according to Swedbank.

It’s complicated, but as a general rule there is a correlation between GDP and inflation. Sweden’s central bank has been working to bring down inflation all year. To do that, Sweden’s spending needed to come down. Raising interest rates – making money more expensive by making loans more expensive – was the chosen method. It looks to have succeeded.

But not without pain. Raising rates makes business expansion difficult and can even cause contraction, as the new GDP numbers indicate. It is largely the same for governments, who find they too must contract despite an often increasing need for social services. A poor economic outlook means that unemployment rises, as it has done in Sweden for the last several months. Economists note that the Swedish central bank is likely to even raise interest rates again – just to make sure the anti-spending message gets across.

In good news, however, inflation is expected to hover around a more normal 2% by the end of next year. In conjunction with that happy trend, even interest rates will come down. The consensus is that with a more normal interest rate, business spending can pick up, leading to new hires and a better GDP. There are certain to be bumps in the road, but a recession won’t last forever.