Sweden’s Surprise GDP Contraction Dents Full-Year Growth Outlook

(Bloomberg) -- The Swedish economy unexpectedly shrank for a second straight month in February, raising doubts about whether the largest Nordic economy can brush off the effect of rising energy costs and Russia's invasion of Ukraine.

Gross domestic product contracted by 0.8% compared with the previous month, following a revised 0.5% decline in January, according to a flash estimate from Statistics Sweden on Wednesday. The median estimate in a Bloomberg survey of six economists was for a 0.5% increase.

The data shows consumers and businesses were already hit by surging inflation before the full-scale invasion of Ukraine, even as forecasters have said in past weeks that the Swedish economy will largely weather the fallout from the war and high energy prices.

“The surprisingly low reading appears to follow mostly from weak services production and construction, but household consumption disappointed too,” Svenska Handelsbanken AB's analyst Johan Lof wrote in a note to clients. “This implies GDP is already trending below our interim forecast, released March 17.”

Handelsbanken cut its GDP forecast for Sweden to 3.0% last month, from 3.6%. It compares with the finance ministry's forecast of 3.1% and NIER research institute's projection of 3.3%, both published last week.

The latest figures may also make the balancing act more difficult for Riksbank's officials, who have signaled abandoning their stance as one of the most dovish monetary authorities in the developed world to address the price surge.

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Separate releases from the statistics agency showed that household consumption, industry orders and private sector production all declined in February from the first month of the year.