- Sweden’s GDP shrank 0.2% in Q1 2025, below analysts’ forecasts.
- Household consumption and construction investment declined.
- The data strengthens the case for a central bank interest rate cut.
Sweden’s economy unexpectedly contracted in the first quarter of 2025, with GDP shrinking by 0.2% compared to the previous quarter. The revision down from flat growth surprised analysts, who had expected a mild 0.1% expansion.
The data arrives as the Riksbank maintains its policy rate at 2.25%, cautiously watching inflation trends. Officials have hinted that weak growth could justify a rate cut if inflation remains on a downward trajectory.
Weak Q1 Data Puts Sweden’s Economy on Fragile Ground
Sweden‘s first-quarter GDP figures reflect deeper economic fragility than initially believed. A 0.2% contraction marks a clear reversal from the flat growth earlier reported. The annual growth rate of 0.9% also underwhelmed, revealing that underlying momentum is softer than expected.
Domestic demand is proving to be a weak spot. Household consumption declined, and business investment in building and construction fell—both indicators of cooling confidence and spending. In contrast, exports offered some relief, helping prevent a steeper overall decline.
This downturn comes as the Swedish government revises its economic projections downward. Growth for 2025 is now expected at 1.8%, but officials acknowledge that worsening trade tensions, particularly with the U.S., could lead to even weaker outcomes.
The Riksbank faces a pivotal decision. With inflation easing and growth faltering, the central bank may be forced to lower interest rates in the coming months. A rate cut could stimulate demand, but policymakers must balance it against inflation risks and global economic uncertainty.
Sweden’s Q1 contraction highlights the fragility of its recovery and signals a potential shift in monetary policy as global headwinds and domestic demand weaknesses intensify.
“When America sneezes, the world catches a cold.”
This well-known saying underscores how global trade tensions, particularly those involving the U.S., are reverberating through smaller, export-driven economies like Sweden’s.
