Tags: Sweden | Unexpectedly | Recession

Sweden Unexpectedly Slides Back Into Recession

Monday, 01 Mar 2010 10:17 AM

Sweden's economy unexpectedly slid back into recession in the fourth quarter, figures showed on Monday, sending the crown lower and raising questions about how soon interest rates will rise.

Gross domestic product contracted 0.6 percent in the fourth quarter from the third, against forecasts for a 0.3 percent increase.

The third-quarter GDP figure was revised to show a 0.1 percent quarterly decline from an original 0.2 percent gain, the statistics office said. This meant the economy fell back into recession, based on a widely held definition of the term.

Economists were divided over the implications of the numbers. Some said GDP often gets revised sharply and this did not change the overall economic picture. Others said this made central bank forecasts for a rate rise this summer look dangerous.

"This probably won't influence the Riksbank as they look at the picture ahead and we can see that there is going to be stronger growth," said Bengt Rostrom, economist at Nordea.

But for Knut Hallberg, economist at Swedbank, the numbers suggested caution was needed on the interest rate front.

"It was worse than expected, as I had feared. Industrial inventories contributed less than expected and net investment was down significantly."

"These figures are not a trigger for the Riksbank to raise rates," Hallberg said. "The recovery in Sweden is going to take time."

The central bank said last month that it expected to raise rates in the summer or early autumn, a slightly earlier timeframe than previous forecasts for an autumn tightening.

The Swedish crown dropped to 9.755 per euro from 9.707 before the numbers.

On a year-on-year basis, GDP was down 1.5 percent from a year earlier versus forecasts for a 0.1 percent fall.

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Sweden's economy unexpectedly slid back into recession in the fourth quarter, figures showed on Monday, sending the crown lower and raising questions about how soon interest rates will rise. Gross domestic product contracted 0.6 percent in the fourth quarter from the...
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