Sweden’s economy was stagnant last quarter, as rising borrowing costs and growing unemployment hurt spending in the Nordic region’s largest country.
Gross domestic product, adjusted for seasonal swings, was unchanged in the third quarter from the previous three-month period, according to preliminary data published by Statistics Sweden on Monday. The development was weaker than expected by economists, who had penciled in growth of 0.3%, following a slump in the second quarter.
The data comes after Sweden’s economy had appeared more resilient than foreseen amid elevated inflation and rising borrowing costs. Still, the Nordic country is set to experience a deeper contraction than most European countries, as a high prevalence of variable interest rates make households — some of the world’s most debt burdened — sensitive to central bank tightening.
The Riksbank has raised its key rate to 4% from zero since April last year in its efforts to tame stubbornly high underlying inflation that has been further compounded by a depreciation of the krona, which boosts imported price growth.
While the preliminary GDP estimate is scant on detail, it will provide an important data point for the Riksbank as it decides whether to take the benchmark rate one step higher at a meeting on Nov. 22. Many economists believe that policymakers will feel compelled to respond to inflation, as well as to the weakness of the krona, by hiking to 4.25%.
“The Riksbank will hike rates in November to support the weak krona,” said Torbjorn Isaksson, chief analyst at Nordea Bank Abp, adding that more tightening isn’t necessary when considering the economy with unemployment now increasing.
The krona weakened as much as 0.2% to 11.7968 per euro at 9:33 a.m. in Stockholm.
The statistics agency will report more details on third-quarter GDP on Nov. 29.
--With assistance from Mark Evans and Joshua Robinson.
(Updates with analyst comment, krona move from sixth paragraph)
