Swedish economy now larger than pre-pandemic, economists say

Sweden’s economy was hit less hard than elsewhere in the pandemic due to lighter Covid restrictions

Covid restrictions were not as strict in Sweden compared to other European countries (AFP via Getty Images)

Sweden’s economy looks to have recovered all of the losses wrought by the Covid-19 pandemic, economists said, after preliminary figures released on Thursday showed the country was at the forefront of the economic rebound.

While its economy shrank 2.8 per cent in 2020 when the pandemic first hit, Sweden was not hit as hard as many other countries thanks in part to less onerous Covid-19 rules which allowed most businesses to stay open.

Now, with a vaccine rollout accelerating and more restrictions being lifted, gross domestic product expanded by 0.9 per cent in the second quarter from the previous period, a preliminary estimate from the Statistics Office showed. A Reuters poll had forecast quarterly growth of 0.7 per cent.

Against the second quarter of last year, GDP was 10 per cent higher.

This meant the economy was now bigger than its pre-pandemic size, economists said.

“About 0.6 per cent up [from before pandemic] which puts Sweden at the front of the pack in European terms,” David Oxley, an economist at Capital Economics, told Reuters.

In June, the government had said the economy would recover faster than previously expected, with the finance ministry revising its growth forecast upwards to 4.7 per cent for 2021.

Despite a strong start to 2021 there have been bumps to economic recovery due to supply-side bottlenecks and shortages.

Retail sales rose 2.3 per cent in May from April but fell 0.3 per cent in June from May, while unemployment rose to 10.3 per cent in June, the statistics office said.

GDP expanded 2.5 per cent in June against the previous month, however. A sentiment indicator from the National Institute of Economic Research (NIER) showed increased confidence in the economy, particularly in manufacturing which reached an all-time high.

“Indicators point to robust growth for the coming quarters and developments are if anything stronger than our GDP forecast (4.5 per cent),” Nordea economist Torbjorn Isaksson said in a note.

Mr Oxley added in a separate note that interest rate hikes were still years away but that policymakers might allow, “the balance sheet to shrink before the end of next year sooner than they have hinted at so far.”

Sweden’s Riksbank, like central bank’s elsewhere, has been buying assets in order to support the economy during the coronavirus pandemic.

Reuters