Sweden’s economy contracted by the most in six quarters, as high borrowing costs continued to weigh on spending and investment in sectors such as homebuilding.

In the three months through June, gross domestic product (GDP) declined by 0.8% quarter-on-quarter, according to preliminary data published by Statistics Sweden on Monday. The median forecast in a Bloomberg survey was for GDP to be unchanged from the previous three months. The drop followed a stronger-than-forecast expansion of 0.7% in the first quarter, and was the biggest since the last quarter of 2022.

While the statistics agency doesn’t provide details of what factors influenced growth in the quarter, retail sales data for June, also published on Monday, indicate that household consumption declined from the first quarter.

Sweden’s central bank began lowering its benchmark rate in May, as one of the first in the rich world since the Covid-19 pandemic. Easing is expected to resume at a faster pace in the second half, as officials have indicated that they could trim borrowing costs by as much as 75 basis points before year end. 

“There are few domestic reasons for the Riksbank to keep the foot on the brake,” Torbjorn Isaksson, the chief analyst of Nordea Bank Abp, said in a comment on the GDP indicator. 

He expects the Riksbank to reduce borrowing costs at its meeting next month, followed by three more cuts that would take the benchmark rate to 2.75% by year end. That would provide much needed relief to consumers who have cut back on spending as well as to construction companies that almost stopped building homes as demand weakened and costs surged. 

Following cautious signs of a recovery, an indicator of housing starts from data provider Byggfakta weakened again in recent months, showing that the nascent recovery in residential construction remains fragile. 

  - Bloomberg