Sweden hit by record economic fall, despite its light-touch lockdown
Sweden’s light-touch lockdown failed to spare its economy from a historic plunge in GDP as Covid-19 triggered a collapse in exports and spending.
Output contracted by a record 8.6pc in the second quarter compared with the previous three months, but the Nordic nation suffered a much smaller hit than many European economies. Despite some of the most relaxed Covid-19 restrictions in the world, its exporters were hit by tumbling global demand and household spending slumped as the virus struck.
“The economic crunch over the first half of the year is in a different league entirely to the horror shows elsewhere in Europe,” said David Oxley at Capital Economics.
It is “still likely to be among the best of a bad bunch this year”, he said, pointing to signs of a rebound at the start of the third quarter. While the hit to GDP was lower than the 12pc slump in the eurozone in the second quarter, Sweden’s Nordic neighbours have managed to avoid both a health and economic crisis.
The figures come amid declining support in Sweden for the strategy not to use a mandatory strict lockdown to contain the virus. The controversial approach relied on voluntary social distancing, bans on large gatherings, care home restrictions and table service in bars and restaurants.
Sweden has recorded almost 6,000 Covid deaths compared with about 250 in Norway and just over 600 in Denmark, giving it one of the world’s highest death rates. Stefan Löfven, the prime minister, has launched an inquiry into the handling of the pandemic. “We have thousands of dead. Now the question is how Sweden should change, not if,” he said when announcing the inquiry in late June.
Torbjörn Isaksson, chief analyst at Nordea Markets, warned that it was “too early to evaluate how different strategies to deal with Covid-19 have affected the economies”.
“Swedish GDP contracted much less in the first half of the year than for instance in the euro area, while some of our Nordic neighbours probably fared better than Sweden,” he said.
The Organisation for Economic Co-operation and Development has predicted Sweden will suffer a 6.7pc plunge in GDP this year if there is only one significant Covid wave. Norway and Denmark expect a smaller 6pc and 5.8pc hit while also containing the virus. There is growing evidence that stemming the health crisis is the key to strong recoveries, with life returning to relative normality in countries that successfully stemmed outbreaks.
Households could slam the brakes on consumption if they fear the virus is surging. Worried consumers in the US, for example, have curbed spending as cases surge, while some states have been forced to roll back reopenings. The same could happen in Europe if fears of a second wave on the Continent are realised.
For now, however, the recovery in Sweden is taking shape. Neal Kilbane, at Oxford Economics, said the Swedish economy had bottomed out and was starting to grow.
“Private sector production ended four consecutive months of decline by expanding by 0.7pc month-on-month in June, while July’s composite PMI increased above 50 and into expansionary territory for the first time since February,” he said.
Sweden will avoid the collapse in output seen in much of Europe, but its Nordic neighbours have shown that containing the virus does not necessarily trigger economic collapse. Whether trying to spare the economy was worth allowing the virus to rip through the country is a question Sweden is still trying to answer.