Sweden falls back into recession

STOCKHOLM March 1 - Sweden unexpectedly fell back into recession in the fourth quarter, figures showed, tracking a growth blip suffered by several European economies and casting further doubt on the durability of the continent’s recovery.

Gross domestic product contracted 0.6 per cent in the fourth quarter from the third compared with expectations for growth of 0.3 per cent, statistics office data showed on Monday. The third-quarter figure was revised to a 0.1 per cent quarterly decline from an original 0.2 per cent gain.

”All of a sudden Sweden went from being best in test to worst in class,” said Henrik Mitelman, chief strategist at SEB.

”But I wouldn’t be too alarmed by today’s GDP report, because most indicators show we’re moving toward growth.

”What we’re witnessing right now is a pretty lacklustre trade environment around Europe.”

Inside the eurozone, German economic growth unexpectedly halted in the fourth quarter while Italy went into reverse and Spain stayed in recession, according to figures released last month.

The Swedish crown dropped to 9.77 a euro at in early afternoon from 9.707 before the number.

Sweden’s central bank said last month it expected to raise rates from an ultra-low 0.25 per cent in the summer or early autumn, sooner than laid out in a previous timetable.

The Riksbank had cited an improving economic picture as the rationale for tweaking its rate path, and many analysts have taken a bullish view of the recovery based on upbeat retail sales and improving consumer sentiment.

Analysts were divided over the GDP data, with some saying it would make the Riksbank more cautious about raising interest rates, while others said it made no real difference to Sweden’s economic outlook.

”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.

However, Swedbank economist Knut Hallberg said the data was more likely to reinforce the cautious view on recovery taken so far by the Riksbank.

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

Nordea’s Rostrom said he had expected a small rise in GDP in the fourth quarter.

”It was mainly private consumption and inventories which did not help the figure in the way we had hoped. Net exports were not much different from expectations.”

The downbeat GDP figures were somewhat offset by other data on Monday.

Sweden’s seasonally adjusted purchasing managers’ index fell marginally to 61.5 points in February from 61.7 points in the previous month, data compilers Silf and Swedbank said.

Analysts said the figure remained strong and pointed to robust growth in the current quarter and in the months ahead.

(Financial Times / FT.com / Europe)