UBS Economics-European Economic Comment _Sweden Back to growth in Q2_ Fis...-117519411

ab29 August 2025Global ResearchEuropean Economic CommentSweden: Back to growth in Q2 Swedish economy expands 0.5% q/q in Q2 2025Swedish final GDP growth for Q2 came in at 0.5% q/q (1.4% y/y), a significant upward revision from the flash estimate of 0.1% q/q. Nevertheless, the print is below our initial Q2 forecast of 0.8% q/q as well as the Riksbank's projection of 0.9% q/q. It follows a 0.2% q/q GDP contraction in Q1. The details are mixed. The unequivocally positive is that closely watched private consumption expanded at a solid 0.4% q/q, contributing 0.2pp to GDP growth. The press release also notes an encouraging increase in fixed investment (GDP contribution: 0.4pp), albeit partly due to defence purchases. Exports rose despite tariffs and payback from Q1 front-loading. On the downside, the largest growth contribution (1.1pp) came from volatile inventories, and net exports were a large drag (-1.3pp) due to high imports. Government consumption grew only slightly and did not contribute noticeably to GDP (0.0pp). On the production side, activity was solid in services and stagnated in goods production. As a result of the weaker than expected Q2 developments, we mechanically revise down our annual growth forecast for 2025 by 0.2pp to 1.2%; the forecast for 2026 remains unchanged at 2.1%. Recovery remains sluggishOverall, the data defied concerns about a very bad outcome of weak household consumption, but beyond that, we do not see it as outright positive. It disappointed our and the Riksbank's expectations going into the quarter. Moreover, downward revisions to 2024 put GDP on a lower trajectory. The Swedish economy at the end of Q2 was thus in a weaker position (0.6% below forecast) than what the Riksbank thought it would be when it cut the policy rate to 2% in June and kept a bias for more easing. Leading indicators for Q3 have so far continued to improve across sectors; economic sentiment in the Economic Tendency Survey averages 0.7 points above Q2 (but is still 0.8 below the levels from Q1, before the tariff shock). This recovery is encouraging, but also widely expected. The fulfilment of these expectations is not necessarily an incremental positive. Moreover, we concluded in a deep-dive that Swedish consumer sentiment is fragile, meaning consumption remains vulnerable to renewed shocks, which are not entirely unlikely in light of the volatile global environment. More fiscal support coming in 2026 A growth-positive recent development is that the government yesterday announced plans for fiscal measures worth 80 bn SEK (1.2% of GDP), including tax cuts, in its autumn budget bill. The size of the planned expenditure surpasses expectations and might be linked to the fact that the autumn budget is the last major budget before the 2026 general election. No details are yet available on how much of the program will be unfunded (i.e. outright stimulus) and to which measures it will be dedicated, so it is too early to fully assess the growth and infl