Sweden was unable to escape its worst economic contraction ever despite adopting one of Europe’s softest approaches to the Covid-19 pandemic.
Gross domestic product fell 8.6% in the second quarter, more than economists had forecast. But while that’s a record slump, it’s less severe than the slumps seen elsewhere in Europe. Spain, France and Italy all shrank by double digits, and even Germany contracted 10%.
Unlike its neighbors, Sweden refrained from imposing a mandatory lockdown, relying instead on voluntary public health guidelines. The strategy has coincided with a considerably higher mortality rate than in the rest of the Nordic region, and fresh research suggests it may not have succeeded in sustaining consumer spending.
The government has said its approach was never about economic benefits but about enacting sustainable policies. Prime minister Stefan Lofven has also conceded more should have been done at the outset to test people and protect the elderly.
Plummeting export demand has also been blamed for a sharp rise in unemployment in the small and open Nordic economy, despite a massive spending package from the government.
Nordea economist Torbjorn Isaksson said “it is too early to evaluate how different strategies to deal with COVID-19 have effected the economies” and that it’s “difficult to estimate the strength of the recovery at this point.” Still the Riksbank’s forecast for a full year drop of 4.5% “seems reasonable” and the second-quarter estimate “doesn’t change much for the monetary policy outlook,” he said.
Statistics Sweden is scheduled to publish updated estimates on second quarter GDP on Aug. 28.