Swedish economy shrinks in first quarter, boosting case for interest rate cut

STOCKHOLM, May 30 (Reuters) - Sweden's economy contracted in the first quarter compared to the previous three months, government data showed on Friday, increasing the likelihood of an interest rate cut by the central bank over the coming months.

Global trade frictions had cast a pall over the economy and increased uncertainty about the outlook, the government said earlier this month, as it trimmed its forecast for GDP growth this year and next.

Gross domestic product shrank 0.2% in the three months to March 31 on a quarterly basis, final figures from the Statistics Office showed. Growth was 0.9% year-on-year from the same period in 2024.

Flash estimates had shown GDP unchanged in the first quarter compared to the previous quarter, while analysts had expected the quarterly figure to be revised up slightly to growth of 0.1%. Annual growth was 1.1%.

Household consumption and business investment in building and construction fell, while exports were a positive contributor to GDP.

Holding the policy rate unchanged at 2.25% on May 8, the Riksbank said lower growth this year could open the door to a cut, assuming that inflation continues to ease.

The government now expects growth of 1.8% in 2025 and 2.3% in 2026, though Finance Minister Elisabeth Svantesson suggested it could be even lower this year.

Eurozone growth was forecast at less than 1% in 2025 by the European Central Bank in March, though data released after then showed that the region's economy outperformed expectations in the first quarter.