Economy shrinks in the first quarter of 2026

Second release confirms Q1 contraction: A second release of national accounts confirmed that Sweden's GDP contracted 0.2% in seasonally adjusted quarter-on-quarter terms in Q1, following 0.8% growth in the prior quarter. Q1's reading was the weakest since Q1 2025. In calendar-adjusted year-on-year terms, the economy increased 1.9% in Q1, stable from the prior quarter's reading.

Declines in public spending and fixed investment drive slowdown: Compared to the previous period's data, figures in Q1 softened for government consumption (-2.1% on a seasonally adjusted quarter-on-quarter basis vs +2.7% in Q4) and fixed investment (-2.3% vs +4.5% in Q4). In contrast, readings strengthened for exports of goods and services (+2.2% vs -0.8% in Q4) and imports of goods and services (+2.5% vs +0.2% in Q4). Finally, the variation in private consumption was the same as in the prior quarter (+0.6% in Q1 and Q4). The economy shrank in part due to sharp swings in defense-related government spending, which weighed on both public consumption and fixed investment. Moreover, net trade edged slightly negative as imports grew marginally faster than exports. On the plus side, household consumption continued its steady recovery, supported by transport and housing spending.

Economy to return to growth ahead: After a weak start to 2026, sequential GDP growth is expected to rebound strongly in Q2 and reach a five-year high for the year as a whole. In the coming quarters, public spending will remain a key pillar, with defense-driven government investment set to remain robust. Household consumption will also likely accelerate this year from last as real disposable incomes strengthen on the back of pre-election expansionary fiscal policy and relatively low inflation, though cautious saving behavior may temper the pace. Potential U.S. tariffs on cars and trucks pose a risk to the external sector, while weaker momentum in key trading partners such as Germany and Norway and elevated global geopolitical tensions represent additional headwinds. The September parliamentary elections are also key to watch, as a potential shift to a red-green government could reorient fiscal priorities toward green industry and social spending, with implications for the investment outlook and relations with the EU.

Panelist insight: On the outlook for GDP growth in the coming quarters, EIU analysts said: “We still expect strong quarterly growth rates in the remainder of the year, in part driven by base effects from last year. However, there is a high risk that the global energy crisis will lead to higher inflation and lower growth expectations over the next few months.”

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