STOCKHOLM (Reuters) - Sweden’s economy shrank slightly in the first quarter, flash estimates from the Statistics Office showed on Tuesday, with worse to come in the April-June period when full effects of the outbreak of the novel coronavirus are set to be felt.
The economy had already started slowing at the end of 2019 after years of rapid expansion.
While Sweden has not followed other European countries with a complete lockdown, the virus outbreak and measures to contain it still have hit international supply chains, cut demand and forced companies to lay off tens of thousands of workers.
The government expects the economy to contract around 7% - the worst recession since 1940 - this year before rebounding sharply in 2021.
Gross domestic product decreased 0.3% in the first three months of the year compared to the final quarter of 2019 and grew 0.5% from the same period in 2019, the Statistics Office said in a statement.
“It was a strong start to the year and Sweden closed down relatively late and a little less strictly than in other countries and this contributed to a fairly marginal fall,” said Olle Holmgren, economist at SEB.
“Going forward it looks pretty bleak, which you can see in the production and order figures which were a little worse than expected.”
Production figures for March showed a rapid slowdown across the board, while activity in the manufacturing sector tumbled in April, hitting its lowest level since the financial crisis.
Sweden’s coalition government has already promised to spend over 100 billion Swedish crowns ($10.18 billion) to fight the downturn and has offered loans and guarantees worth an additional 550-600 billion crowns.
The central bank, while it has not cut rates, has launched a raft of measures, including loans in dollars and crowns and an expanded programme of asset purchases.
Reporting by Simon Johnson and Johan Ahlander, editing by Anna Ringstrom and Niklas Pollard