Can Sweden’s two-track economy avoid a recession?

Restaurants and bars were teeming and hotels were fully booked in Stockholm in the week before Midsommar on June 24th, when Sweden celebrated the summer solstice. The Swedish capital did not give the impression of a country on the brink of a recession. The happy splashing out on wining and dining was doubtless related to the beautiful weather and catch-up consumption after the pandemic, but it is unlikely to last throughout the year. Many Swedish households are in dire financial straits thanks to an inflation-induced erosion of real wages not seen for 30 years. Forecasts are gloomy, with the European Commission predicting in May that Sweden would be the worst performer of all European economies in 2023, with a 0.5% contraction this year, though other forecasts are marginally less dire.