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Sweden’s economy shrank in the third quarter of 2023 to mark the second time of contraction and signal that a recession may have hit the country.
Data released Wednesday by Statistics Sweden showed that the country’s gross domestic product declined by 0.3% in the period ending in October.
“The GDP decreased for the second quarter in a row. The downturn in the economy was broad, but was held back somewhat by strong service exports,” said Jessica Engdahl, section manager at the National Accounts with the statistical agency.
The decline is mainly explained by inventory liquidation and lower household consumption. Engdahl added that household consumption expenditure had decreased for the fifth consecutive quarter.
Compared to the third quarter of 2022, GDP decreased by 1.4%.
Two consecutive quarters of contraction is a common definition of recession, though economists on the eurozone business cycle dating committee use a broader set of data, including employment figures.
Sweden is a member of the European Union but doesn’t use the euro currency.
The global economy, which has proved surprisingly resilient this year, is expected to falter next year under the strain of wars, still-elevated inflation, and continued high interest rates.
The Paris-based Organization for Economic Cooperation and Development estimated Wednesday that international growth would slow to 2.7% in 2024 from an expected 2.9% pace this year. That would amount to the slowest calendar-year growth since the pandemic year of 2020.
A key factor is that the OECD expects the world’s two biggest economies, the United States and China, to decelerate next year. The U.S. economy is forecast to expand just 1.5% in 2024, from 2.4% in 2023, as the Federal Reserve’s interest rate increases — 11 of them since March 2022 — continue to restrain growth.
The Fed’s higher rates have made borrowing far more expensive for consumers and businesses and, in the process, have helped slow inflation from its four-decade peak in 2022. The OECD foresees U.S. inflation dropping from 3.9% this year to 2.8% in 2024 and 2.2% in 2025, just above the Fed’s 2% target level.
The Chinese economy, beset by a destructive real estate crisis, rising unemployment, and slowing exports, is expected to expand 4.7% in 2024, down from 5.2% this year. China’s “consumption growth will likely remain subdued due to increased precautionary savings, gloomier prospects for employment creation, and heightened uncertainty,″ the OECD said.
Also likely to contribute to a global slowdown are the 20 countries that share the euro currency. They have been hurt by heightened interest rates and by the jump in energy prices that followed Russia’s invasion of Ukraine. The OECD expects the collective growth of the eurozone to amount to 0.9% next year — weak but still an improvement over a predicted 0.6% growth in 2023.
The world economy has endured one shock after another since early 2020 — the eruption of COVID-19, a resurgence of inflation as the rebound from the pandemic showed unexpected strength, Moscow’s war against Ukraine, and painfully high borrowing rates as central banks acted aggressively to combat the acceleration of consumer prices.
Yet through it all, economic expansion has proved unexpectedly sturdy. A year ago, the OECD had predicted global growth of 2.2% for 2023. That forecast proved too pessimistic. Now, the organization warns, the respite may be over.
“Growth has been stronger than expected so far in 2023,″ the OECD said in its 221-page report, “but is now moderating as the impact of tighter financial conditions, weak trade growth, and lower business and consumer confidence is increasingly felt.”
Moreover, the OECD warned, the world economy is confronting new risks resulting from heightened geopolitical tensions amid the Israel-Hamas war — “particularly if the conflict were to broaden.”
“This could result in significant disruptions to energy markets and major trade routes,” it said.
Four major banks, including Standard Chartered Plc (STAN.L) and HSBC Plc (HSBA.L), have quit a United Nations-backed initiative to scrutinize climate targets set by corporations, according to people familiar with the matter.
The lenders have abandoned efforts for the Science Based Targets Initiative (SBTi) to validate their goals because of concerns it could hinder their ability to continue financing fossil fuels, the sources said.
Some of the banks, which also include Societe Generale SA (SOGN.PA) and ABN Amro Bank NV (ABNd.AS), have also raised concerns that SBTi's greenhouse gas emissions target-setting demands are too hard to meet, the sources added.
To justify their departures, which happened separately and over the past year, some of the banks cited their membership of another United Nations-backed grouping, the Net-Zero Banking Alliance (NZBA), which is less prescriptive and allows lenders to continue to finance fossil fuels as long as they make progress on their emissions. Many lenders say they should finance fossil fuels as long as economies depend on them.
The departure of the four banks casts a shadow over the world's most widely adopted standard for curbing greenhouse gas emissions.
Launched as a non-profit, SBTi has certified that emissions targets of nearly 4,000 companies globally are aligned with the intergovernmental Paris Agreement to limit global warming to 1.5 degrees Celsius.
SBTi unveiled plans this year for a new standard that will apply specifically to financial institutions as early as 2024. It will require banks and asset managers not to finance new fossil fuel projects.
This proved too much for Standard Chartered, which wants to continue this business in developing markets. A spokesperson for the bank confirmed it had left the validation process and said SBTi's proposed standard failed to consider adequately "the transition (away from fossil fuels) of our clients and markets".
The spokesperson added that Standard Chartered was seeking alternative third-party validation of its climate targets and that it was setting science-based targets through the NZBA.
An HSBC spokesperson said the bank was setting its emissions targets in line with NZBA guidance. A spokesperson for Societe Generale said the French bank was also committed to setting its emissions targets in line with NZBA's methodology.
A spokesperson for ABN Amro said the Dutch lender remained an NZBA member after leaving SBTi.
An SBTi spokesperson told Reuters that, following feedback, SBTi changed some of its requirements. It will allow banks to continue to finance some fossil fuel projects as long as they pertain to emissions targets that have to be met near-term. It will still require them to cease the financing of fossil fuel projects that would weigh on their longer-term emissions targets.
"We cannot limit global warming to 1.5 degrees Celsius and mitigate the risks of climate breakdown without reducing our dependence on fossil fuels," SBTi said in a statement.
To be sure, most major European banks that signed up to SBTi remain members. Credit Agricole (CAGR.PA), ING (INGA.AS), BBVA (BBVA.MC), and Swedbank (SWEDa.ST) told Reuters they remained committed to SBTi validating their emissions targets.
SBTi has already approved some NatWest, Commerzbank, and Raiffeisen targets. BNP Paribas (BNPP.PA) did not respond to requests for comment about its SBTi status.
No major U.S. bank has joined SBTi, opting instead for NZBA's easier-to-meet standards.
CRACKS SPREADING
In a sign that cracks between SBTi and financial firms could spread, a spokesperson for Allianz said the German insurance giant had also quit, without providing a reason.
The spokesperson said Allianz was committed to the target-setting methodology of the Net-Zero Asset Owners Alliance, another U.N.-backed climate coalition it is a member of. This year, Allianz quit the Net-Zero Insurance Alliance amid concerns that the climate coalition was at risk of violating antitrust law.
It is not the first time that banks have sought to lower the bar on the emissions they help finance. Reuters reported in July that lenders working to develop global standards on accounting for greenhouse gases in bond or stock sale underwriting voted to exclude most of these emissions from their own carbon footprint.
Pietro Rocco, head of green finance at the Carbon Trust, which advises firms on decarbonizing, said he was concerned that leaving SBTi would lead to less ambitious emissions targets.
"They hold you to a higher standard than NZBA. SBTi shows you haven't gone off on your own, it's been marked," Rocco said.
It’s not just you. Across the U.S., prices at the pump have felt milder in recent months.
Gas prices have fallen or remained steady since Sep. 19 — marking about a 70-day trajectory of decline, Andrew Gross, spokesperson for motor club AAA, said Tuesday.
As of Tuesday, the national average for gas prices stood just below $3.25, according to AAA. That’s down 25 cents from a month ago and 30 cents less than this time last year. Experts point to a recent decline in oil prices and a seasonal dip in demand, as well as easing inflation.
Each penny decline in the national average saves motorists close to $3.8 million, according to Patrick De Haan, head of petroleum analysis at GasBuddy. “If you amplify that times 30 cents, we’re talking about Americans that are spending hundreds of millions less on gasoline today than they were a year ago.”
Despite the drop, the global energy market can be volatile, and lower gas prices down the road aren’t promised. Here’s what you need to know.
WHY ARE GAS PRICES FALLING?
A few factors contribute to today’s gas prices, but a big explanation behind the decline is seasonality. In other words, prices at the pump almost always ease at this time of year.
For starters, there’s a switch to winter-blend gasoline — which is cheaper to produce than the summer blend, Gross notes. And, despite some upticks around the holidays, shorter days make hitting the road less enticing in the colder months.
“It’s dark and the weather is kind of crummy, and people just want to stay home,” Gross said. “Demand is a lot less (in the) fall and winter.”
On top of the seasonal cycle, inflation, while down from last year, is still high and continues to undercut Americans’ spending habits — which could also be contributing to today’s lower demand, De Haan added.
Beyond demand, experts also point to declining oil costs. Prices at the pump are highly dependent on crude oil, which is the main ingredient in gasoline. West Texas Intermediate crude, the U.S. benchmark, has stayed in the high-to-mid $70s for the past three weeks — standing at about $76 a barrel as of Tuesday afternoon, down from over $82 a month ago.
Oil is a global commodity, so events impacting production and supply such as the Russia-Ukraine war can be felt domestically. There’s also been a notable uptick in U.S. production that is “helping to keep a lid on prices” today, De Haan said.
At the start of October, American oil production hit an all-time high of 13.2 million barrels per day, passing the previous record set in early 2020 by 100,000 barrels. Average production has since remained at that level, according to the government’s latest data through the week of Nov. 17.
COULD GAS PRICES CHANGE COURSE AND GO UP AGAIN SOON?
While the downward trend in gas prices is expected to continue at least into the New Year, anything’s possible. Some experts point to the potential of more cuts from major producing OPEC+ countries — which boosted energy prices in the past.
Earlier this year, Saudi Arabia and Russia notably extended their voluntary oil production cuts through the end of this year, trimming 1.3 million barrels of crude out of the global market. Some speculate that OPEC+ could announce further cuts in an upcoming meeting, which was reportedly postponed until Thursday.
Still, the meeting delay signals that there may be disagreements within OPEC+, so it’s “going to be a wildcard to watch,” De Haan said. If a surprise announcement does arrive, it’s hard to predict the impact — but consequences could also be brief or minimal, Gross added, especially if the market is already anticipating more cuts.
Among today’s global backdrop is also the Israel-Hamas war. The breakout of violence initially slowed the fall in oil prices, but that progressively changed, Gross said — noting the war has not expanded to large oil-producing countries in the Middle East. Still, the future remains uncertain.
“Given how volatile the oil market is ... I would keep an eye on what’s going on overseas, not just in terms of this war, but in other economies,” Gross said, adding that shifts in oil prices can be very headline-driven, with news impacting major markets around the world.
WHAT STATES HAVE THE LOWEST GAS PRICES TODAY?
While gas prices nationwide are collectively falling, some states, of course, always have cheaper averages than others — due to factors ranging from nearby refinery supply to local fuel requirements.
As of Tuesday, according to AAA, 15 states in the U.S. had gas prices below $3 — with Texas ($2.71), Mississippi ($2.76) and Georgia ($2.79) at the lowest.
Meanwhile, the states with the highest prices at the pump were led by California ($4.88), Hawaii ($4.72) and Washington ($4.34).