Sweden is heading for a mild recession after its GDP dropped by 0.8% in the second quarter compared to the first three months of the year, Statistics Sweden announced on Tuesday.

The economic downturn in the Nordic region’s largest economy is linked to reduced exports of goods and a decrease in inventories, which contributed negatively to the GDP figures, data shows.

Although the decline was less than the 1.3% contraction that had been predicted, “the Swedish export motor is in trouble,” according to Michael Grahn, chief economist at Danske Bank.

Stubbornly high inflation has been pummeling the Swedish economy since last year, with the country’s central bank hiking rates in response. An increase in the cost of goods and loans has prompted households to cut spending.

“The second quarter of 2023 was generally weak with declines in several of the main components of GDP,” said Jessica Engdahl, head of the section at Statistics Sweden’s National Accounts Department.

READ MORE: EU state blames poor sales on rain

“Household consumption expenditure was negative for the fourth consecutive quarter,” she added.

Spending by households will be a determining factor in how deep the contraction turns out to be, according to Sweden’s largest bank, SEB.

So far, household consumption has dipped by 0.2%, mainly due to decreased expenditure on housing, recreation and culture, as real disposable income dropped by 3% compared with the second quarter of 2022.

“Sweden will continue to look more anemic than many other countries,” SEB warned.

Meanwhile, economists from Handelsbanken believe the Nordic country is “heading for a mild recession,” as they expect that GDP will continue to decline in the second half of 2023.

For more stories on economy & finance visit RT’s business section