Sweden's economy contracted by 0.3% in the third quarter, falling into recession, official data showed Wednesday, as consumers tightened their belts for a fifth straight quarter, with higher interest rates hitting spending and investments.

The Scandinavian country is one of the worst economic performers in the European Union, with the European Commission forecasting average growth of 0.6% in the EU in 2023.

"The gross domestic product (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 statistics agency.

Sweden's economy shrank by 0.8% in the second quarter. Two consecutive quarters of negative growth is the widely adopted definition of a recession.

"Household consumption was much weaker than expected and posted a negative contribution to GDP for the fifth consecutive quarter, which is in line with the previous longest decline from 1992-93," Swedish bank Swedbank said in an analyst note.

Figures from Statistics Sweden showed that GDP contracted by 1.4% compared to the same quarter last year, more than a flash estimate that had indicated GDP would shrink by 1.2%.

"Overall ... the outcome confirms a weak development in the Swedish economy," Swedbank said.

The flash estimate had indicated flat growth compared to the previous quarter.

In its statement, the statistics office said the general downturn was "counteracted in part by strong exports of services," but household expenditure had been negative for a fifth consecutive quarter.

"The downturn is mainly explained by a decrease in inventories and reduced household consumption," it said.

Household consumption fell by 0.6% in the third quarter compared to the second, with reduced expenditure in most categories. Changes in inventories contributed negatively to GDP by 1.4 percentage points, mainly because of decreased industrial inventories.

Exports were up by a solid 1.4% from the previous quarter, with net exports contributing positively to GDP by 1.5 percentage points.

The country has been struggling with stubbornly high inflation for more than a year and a depreciating krona – prompting the central bank to raise its key rate to its highest level in 15 years.

The Riksbank, Sweden's central bank, has hiked the rate in rapid succession to 4% from zero 18 months ago, although it held rates steady at the latest monetary policy decision this month.

The rates have hit households hard as a majority of Swedish mortgage holders have floating interest rates, meaning rate changes immediately reduce their spending power.

Housing starts have also collapsed as construction companies struggle with higher funding costs.

The government recently expressed concern over the country's "prolonged economic winter," as unemployment rose to 7.7% in the third quarter.

The Riksbank has said it expects negative growth of 0.7% this year and a contraction of 0.2% in 2024.

"The weak growth reduces inflationary pressures and strengthens our view that the Riksbank is done hiking rates," Nordea said in a note.