Swedish new construction of apartments plunged 57% in the first six months of 2023 compared to the same period last year, figures from the Statistics office (SCB) showed on Thursday, the lowest number of apartment starts since 2012.

The Swedish central bank has hiked rates to 3.75% from zero at the start of 2022, putting pressure on households and dramatically raising funding costs for new housing projects.

SCB said construction of about 14,550 new apartments was begun during the six first months this year, down from 33,805 in the same period last year.

Swedbank, in a fresh forecast this week, said it expected the economy to contract 0.9% this year and a further 0.3% in 2024, in part due to the collapse in housing construction.

The bank's forecast is for around 30,000 housing starts both this year and next.

House prices are down around 13% since their peak in early 2022 and Swedbank said it did not expect them to stabilize until the end of this year or early 2024.

Sweden's economy shrank sharply in the second quarter, contracting 1.5% compared to the previous three month period and 2.4% from the year-earlier quarter, preliminary figures from the Statistics Office showed last month. (Reporting by Johan Ahlander; editing by Niklas Pollard)