Swedbank Economic Outlook: Strong recovery draws closer

The Swedish economy remains weak, but the recovery is near, and in 2025 growth will pick up speed. Inflation is below the target of 2 per cent, and as a result the Riksbank will need to increase both the speed and frequency of policy rate cuts. Fiscal policy will also shift, taking a more expansive turn in the coming years, according to Swedbank Economic Outlook. 

“The driving forces for the Swedish economy are shifting. Household incomes are now rising faster than prices, which is strengthening household purchasing power. We expect high consumption growth from the beginning of next year, when interest rates have fallen further and unemployment is no longer increasing. However, we expect both exports and investments to grow more slowly this year and next,” says Mattias Persson, Group Chief Economist, Swedbank. 

Below-target inflation paves the way for further interest rate cuts 
Swedish inflation fell below 2 per cent during the summer and will remain close to the target for the next two years. 

“We expect the Riksbank to lower the policy rate at its three remaining meetings in 2024, with a rate of 2.75 per cent at the end of the year. In 2025, the cuts will continue down to 2 per cent. Interest rates need to be reduced at a rapid pace to avoid the risk of delaying the recovery of the Swedish economy or deepening the recession. But we cannot rule out that the Riksbank may need to move faster and go lower than our forecasts,” says Mattias Persson.  

The Swedish housing market will recover gradually  
The weak rise in housing prices will continue throughout the year, as mortgage rates remain high, purchasing power is relatively weak and the supply of unsold homes is record-high.   

“The housing market will brighten in the future, with prices rising slightly as mortgage rates fall and purchasing power strengthens. Even if mortgage rates fall in the future, they are expected to remain at a higher level than before the rise in interest rates. We expect prices to increase by approximately 5 per cent in both 2025 and 2026,” says Mattias Persson.  

More expansionary fiscal policy will support the Swedish economy 
With inflation below target, fiscal policy is pivoting and will support a strong recovery for the Swedish economy. Unfunded fiscal measures totalling SEK 60 billion in 2025 and the same amount in the 2026 election year will lead to a budget deficit per year of approximately 1 per cent of GDP for Sweden’s entire public sector. 

“We expect tax cuts for households and more resources for defence, the justice system and social security. A review of the fiscal policy framework will also be presented this autumn, as well as an infrastructure proposal and a research and innovation proposal; these will be important for Swedish growth and prosperity going forward,” says Mattias Persson.  

The Swedish economy will gear up 
Swedish economic growth will be weak during the rest of 2024. Swedbank expects GDP to grow by a moderate 0.3 per cent. From the beginning of next year, however, growth will shift up, and GDP will grow by nearly 3 per cent in both 2025 and 2026.   

“The recovery is drawing closer and will start slowly during the rest of 2024, but next year the Swedish economy will pick up speed. The rapid recovery in the Swedish economy that we see going forward will be largely due to supportive economic policy. Both fiscal policy and monetary policy will support the Swedish economy, which will recover lost ground and grow faster than normal in 2025 and 2026,” says Mattias Persson. 

For the full report, see attachment or visit: www.swedbank.com/seo.

Contact: 
Mattias Persson, Group Chief Economist, Swedbank, tel. +46 73 094 29 56  
Charlotte Nilsson, Acting Media Relations Manager, Swedbank, tel. +46 76 534 66 12 
 

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