EU Commission Raises Growth Forecast Amid Trade Tensions, With Sweden Projected to Outperform

The European Commission has updated its economic outlook, raising the EU's growth forecast for 2023 from 1.1% to 1.4%, underscoring a more resilient economy than previously expected despite ongoing trade tensions and tariffs. This positive revision comes after better-than-anticipated economic performance in the first three quarters of 2025. Economic Commissioner Valdis Dombrovskis emphasized the need for enhanced domestic demand, pointing to steps such as simplifying regulations and boosting innovation to maintain momentum.

Sweden is highlighted as a standout performer within the EU, with growth projected at 1.5% in 2023, rising sharply to 2.6% in 2024 and maintaining a strong 2.3% in 2027, positioning it above the EU average according to the Commission's forecast. Sweden's economy benefits from strong export figures despite an average U.S. tariff of around 10%, with companies preemptively adjusting trade flows amidst geopolitical uncertainties. The labor market is also resilient; unemployment, while expected to be relatively high at 9.0% in 2023, is forecast to decline gradually to 7.9% by 2027. Inflation in Sweden is predicted to fall significantly, from 2.5% in 2023 to 0.6% by 2026, aided by temporary food VAT cuts.

However, the report signals rising fiscal pressures, with Sweden’s public deficit expected to increase from 1.7% of GDP in 2023 to 2.4% in 2026, driven by heightened defense spending and support for Ukraine. The EU average budget deficit is forecast to rise as well, with twelve member states projected to exceed the 3% GDP deficit threshold by 2027.

Domestically, strong labor markets and improved purchasing power will be key growth drivers, while EU recovery funds continue to cushion austerity effects in affected countries. Despite global trade barriers hitting record levels, EU exporters have a relative tariff advantage compared to other major economies. Nonetheless, the Commission cautions that significant uncertainties persist, including evolving geopolitical tensions and domestic political volatility that may impact economic trajectories.

In summary, the EU’s economic forecast presents a cautiously optimistic view with upward revisions reflecting resilience and recovery. Sweden emerges as a bright spot with above-average growth supported by strong exports and a robust labor market, though challenges remain in terms of unemployment and fiscal balance.