Riksbanken Expected to Cut Interest Rates in March Amid Signs of Economic Recovery

Sweden's central bank, Riksbanken, is forecasted to lower interest rates in March 2026, signaling a shift in monetary policy as inflation falls and economic recovery signs emerge. According to a joint analysis by Teknikföretagen and Industriarbetsgivarna, inflation has been declining and is expected to drop below Riksbanken's target, paving the way for a reduction of the policy rate to around 1.5%. Erik Spector, chief economist at Teknikföretagen, anticipates the rate to remain at this low level until gradual increases may begin in 2027.

Despite the Swedish economy currently facing a prolonged recession, clearer signs of improvement are noted, supported by fiscal stimuli that have enhanced household purchasing power. This combination is projected to boost consumption and sustain gradual growth. The Swedish GDP is expected to grow by 3% in 2026 and 2.5% in 2027, with unemployment predicted to fall below 8% by the end of the forecast period, according to the latest reports.

However, uncertainties persist. The technology sector is stabilizing after years of weakness but continues to grapple with low order books and underused capacity. The base industry has experienced a production decline over recent years due to external pressures like increased competition from Asia, a stronger krona, and trade restrictions, though international investment conditions appear to be improving, potentially leading to gradual production increases.

Kerstin Hallsten, chief economist at Industriarbetsgivarna, highlighted that while the labor market remains weak, there are encouraging signs of increasing labor demand. Erik Spector emphasized the importance of long-term growth reforms in education and infrastructure to maintain sustainable industrial growth beyond the current policy-driven recovery phase. Both economists recommend the Riksbanken consider the rate cut at its upcoming March meeting to support continued economic stabilization.

In summary, these developments indicate that Sweden is cautiously moving out of recession territory, with monetary policy expected to adapt in response to improving inflation and economic activity.