Swedbank Forecasts Slower Growth and Rising Inflation in Sweden's Economy

Swedbank's latest economic forecast outlines a challenging outlook for Sweden's economy with GDP growth slowing and inflation rising above the central bank's target in the coming years. The bank projects GDP growth to reach 2.6% this year before dropping to 1.9% next year, signaling a significant slowdown.

Inflation, measured by the KPIF index, is expected to increase to 2.3% by 2027, surpassing the Riksbank's 2.0% target. This rise in inflation, combined with geopolitical uncertainties such as the ongoing Middle East conflict, is anticipated to prompt further interest rate hikes in 2027. As a result, household purchasing power is forecasted to grow more slowly, negatively impacting domestic demand.

Households will also face steeper food price increases driven by higher production and transport costs. Meanwhile, the housing market is projected to see prices rise by around 3.5% this year but then moderate to roughly 2% annually between 2027 and 2028. Unemployment is expected to fall slightly from 8.7% this year to 8.3% next year.

On the labor front, industry unions have put forward a wage demand of 3.9% for a one-year agreement. However, Swedbank anticipates a compromise leading to a two-year contract with annual wage increases near 3.3%. Such wage growth over 3% is aligned with an inflation target of 2%, resulting in modest real wage gains of just over 1% per year.

Overall, Swedbank cautions that Sweden is entering tougher economic times marked by higher inflation, interest rate hikes, and slower growth, creating pressures on household budgets and slowing economic momentum in the years ahead.