Sweden's Economic Growth Slows in 2026 Amid Middle East Conflict Concerns

Sweden’s economy continues its recovery in 2026 but is experiencing a slowdown in growth amid rising inflation and uncertainties related to the Middle East conflict. The Konjunkturinstitutet (KI) forecasts Swedish GDP growth at 2.2% to 2.5% for this year and between 2.6% and 2.8% for 2027, reflecting downward revisions from previous estimates. This deceleration is primarily due to weaker consumption growth despite strengthening domestic demand.

Inflation, measured by the KPIF rate, is projected to remain below the 2% target but elevated compared to earlier forecasts, with estimates of 1.7% in 2026 and 1.6% in 2027. Rising oil prices are expected to add 0.6 percentage points to inflation in 2026 and 0.2 in 2027. The Riksbank is anticipated to raise interest rates by the end of 2026 in response to inflation pressures.

The labor market recovery is sluggish, with unemployment forecasted at 8.4% this year and 7.8% next year, returning to normal levels only by late 2027. Public finances are strained, with the public sector’s financial savings expected to be negative at -2.6% of GDP in 2026 and -2.2% in 2027, limiting reform opportunities.

These forecasts assume that the macroeconomic impact of the conflict in the Middle East will be limited and diminish after summer; however, if the conflict intensifies, the negative economic effects could be significantly more severe, threatening growth and financial stability.