Sweden's Economy Shows Resilience Amid Global Challenges but Faces Risks from German Market Dependence

Sweden's economy in early 2026 displays a mix of strength and vulnerability as it navigates a turbulent global environment. Despite the challenging conditions worldwide, Sweden benefits from solid public finances, competitive companies, and households that have strengthened their financial positions, which positions the nation better than many others to handle current economic uncertainties. This perspective is underscored by Annika Winsth, chief economist at Nordea, who stresses that while global challenges must be taken seriously, Sweden's foundations offer a comparatively robust outlook.

However, a significant risk shadows this resilience: Sweden's heavy reliance on exports, which constitute over half of its GDP. Germany, Norway, and the USA are Sweden’s major trade partners, with Germany alone accounting for nearly 30% of Swedish exports. German economic difficulties thus directly impact Sweden’s economic health. Germany is now grappling with an identity crisis in its economy, compounded by the ongoing war in Ukraine and a lagging industrial sector. German Chancellor Friedrich Merz has highlighted the industrial sector's critical condition as it struggles to transition away from Russian energy dependence while also suffering from repercussions of trade conflicts, particularly the automotive industry's challenges linked to earlier trade wars involving the US.

Unemployment in Germany is nearing three million, the highest in 12 years, translating to about 6.3% of the workforce. This high unemployment rate and industrial slowdown present serious concerns for Swedish exporters, notably those in the automotive supply chain, underscoring the fragility of Sweden’s export-driven growth given its exposure to German economic troubles.

In summary, while Sweden’s internal economic fundamentals provide a buffer against global headwinds, its substantial dependence on the faltering German market remains a pivotal vulnerability. The situation requires careful monitoring as external shocks continue to unfold.