Swedish Economy Poised for Robust Growth in 2026 with Interest Rate Hikes Expected

The Swedish economy is forecasted to experience a significant recovery and growth in 2026, driven by a strong domestic market and improved labor conditions. Danske Bank's recent Nordic Outlook report revises Sweden's GDP growth forecast for 2026 to 2.6%, reflecting a markedly better economic outlook after years of uncertainty. Consumer optimism and a dynamic domestic economy are key contributors to this optimistic scenario.

Unemployment rates are dropping, with short-term unemployment hitting a two-year low, signaling labor market improvements. The housing market also shows signs of vitality, with activity increasing in part due to stable interest rate expectations and greater purchasing power—in turn driving an anticipated annual rise in housing prices of about 5%.

Inflation is projected to moderate significantly, with an expected average rate of 1.6% in 2026, down from previous elevated levels. Political reforms such as a reduction in VAT on food have contributed to lowering inflation pressures, preventing the rate from reaching a projected 2.2% otherwise.

Correspondingly, the Swedish central bank, Riksbanken, is expected to initiate monetary tightening by raising interest rates toward the end of 2026. Danske Bank forecasts rates climbing to 2% by December 2026, with potential increases to 2.25% in early 2027. Chief economist Susanne Spector from Danske Bank emphasized the improved outlook and stated, "We expect that Riksbanken will raise interest rates by the end of next year."

The risk landscape for Sweden's economy has shifted from predominantly downside risks to clear upside potentials, suggesting a sustainable and stable recovery is underway. Overall, positive developments in household confidence, political support measures, and labor market conditions underpin a brighter economic horizon for Sweden heading into 2026.