Swedish Economy Set for Recovery Amid Shifting Household Consumption Patterns in 2026

Sweden's economy is poised to emerge from a low-growth phase in 2026 and 2027, supported by rising household consumption and expansive economic policies, according to recent forecasts by the Swedish Association of Local Authorities and Regions (SKR). Employment is expected to increase by 1% this year, with unemployment decreasing slightly, contributing to a tax base growth of 5% in 2026 and an average of 4.2% growth from 2027. Chief economist Emelie Värja highlighted that reduced tariff uncertainties have fostered a more favorable economic outlook.

However, challenges remain as structural unemployment persists, necessitating targeted labor market initiatives. Geopolitical uncertainties and ongoing tariff issues also temper optimism despite economic improvements.

At the same time, household consumption patterns reveal a nuanced picture. Since 2022, the historic link between households' economic optimism and consumption has weakened. Despite increased pessimism driven by inflation, higher mortgage rates, declining real wages, and geopolitical tensions, consumption levels have remained relatively stable. Notably, retail sales in nominal terms have risen, indicating that households spend more money but purchase fewer goods due to inflation's impact.

The sustained high price levels for essentials like rent and food, combined with wages not fully adjusting, have weakened household economic positions. This has heightened psychological sensitivity to negative economic signals among Swedes, affecting perceptions even amid nominal spending stability.

These dynamics underscore a complex interplay where Sweden's macroeconomic recovery coexists with evolving household behaviors shaped by inflation and economic sentiment. The strengthening labor market and expansive policies bode well for growth, but persistent structural and consumer challenges will require careful management moving forward.