Swedish Economy Shows Signs of Recovery Amid Inflation and Interest Rate Debate

Recent analyses reveal a cautiously optimistic outlook for Sweden’s economy in 2026, highlighted by improving growth forecasts and evolving inflation trends. A report by Teknikföretagen and Industriarbetsgivarna titled "Vårtecken" forecasts GDP growth of 3% in 2026 and 2.5% in 2027, driven mainly by fiscal stimuli enhancing household purchasing power. Unemployment is projected to fall below 8% by the end of the forecast period, as labor market demand shows early signs of improvement despite lingering weaknesses.

Inflation trends are mixed but improving. January's inflation report indicated that the Consumer Price Index (CPI) rose moderately while the inflation measure excluding fixed interest rates (KPIF) edged down from 2.1% to 2%, with the underlying KPIF excluding energy dropping more significantly from 2.3% to 1.7%, below Riksbank’s earlier forecasts. Higher electricity and food prices continue to influence inflation but are seen as volatile factors outside the Riksbank’s direct control.

The central bank’s policy stance is under scrutiny amid speculation about potential interest rate cuts. Currently set at 1.75%, the Riksbank’s rate sits within an estimated neutral range of 1.5% to 3%. Officials emphasize balancing stimulus needs with inflation risks, considering the strong Swedish krona’s impact on export competitiveness and inflation.

While some call for lower rates to sustain recovery, others caution against premature easing given improving real wages and supportive fiscal policy ahead of upcoming elections. The overall economic environment is also shaped by external uncertainties including trade barriers, geopolitical tensions, and a gradually recovering international investment climate.