Swedish Economy Slows After Strong Growth with Rising Inflation and Interest Rates Ahead

Swedbank's latest economic outlook reveals that while the Swedish economy showed unexpectedly strong growth of 2.6% in 2026, this momentum is set to slow down to around 2% annually in the coming years. The robust growth in 2026 was partly driven by increased household consumption, business investments, and a surge in exports of pharmaceuticals and refined petroleum products, along with support from the defense sector.

However, inflation is expected to rise due to higher energy and food prices, including the impact of global events like the Middle East conflict. Swedbank forecasts KPIF inflation to reach 2.3% to 2.5% by 2027, above the Riksbank's 2% inflation target. As a consequence, further interest rate hikes are anticipated, with the Riksbank expected to raise the key rate to 2.25% in February 2024.

The housing market remains active with a price increase exceeding 3.5% this year, but the rate of growth is predicted to slow down, with annual price increases expected to settle around 2% by 2027 and 2028 due to rising borrowing costs. Employment continues to improve, with unemployment expected to fall from 8.3% in 2024 to 7.6% by the end of 2028.

Swedbank also highlights several risks that could affect this outlook, including escalation of the Middle East conflict, a slowdown in artificial intelligence investments, new international trade barriers, and concerns over public finances in Europe.

Households are advised to prepare for higher costs, particularly due to increased food and energy prices and rising interest rates. While purchasing power is projected to increase, the pace will be slower than in previous years, prompting recommendations to review mortgage arrangements and household budgets.

Overall, despite economic headwinds, Swedbank maintains a cautious but positive stance on Sweden's economic trajectory, supported by strong corporate performance and a gradually strengthening labor market.