Swedish Retail Poised for Growth in 2026 Amid Increased Consumption and Low-Cost Trends

Sweden's retail sector is set for a strong year in 2026, boosted by increased consumer spending and strategic economic shifts. A key driver is the reduction in food VAT, which is expected to spur substantial volume growth in grocery stores, according to projections from multiple sources including Svenska Dagbladet and Dagens Nyheter. This VAT cut forms part of a broader backdrop of improved household finances, underpinned by raised real wages and lower interest rates that are stimulating consumption across Sweden.

Retail recorded its strongest growth since 2021 in the third quarter of 2025, signaling a robust recovery. William Lindquist, a retail analyst, highlighted the persistent significance of low-cost retailers such as Normal, Rusta, and Dollarstore, noting that consumer preference for budget-friendly options remains intact "just because we leave the recession behind us doesn’t mean we leave low-cost behind."

While consumer purchasing power is on the rise, Lindquist cautions that price sensitivity continues, particularly due to ongoing high unemployment and business bankruptcies expected to persist in 2026. This environment challenges sectors like fashion retail, which struggles against rising competition from low-cost brands like Shein and Temu, as well as a vigorous second-hand market dominated by consumer-to-consumer sales.

The broader economic context supports this positive outlook for consumption. The labor union LO forecasts Sweden’s GDP growth at 1.6% for 2025 and 2.8% for 2026, driven largely by consumption with inflation expected to remain subdued at approximately 0.3%. However, unemployment is projected to remain elevated at around 8.6%, despite encouraging economic indicators. The Swedish Central Bank’s key interest rate is anticipated to hold steady at 1.75% through 2026, signaling accommodative monetary policy amid this growth phase.

In sum, the Swedish retail economy is navigating a complex yet optimistic landscape where consumption recovery is fueled by lower VAT and stronger household incomes, while low-cost retail continues to shape consumer behavior moving forward.