HIGHLIGHTS • Brighter outlook • Household demand increases again, albeit gradually • Labour market turns for the better in 2025 • Low infla- tion • The Riksbank cuts its policy rate further • Hope for a stronger SEK exchange rate SWEDEN Beyond the crest The conditions are in place for a recovery in domestic demand – the main drivers are lower interest rates and stronger household purchasing power. As a result, the labour market will likely improve. However, the effect of monetary policy occurs with a lag, and economic activity will be subdued in the near term. The recovery should gain further traction during 2025 and into 2026. Inflation remains low, and the Riksbank will likely cut its policy rate further. Long-awaited recovery 2024 was another lost year for the Swedish econ- omy. GDP grew only slightly, and unemployment rose. Trends were also subdued around the turn of the year. The Riksbank initiated a series of rate cuts in May 2024. However, not until the latter part of the year and the early months of 2025 have interest rates de- creased more noticeably for households and busi- nesses. In addition, the monetary policy affects the economy with a lag. Consequently, growth will be weak in the near term, and the recovery will not likely gain momentum until mid-2025. Despite a series of rate cuts, the interest rate level will most likely remain higher than in the 2010s. The recovery will thus be slower than, for example, the rapid rebound after the pandemic. Neither unem- ployment nor housing prices will likely return to the peak levels of 2022 and 2023. In many respects, re- cent years’ inflation and interest rate shocks have had a greater negative impact on the economy than the pandemic. Soft landing for households Households have had some tough years. Rising in- flation has taken a toll on purchasing power. At the same time, high interest rates have not only driven expenses higher but also eroded real wealth, owing to falling housing prices. Households have increased their buffer savings with the heightened uncertainty. There are early signs that households are recovering. The most obvious sign is that housing prices are on the rise again. In line with the historical pattern, housing prices rose when the Riksbank made its first rate cut in the spring of 2024. Changes in housing prices are usually a good indicator of household 3 Number of years with stagnation in house- hold consumption. 1.5 %-points, rise in un- employment from 2023 to 2024. 18 %-points, share of exports of services of GDP in 2024. Sources: Nordea’s estimates demand, and last year’s increase in housing prices suggests that consumption will also soon pick up again. Another positive signal is that households expect the Swedish economy and their own finances to normal- ise following particularly gloomy sentiment in recent years. This, in turn, suggests that buffer savings may decrease, freeing up money for consumption. Infla- tion has stabilised and growth in household real dis- posable income should pick up in 2025, supporting the recovery. Overall, households are experiencing a soft landing, which is very unusual. Households have managed to consolidate their financial position and cope with the higher interest rates without it causing a crisis in the Swedish economy. The process has affected households and compa- nies that depend on household demand. However, resilience has been better than feared. Household debt has remained unchanged during the past few years. 6 / SWEDEN: MACROECONOMIC INDICATORS 2023 2024E 2025E 2026E Real GDP (calendar adjusted), % y/y 0.0 0.6 1.6 2.6 Underlying prices (CPIF), % y/y 6.0 1.9 1.8 1.6 Unemployment rate (LFS), % 7.7 8.4 8.4 7.9 Current account balance, % of GDP 6.7 6.9 6.0 5.8 General gov. budget balance, % of GDP -0.8 -1.7 -1.5 -1.4 General gov. gross debt, % of GDP 31.4 33.7 34.5 35.0 Monetary policy rate (end of period) 4.00 2.75 2.00 2.00 EUR/SEK (end of period) 11.10 11.48 11.40 11.00 24 / Nordea Economic Outlook / 1 / 2025
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