Inflation is starting to come down but Swedish businesses and households are still burdened by high prices and interest rates.

This means a weaker economic situation and that the Swedish economy is considered to be in a recession that will last until 2025.

These are Swedish Ministry of Finance’s conclusions presented last month in a new forecast of the economic outlook.

High interest rates continue to dampen growth in the economy.

Although inflation is starting to come down in Sweden and around the world, household purchasing power has declined and demand in the Swedish economy is weak.

Household consumption is expected to remain low in early 2024, but as inflation comes down and incomes rise, consumption will gradually recover. 

“It’s good news that inflation, especially core inflation, has now started to come down. This strengthens the view that the Government’s anti-inflation measures are effective. Now we must stay the course until we’re certain we’ll be able to meet the inflation target. The Government’s budget is designed for this economic situation,” says Minister for Finance Elisabeth Svantesson.

Housing construction, which has fallen sharply this year, is expected to remain low next year as well, which will have a negative impact on GDP growth.

However, exports are expected to sustain growth in 2024. Overall, the Ministry of Finance expects Swedish GDP to fall by 0.5 per cent this year and rise by 0.6 per cent in 2024.

Developments in the Swedish economy largely follow the situation described when the Budget Bill was presented in September. 

The Swedish labour market situation has deteriorated in recent months. Employment has decreased and unemployment has increased.

Indicators show continued weak development in the coming period and unemployment is expected to continue to increase in 2024.

However, as economic activity recovers in 2025, labour market developments are expected to turn around and employment to start to recover.

This forecast is characterised by uncertainty and there are a number of factors that can affect the development of the Swedish economy. These include the development of market interest rates, the situation in the housing and commercial real estate markets, and economic developments in other countries.

Economic situation also burdens public finances

The economic situation is burdening public finances this year and will continue to do so in 2024.

The economic downturn, together with the lagging effects of the high inflation, will result in lower tax revenues, while municipalities and especially regions are facing increased cost pressures.

Only after the expected recovery of the economy in 2025 is it likely that public finances will also be strengthened.