Sweden's economy is facing an early winter this year, with further cooling expected as rising interest rates and high inflation take their toll on households' purchasing power, according to a recent economic outlook report by Swedbank.
Economic Contraction Predicted
Swedbank predicts that the Swedish economy will shrink in both 2023 and 2024, with a projected GDP contraction of 0.5% and 0.4% respectively. A significant recovery is not anticipated until 2025, when a growth rate of 2% is expected.
Household Spending Takes a Hit
The report highlights that households are holding back on spending, which is expected to continue weighing on GDP for the foreseeable future. Additionally, housing construction has come to a standstill, and investments in housing are forecasted to decline further.
Weakening Labor Market and Lingering Inflation
Sweden's labor market is showing signs of weakness, and while inflation has decreased over the course of the year, Swedbank predicts it will remain high for some time before reaching the Riksbank's 2% target in the summer.
Monetary Policy Tightening
Due to the persistently high inflation and the weakened Swedish krona, Swedbank foresees that the Riksbank will continue tightening its monetary policy throughout the winter. The bank expects a 25-point increase in the policy rate in November, bringing it to 4.25%.
Future Rate Cuts
Swedbank anticipates a series of policy rate cuts starting in June of next year, with the policy rate potentially falling to 2.5% by the end of 2025.