OECD Economic Outlook, Volume 2025 Issue 2

Sweden

Real GDP growth is projected to increase from 1.6% in 2025 to 2.6% in 2026 and 2.3% in 2027. Fiscal stimulus, stable monetary policy, and buoyant domestic demand will support the recovery, following several years of weak activity. Unemployment is set to fall gradually from 8.7% in 2025 to 8.2% in 2027. Inflation, as measured by the consumer price index with a fixed mortgage rate, peaked at 2.8% in 2025 and is projected to decline to around 1.1% in 2026 amid temporary tax cuts before returning to the 2% target by the end of 2027. External headwinds and higher-than-expected household savings could weigh on growth.

With economic activity strengthening, monetary policy should continue to anchor inflation expectations, while fiscal policy credibility will hinge on the commitment to the new balanced-budget rule. Streamlining regulations, especially in housing and energy, would improve efficiency and speed up the green transition. Further efforts to enhance skills formation would ease labour shortages and help ensure that growth is more inclusive.

Economic recovery is underway

Monthly GDP and industrial output data point to an uptick in economic activity, with real GDP growing about 1% in the third quarter of 2025 and consumer confidence picking up strongly. Private consumption is strengthening, supported by rising real incomes and easing inflation pressures. Inflation is gradually declining from its mid-2025 peak, reflecting soft global commodity prices and the fading impact of changes to the consumer price basket at the beginning of 2025. Wage growth remains robust at slightly above 3%, while productivity gains attenuate unit labour cost pressures. Employment is edging up, job vacancies are modest, and the unemployment rate remains elevated. Business confidence is stabilising, with optimism stronger in trade and manufacturing but weaker in construction and services.

Sweden

Source: OECD Economic Outlook 118 database.

Statlink

Sweden: Demand, output and prices

Statlink

The highly open economy continues to face global headwinds. Weak demand from the euro area and the United States, along with elevated trade frictions, is weighing on exports, particularly in the automotive and steel industries. A stronger krona and easing global commodity prices have moderated import costs and helped reduce inflationary pressures. European defence and infrastructure programmes should start to gradually support external demand.

Fiscal policy is turning expansionary, while monetary policy is on hold

The 2026 budget introduces measures worth around SEK 80 billion (2% of GDP), including lower labour, VAT and electricity taxes, and higher public consumption and investment, notably for defence. As a result, the budget deficit will widen from 1.6% of GDP in 2025 to 2.4% in 2026, before improving slightly to 1.9% in 2027, while gross debt will rise from 35.0% of GDP in 2025 to 36.8% in 2027. Concomitantly, the fiscal rule will shift from the current 1/3% of GDP surplus target to a balanced-budget objective in 2027. Monetary easing ended in October 2025, after cumulative rate cuts from 4% to 1.75%. The Riksbank is projected to keep the policy rate unchanged throughout 2026 and to begin a gradual tightening to 2% in late 2027, as inflation with a fixed mortgage rate (CPIF, the targeted inflation measure) reaches 2% and the output gap progressively closes.

Robust domestic demand will sustain the recovery

Growth will gain momentum as household consumption accelerates and residential investment rebounds on the back of the fiscal stimulus and improving confidence. Public investment and consumption will boost the recovery amid major defence programmes and increased spending on infrastructure and the green transition. Exports will remain subdued, growing by somewhat more than 2% in 2026-27, and the contribution of net trade to GDP growth is set to remain slightly negative in 2027. Headline CPIF inflation will drop to 1.1% in 2026 amid VAT cuts, before converging to the 2% target in 2027. Underlying price pressures remain muted, with moderate wage and import price growth. Employment will gradually strengthen, reducing the unemployment rate from 8.7% in 2025 to 8.2% by 2027. Persistent precautionary saving, weaker external demand, or more trade disruptions could slow the recovery by more than projected and further strain public finances. Upside risks include faster-than-projected household spending as confidence improves and inflation eases.

Maintaining fiscal credibility and reducing regulatory fragmentation

The new balanced-budget rule from 2027 provides scope for necessary green and defence investments, but should be implemented in a way that does not jeopardise debt sustainability. Streamlining land-use planning, shortening building and environmental permitting times, easing rent control and limiting additional local technical requirements would accelerate housing and infrastructure delivery. Clearer guidance and timelines for grid connections and renewable-energy projects would help reduce investment uncertainty and support decarbonisation. Further strengthening lifelong learning systems, better aligning activation programmes with labour market needs, and improving skills recognition systems would foster labour mobility and ease skill shortages.