Swedbank and SEB warn of higher inflation and interest rates ahead for Sweden

Sweden's economic growth has been unexpectedly strong, which now means a significantly slower pace going forward, Swedbank writes in its new economic forecast.

An interest rate hike

While the country's GDP is expected to rise by 2.6 percent this year, that figure will fall to 1.9 percent next year. Inflation, measured by the CPIF, will rise to 2.3 percent in 2027, above the Swedish Central Bank's inflation target of 2.0 percent. This means the interest rate hike recently carried out by the Swedish Central Bank will be followed by another in 2027. However, the bank emphasizes that the risks are mainly to the upside and that the war in the Middle East could lead to further interest rate hikes.

"Higher inflation and rising interest rates mean that households' purchasing power is increasing more slowly, which is holding back domestic demand," Swedbank writes in the report.

SEB has also published a new forecast. Its economists are a little more optimistic about growth and inflation than Swedbank's, expecting growth of 3.0 percent this year and 2.5 percent next year. SEB's inflation forecast remains at 2.2 percent.

But the message is similar. SEB describes households as pessimistic in the face of "rising borrowing costs, higher inflation and increasing stock market turmoil, which challenge growth and create uncertainty about the strength of the economy".

"We are raising our GDP forecast for Sweden this year but see increased headwinds from energy and interest rates next year. The Swedish Central Bank's policy rate will be raised once again to 2.25 percent in March 2027 and will remain at that level in 2028," SEB adds.

3.3 percent wage increase per year

Swedbank's economists warn that households can expect food prices to rise faster as a result of higher production and transport costs. Interest rate hikes will affect the housing market. While housing prices are expected to rise by just over 3.5 percent this year, the increase will slow to around 2 percent annually in 2027-2028.

There will also be no sharp decline in unemployment, which is expected to fall from 8.7 percent this year to 8.3 percent next year.

In the bargaining process, the unions in industry have already announced their wage demand: 3.9 percent, based on a one-year agreement. However, Swedbank predicts that a two-year agreement will ultimately be reached, with annual wage increases of 3.3 percent.