Swedish Growth Forecast Lowered Due to Weak Household Consumption

National Institute of Economic Research (KI) lowers the forecast for Swedish growth. The main reason is the households' weak consumption. Households' consumption has been more or less stagnant since 2022, says KI's forecast manager Ylva Hedén Westerdahl.

» Published: August 06 2025 at 09:20

Swedish Growth Forecast Lowered Due to Weak Household Consumption
Photo: Viktoria Bank/TT

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KI now expects Sweden's GDP to grow by 0.7 percent in 2025. This is a decrease of 0.3 percentage points compared to the previous forecast, according to the report. For 2026, KI expects growth of 2.6 percent.

We have for a long time, I must admit, been wrong about household consumption. It is not growing as fast as we thought, despite the fact that we think there are conditions, says Hedén Westerdahl.

Consumption has stagnated

What the weak development depends on is difficult to say, but what can be noted is that household consumption has been more or less stagnant for several years.

–It's maybe not so surprising considering that prices have risen by 30 percent in three years, and you've had higher interest rates, says Hedén Westerdahl.

But KI assesses that lower interest rates and rising real incomes contribute to households increasing consumption faster ahead and that the economy begins to recover towards the end of the year. The Swedish Central Bank is expected to cut the repo rate once more this year.

KI notes that the uncertainty surrounding American tariff policy continues during the summer. The tariff agreement with tariffs of 15 percent is in line with KI's assumptions, and although many details remain, the agreement reduces uncertainty. But the tariffs will curb growth in the world economy, both in the short and long term, according to KI.

Unemployment decreases in 2026

Unemployment in Sweden is expected to land at 8.7 percent this year, which is 0.1 percentage points lower than in the forecast in June. It is not expected to move downward until the beginning of next year, when the economy goes up.

Eventually, companies will need to hire more, but it will take a little while because companies have idle resources. You don't need to hire more to increase production in the short term, says Hedén Westerdahl.

KI believes in a reform space in the upcoming budget of 34 billion kronor. This is the same assessment that KI made in June.

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By TTEnglish edition by Sweden Herald, adapted for local and international readers
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