Swedish economy to slow due to tariffs and uncertainty, says Swedbank

Investing.com -- The Swedish economy is expected to slow down due to the impact of US tariffs and ongoing uncertainty, according to a report by Swedbank Economic Outlook. The report predicts a dampening effect on exports, delays in investments, and moderate consumption.

The recovery of the Swedish economy, which was anticipated this year, is now expected to be delayed. However, more expansive economic policies are projected to stimulate stronger growth by 2026.

Increased tariffs, coupled with unpredictable economic policies from the US, have led to heightened volatility in financial markets and a significant level of uncertainty. The status of US assets as a safe haven in turbulent markets is now being questioned.

"Sweden, which relies heavily on exports, will be significantly affected by these circumstances. Higher tariffs and lower global growth will negatively impact Swedish goods exports. The prevailing uncertainty will cause firms to delay investments," stated Mattias Persson, Group Chief Economist at Swedbank.

Swedish households have become more cautious about their financial situation and the economy in general. Despite a recovery in real wages after price increases in recent years, households are expected to remain cautious.

Persson explained, "The high level of uncertainty, weak labor market, and rapid changes on the financial markets are causing households to hold back on their spending once again. Consumption is moderating and household savings are reaching record highs in uncertain times."

The labor market in Sweden is predicted to weaken, with unemployment remaining high throughout 2025. Employment is expected to decrease in the next quarter as companies adjust to the changing global conditions. The high level of uncertainty will cause some firms to delay recruitment.

On the other hand, the Swedish economic policies are expected to become more expansive. As inflationary pressure decreases, the Riksbank is expected to cut the policy rate by 0.25 percentage points in both June and September. Fiscal policy is also anticipated to provide additional support to the economy this year and next year.

"Despite the tariffs, inflationary pressure will be low in Sweden, as the krona has gained strength and global commodity prices have decreased. To support the economy, the Riksbank needs to cut the policy rate, which will reach 1.75 per cent this year. Fiscal policy will also provide support for the Swedish economy, and we expect measures such as income tax cuts and higher child benefit next year," said Persson.

Despite the uncertainty, the Swedish economy is expected to grow by 1.5 per cent this year and 2.5 per cent in 2026. The euro area economy, on the other hand, is expected to grow by just under 1 per cent both this year and next.

Persson highlighted the underlying strength in the Swedish economy, stating, "Sweden’s public debt as a share of GDP is low, providing scope for investment in defense as well as targeted support if economic conditions should weaken."

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