Swedbank Economic Outlook: Near-term headwinds – but better by summer
Inflation will fall, interest rates will decline and household real income will rise in 2024 – paving the way for the Swedish economy to make a rapid recovery in 2025. The near-term outlook presents challenges, however, and the labour market will weaken this year. The Riksbank will start lowering the policy rate in May, and fiscal policy will become more expansive in 2025, according to Swedbank Economic Outlook.
“After two years of declining income, households are beginning to see signs of hope as inflation falls and public transfers to households increase. However, consumption will remain subdued until the summer, but in the second half of the year we believe that households will become more optimistic, and that consumption will then start to increase. Above all, it will be housing investments that hold the Swedish economy back this year; they have come to a rapid halt and are expected to fall by 16 per cent this year,” says Mattias Persson, Group Chief Economist, Swedbank.
Fragmentation on a deteriorating labour market
The Swedish labour market has started to weaken. The situation will continue to deteriorate in 2024, as economic growth will remain subdued, and unemployment will peak at 8.5 per cent in the fourth quarter of the year. Yet, there is a risk that the labour market will weaken even more.
“The outlook for the labour market varies depending on industry. Subdued domestic demand is weighing on employment in the retail, hotel and restaurant sectors as well as on housing construction and related industries. At the same time, demand for labour remains high or stable in other industries such as defence, crisis preparedness, green technology and IT,” says Mattias Persson.
Inflationary pressure will fall rapidly and the Riksbank will make more cuts
Inflation is now clearly on a downward trend in Sweden and is expected to reach the target of 2 per cent by summer – CPIF inflation in June and CPIF excluding energy in July. Subsequently, Swedbank expects inflation to be below the inflation target by the end of 2025.
“We expect the policy rate to be cut by 25 points in May, to 3.75 per cent, followed by further cuts. Swedbank’s assessment is that a normal policy rate in Sweden is approximately 2 per cent. The policy rate will be gradually lowered to 2 per cent by the middle of 2025, which means that monetary policy will remain tight, although to a lesser extent, until the middle of 2025,” says Mattias Persson.
The Swedish economy will recover rapidly
The Swedish economy’s growth is expected to be weak this year, but a rapid upturn will follow in 2025. For 2024, Swedbank’s forecast has been revised up and we expect the economy to grow by 0.1 per cent compared to our preceding forecast in November, in which we estimated that GDP would shrink by 0.4 per cent. In 2025, there will be a strong recovery and the Swedish economy will grow by 3.0 per cent, an upward revision from our preceding forecast of 2.0 per cent.
“The Swedish economy will continue to face headwinds in the first half of 2024, but after that the recovery will become increasingly evident. In line with falling inflation, policy rate cuts and a more expansive fiscal policy in 2025, Sweden’s economy will grow faster than that of many other countries. The Swedish economy will make a comeback in 2025,” says Mattias Persson.
For the full report, see attachment or visit: www.swedbank.com/seo.
Contact:
Mattias Persson, Group Chief Economist, Swedbank, tel. +46 73 094 29 56
Charlotte Nilsson, Press Communicator, Swedbank, tel. +46 76 534 66 12
