Swedish Economy Report

High inflation is hitting both the global and the Swedish economy hard. To contain inflation and anchor inflation expectations around its target level, the Riksbank has raised its policy rate rapidly in recent months, and further rate increases are to be expected.

High inflation and rising mortgage rates are eroding households’ purchasing power, and consumers are generally pessimistic. Households are expected to receive some compensation from central government for high power prices, but consumer spending is still set to fall, partly because it is still unclear what form this support will take, how much there will be and when it will arrive. At the same time, the global economic slowdown will hurt Swedish exports. Weak demand growth means that the Swedish economy will move to operating below capacity next year. The labour market remains strong for now, with the number of people in work rising rapidly this year, but the weak economy next year will cause demand for labour to soften and unemployment to rise. Sweden has strong public finances. We estimate fiscal space of around SEK 130 billion for the coming mandate period, although it should be noted that estimates of this kind are always very uncertain. We assume that around SEK 50 billion of this will be used in the budget for 2023.