Swedish Economy Report December 2022

Swedish Economy Report

High inflation and rising interest rates will contribute to a slow-down in the Swedish economy in 2023, with output moving below capacity. Households are under pressure on several fronts, and their real disposable income will fall in both 2022 and 2023.

High levels of debt and short fixed interest rate durations make Swedish households more sensitive to changes in interest rates than those in other countries. They will therefore cut back on spending during the winter and spring. It will then take time for the economy to recover, and the output gap is not expected to close until 2026. Many firms are still reporting staff shortages, and the economic slowdown will have a slightly delayed effect on the labour market. Unemployment will climb as the weaker output increasingly erodes demand for labour. High inflation, high inflation expectations and the weak economic outlook present the Riksbank with a difficult balancing act in its monetary policy. We expect the policy rate to be raised to 2.75 per cent in February 2023 before beginning to come back down towards the end of the year as the slowdown bites and inflation returns to normal levels.