High Inflation and Rising Interest Rates Erode Household Purchasing Power

The economic downturn is set to deepen over the next year, and the economy will begin to show some signs of recovery only towards the second half of 2024. It is not until 2026 that the Swedish economy will achieve a balanced state, as indicated in our latest forecast which was released today in the Swedish Economy Report.

The Swedish economy has entered a period of economic recession, with GDP declining this year. High inflation and rising interest rates have eroded household purchasing power, while weak external demand has negatively impacted the export sector. These factors will contribute to the deepening of the economic downturn next year.

Although inflation is clearly on a downward trend, inflation excluding energy remains high. Therefore, the Swedish central bank will raise the policy rate once again in November. The interest rate will remain unchanged until the third quarter of next year, when the central bank begins to lower it.

By then, inflation will have approached 2 percent, and the outlook for inflation will continue to point downwards. Lower inflation will contribute to a weak uptick in the economy starting in the second half of next year.

Employment has remained strong despite the economic downturn, but is expected to weaken in the coming months. Unemployment is projected to rise to 8.3 percent in the second half of next year.