Swedish Economy Report December 2023

Swedish Economy Set to Grow Again in 2024

Beginning in 2024, the Swedish economy is set to grow again, albeit at a slow pace. However, the labour market is expected to weaken, with unemployment reaching 8.5 percent next year. Inflation is decreasing, and will be clearly below the Riksbank's inflation target by the second half of 2024. Consequently, the Riksbank will initiate a series of interest rate cuts next summer, as indicated in the latest forecast.

The Swedish economy is currently in a recession, which is set to deepen in 2024. High inflation and increased interest rates have particularly impacted rate-sensitive households as well as housing construction. In 2024, wages will rise faster than prices. Alongside a lower policy rate, this will provide both households and businesses with increased room for consumption and investments.

The weak demand is evident in the decline in employment seen during the past autumn, and the labour market is projected to weaken further. Unemployment will continue to rise, peaking at 8.5 percent by the end of 2024. The downturn in the labour market will not be as severe as in previous recessions, as companies are to an extent retaining staff to be able to meet demand when the economic situation improves.

CPIF inflation has dropped from over 10 percent last year to 3.6 percent in November, primarily due to lower energy prices and international commodity prices. The Swedish krona has appreciated since September and will continue to do so. Inflation is set to decrease further, and will be well below the Riksbank's inflation target during the second half of 2024. Therefore, the Riksbank will begin a series of interest rate cuts next summer. In 2025, inflation will increase again due to an improved economic situation and a less restrictive monetary policy. Meanwhile, fiscal policy will move in an expansionary direction in 2025.