Despite ongoing geopolitical uncertainty in the Middle East, both Sweden and the broader global economy have shown notable resilience. Swedish GDP is projected to expand by roughly 2 percent per year over the coming years, with domestic demand doing most of the heavy lifting. As momentum builds and price pressures edge higher, a gradual normalization of monetary policy is expected toward the turn of the year.

Domestic engines drive the recovery

Household consumption has picked up since 2024 as real incomes improved, and that trend is set to continue. Public consumption and investment are rising quickly, in part due to stepped-up defense-related spending, which is bolstering activity across supply chains from construction to services. Exports are also expected to contribute to growth in the coming years, complementing the recovery in domestic demand.

On this trajectory, Sweden’s economy is forecast to grow by around 2 percent annually through 2026–2028. A firmer backdrop should translate into a healthier labor market from next year onward, with unemployment projected to fall to about 7.3 percent by the end of 2028.

Monetary policy: from pause to cautious tightening

Inflation remains subdued but is likely to rise gradually over the next six months. Underlying inflation—excluding energy and one-off fiscal measures—is expected to nudge just above 2 percent by year-end and approach around 2.7 percent at the start of next year. In this context, two modest policy rate increases are anticipated: one in November 2026 and another in February 2027, taking the policy rate to roughly 2.25 percent.

Several forces argue for this shift. As domestic demand firms, pricing power improves in parts of the economy. Delayed ripple effects from conflict in the Middle East are set to keep certain input and goods prices elevated. Freight costs have climbed, and extreme weather is adding volatility and pinch points to logistics and insurance costs. Together, these factors increase the likelihood that inflation hovers above target, warranting a cautious recalibration of interest rates.

Housing: stable footing with moderate gains

After a period of adjustment, Sweden’s housing market has steadied. Both prices and transaction volumes have increased, with average prices on track to rise by around 4 percent this year. Looking ahead, activity is expected to cool somewhat as mortgage rates reflect a higher policy rate. Price growth is seen easing to about 2 percent per year over the following two years—consistent with a soft-landing scenario rather than a renewed surge.

Fiscal stance: limited room, limited election impact

Regardless of the outcome of the upcoming election cycle, the scope for sweeping fiscal changes remains narrow. Current projections assume roughly SEK 15 billion in unfinanced measures next year and about SEK 25 billion in 2028, implying public-sector deficits throughout the two-year forecast period. Even so, Sweden’s Maastricht debt is expected to rise only gradually and stay below the 40 percent of GDP debt anchor.

From 2027, the fiscal framework is set to shift from a surplus target to a balanced-budget target. Sweden’s relatively low public debt remains a structural advantage, but preserving that position hinges on returning to a disciplined framework—especially important amid recent increases in long-term interest rates, which raise borrowing costs for both the state and households.

Climate stress is now a core macro variable

Record-breaking heat across Europe this summer has had clear economic repercussions. In Sweden, higher electricity prices alone are estimated to lift inflation by around 0.2 percentage points this year. Climate-related hazards—wildfires, floods, droughts—compound risks to supply chains and food production worldwide, creating a persistent upside risk to inflation. The bill for restoring burned landscapes and rebuilding damaged infrastructure in Europe is mounting, adding pressure to already stretched public finances.

For an open, trade-dependent economy, these climate pressures are not peripheral. They influence everything from freight timetables and commodity costs to risk premiums in credit markets. Adaptation now functions as macroeconomic policy: reinforcing the power grid, improving water management, accelerating efficient electrification and storage, and restoring ecosystems that provide natural buffers. Diversifying trade routes and suppliers can mitigate chokepoints when extreme weather disrupts key corridors. Done well, green investment can soften inflation volatility over time, sustain competitiveness, and reduce exposure to climate shocks.

Bottom line

Sweden’s outlook points to steady, domestically driven growth near 2 percent, a gradually improving labor market, and a measured return to tighter monetary policy as inflation edges higher. The housing market looks stable with modest price gains. Fiscal room is tight, so election outcomes are unlikely to materially change the macro picture. Above all, climate dynamics have moved to the center of the economic narrative—shaping prices, budgets, and investment choices. Treating climate resilience as core economic policy is no longer optional; it is the precondition for durable growth in the years ahead.