Swedish economy remains in recession but conditions for recovery show promise

After closing 2024 relatively strong, Swedish GDP decreased in the first quarter of 2025. Households have a pessimistic view of the economy, but conditions for resuming the recovery that has already begun are good. In 2025, real wages are expected to continue to increase, interest expenses are expected to decrease and fiscal policy is expected to help give households more money with which to manoeuvre.

The economic recovery is expected to accelerate in 2026, with higher anticipated GDP growth driven by increased household consumption and investments. The Ministry of Finance’s new forecast is that the recession will continue into 2027, and thus be more prolonged than previously assessed in the Spring Fiscal Policy Bill in April.

Unemployment in Sweden is high, and demand for labour remains low. The employment rate appeared to rebound at the start of the year, but general uncertainty as regards the economic situation is expected to slow short-term progress. A gradual labour market recovery is expected to commence in 2025 and gain momentum predominantly in 2026. 

Geopolitical and trade policy uncertainty have impacted the global economy in the first half of 2025, which initially caused stock markets to fall and US government bond yields to increase. When the US suspended its tariff increases, the markets rebounded, but interest rates remain high. Growth among Sweden’s most important trade partners is expected to be subdued for the coming years, which will affect Swedish exports. However, when viewed in relation to global economic developments, Swedish exports are expected to perform relatively well.

“The US administration’s policies, and particularly the trade war, have created major uncertainty in the global economy. This also affects the Swedish economy. The recovery we were seeing late last year has been interrupted and the recession has been drawn out further,” says Ms Svantesson.