Sweden’s economy is set for a temporary slowdown as the war in the Middle East pushes up energy costs and darkens the global outlook, but Swedbank expects the country to prove more resilient than many peers thanks to low inflation, rising household incomes, public investment and a cautious Riksbank.

The latest Swedbank Economic Outlook paints a mixed picture. The global economy has been hit by another shock less than a year after the shift in US trade policy, with higher tariffs, weaker growth prospects and elevated uncertainty now compounded by the closure of the Strait of Hormuz. Around 20% of the world’s oil and natural gas supply normally passes through the route, and Swedbank says the longer the disruption lasts, the greater the risk of wider energy shortages and deeper economic damage.

Swedbank’s baseline forecast assumes oil prices follow futures markets, with Brent crude declining from US$114 per barrel to US$90 by the end of 2026 and US$80 by the end of 2027. That assumption implies a relatively short period of disruption and a gradual de-escalation of the conflict. Downside risks dominate, however, and the bank warns that markets may be too optimistic if peace talks fail to deliver a timely reopening of energy routes.

For Sweden, the near-term effect is a slower recovery rather than a collapse. GDP is forecast to grow by 1.8% this year and 2.4% in 2027, after expanding by almost 2% last year. The economy appears to have lost momentum at the start of 2026, with preliminary data showing GDP declined by 0.2% in the first quarter from the previous quarter. Activity improved again in March, and Swedbank says the April barometer indicator points to stable growth.

Mattias Persson, group chief economist at Swedbank, says Sweden starts from a relatively favourable position. “Price increases will be more extensive because of the war, but we’re coming from a good starting point where several factors are counteracting a sharper increase. We expect inflation in Sweden to remain below the Riksbank’s inflation target in both 2026 and 2027, which will soften the impact on households and boost resilience in the Swedish economy.”

Inflation gives the Riksbank room

Sweden’s main advantage is inflation. CPIF inflation slowed to 1.6% in March, while core inflation, measured as CPIF excluding energy, fell to 1.1%. Swedbank expects CPIF to average 1.5% this year and 1.3% in 2027, keeping it below the Riksbank’s 2% target throughout the forecast period.

A stronger Swedish krona has been central to that disinflation. The currency appreciated during 2025, helping to restrain import prices, and Swedbank expects a modest return to the appreciation trend that has been in place since 2024. The report argues that Sweden’s relatively robust growth outlook should support the krona, although gains are expected to be limited because the Riksbank is likely to remain on hold while the ECB and Norges Bank raise rates.

Higher oil prices will still feed into Swedish inflation, mainly through transport fuels. Swedbank estimates that the direct effect will add around 0.4 percentage points to CPIF inflation this year. The delayed impact from higher production costs is expected to be materially larger, at around two to three times the direct effect over the coming years.

Several factors reduce the risk of a repeat of the 2022 inflation shock. Electricity, gas and freight prices have not risen to the same extent, resource utilisation in Sweden is below normal, and food prices have been softened by domestic policy. Food prices began falling in March and declined further in April after value-added tax on food was halved. Further ahead, food prices are expected to rise slightly faster than normal as fertiliser and diesel costs feed through, while the disinflationary effect from the stronger krona becomes smaller.

The Riksbank is therefore expected to leave the policy rate at 1.75% this year and next. Swedbank argues there is no need to raise rates while inflation remains below target, growth has softened and inflation expectations remain anchored. The central bank is also expected to stay vigilant, given memories of the 2022 price shock and the risk that higher energy costs spread into broader prices.

“With the latest inflation shock in recent memory, the Riksbank will remain vigilant when it comes to rising inflation and broader price increases,” says Persson. “But with weaker resource utilisation and lower growth this year, our assessment is that the Riksbank will leave the rate unchanged in 2026 and 2027.”

Sweden’s position contrasts with the outlook for other major central banks. Swedbank expects the ECB to raise rates twice, in June and September, by a combined 50 basis points to prevent inflation expectations from rising. The Bank of England is also expected to raise its policy rate by 25 basis points this summer, despite weak labour market conditions and sluggish growth. In the US, a softer labour market and more favourable inflation outlook are expected to give the Fed room to restart rate cuts after the summer.

For corporate finance teams with Swedish exposure, that rate outlook is one of the most important conclusions in the report. Stable policy rates would make short-term funding costs more predictable, limit pressure on floating-rate debt and reduce the risk that domestic demand is hit by a fresh monetary squeeze. The main uncertainty is whether the energy shock stays contained enough for the Riksbank to keep looking through it.

Domestic demand steadies the picture

Household consumption is a useful signal of the demand environment companies are planning around, and Swedbank sees it as one of the reasons Sweden should weather the shock relatively well. Consumption grew steadily last year, although it started 2026 on a weaker footing. Goods consumption, particularly durable goods, has driven much of the improvement, while services have lagged. Excluding housing, services consumption has been broadly unchanged in recent years.

The sector details matter because they point to a recovery that is still uneven. Spending on vehicle repairs, public transport and insurance services has declined, while package travel and financial services have also been subdued during the past year. Restaurants and recreational services have continued to grow. For businesses, that split suggests household demand is returning selectively rather than across the board, which makes revenue planning more sector-specific.

Household purchasing power is expected to strengthen as inflation stays low and fiscal policy remains expansionary. Real disposable income is forecast to rise by 2.8% this year and 2.4% next year, creating room for a stronger consumption recovery later in the forecast period. Even so, households are expected to remain cautious, with the savings ratio staying high.

“The stage is set for continued growth in consumption,” says Persson. “At the same time, Swedish households will remain cautious, and we expect the savings rate to stay high in the future.”

That cautious recovery is important for treasury and finance teams because it shapes the reliability of domestic sales, working capital assumptions and cash-flow forecasting. Stronger real incomes improve the backdrop for consumer-facing companies, but a high savings rate means finance teams cannot assume that purchasing power will translate fully or quickly into spending.

Public-sector demand has also become a major growth driver. In the fourth quarter of 2025, government investment rose by just over 40% year on year, largely reflecting rearmament. Central government expenditure contributed 1.2 percentage points to annual GDP growth in the quarter, roughly half of total growth. Government investment rose to 5.5% of GDP, the highest share in decades, and public investment is expected to grow by more than 6% both this year and next.

For companies exposed to infrastructure, defence, logistics, construction services or public procurement, that spending is more than a macro support. It affects order books, supplier financing needs and capacity planning. Public investment can also soften the broader growth slowdown, giving banks and corporates more confidence in Sweden’s domestic demand base even as export markets weaken.

Fiscal support has arrived at an unexpectedly useful moment. The spring budget includes a temporary reduction in petrol and diesel taxes from May to September 2026, as well as an electricity subsidy for households. Earlier measures included the temporary halving of food VAT and lower employer contributions for young people from 1 April.

The report is critical of fuel tax cuts in the broader European context, arguing that such measures weaken price signals and can sustain demand at a time when oil supply is constrained. The OECD and EU Commission have recommended targeted, temporary measures and energy-saving steps, but many European governments have instead cut fuel taxes. Sweden is among the Nordic and Baltic countries to have done so.

Domestic fiscal policy will remain expansionary this year, but less so in 2027. Swedbank assumes new budget-weakening measures of around SEK20bn next year regardless of the outcome of Sweden’s autumn election. The general government deficit is expected to be around 2.5% of GDP both this year and next, pushing Maastricht debt to nearly 38% of GDP in 2027.

Corporate activity is less certain. Swedish exports grew by nearly 4% last year despite higher US tariffs, but momentum weakened towards year-end as both goods and services exports declined. The outlook is subdued because several important export markets are slowing, tariffs continue to weigh on trade and further US tariff threats on cars and trucks could add pressure.

Business investment was restrained last year and is expected to remain cautious in the near term. Swedbank expects a pick-up in 2027, supported by stronger demand and investment linked to defence, the energy transition and AI. Housing investment is recovering only gradually as slower population growth and elevated construction costs squeeze the profitability of new projects. Housing starts are expected to rise to just over 30,000 units next year.

Labour and housing enter a new phase

The labour market has improved since summer 2025, but Swedbank expects the recovery to remain slow. Employment rose sharply towards the end of last year, before momentum faded. Unemployment is forecast at 8.5% this year and 8.1% in 2027, with the press release noting that the jobless rate is expected to fall to 7.8% by the end of 2027.

“As the Swedish economy continues to gain strength, we expect unemployment to fall to 7.8% at the end of 2027,” Persson notes. “At the same time, it’s clear that the Swedish labour market is in transition. Employment is growing, supported by defence investments, while AI tools are starting to affect the labour market; different age groups are being impacted to varying degrees.”

Labour data matters to finance teams because it sits at the intersection of demand, wage costs and operating capacity. A slow improvement in employment supports household income and consumption, but a cautious hiring environment points to companies still protecting margins and keeping costs under control.

The composition of employment is already shifting. Construction employment has risen since the end of last year after a prolonged decline and should receive further support from investment in national security and defence. Staffing in the defence industry rose by 12% last year, while employment in defence-related authorities increased by 10%. Hotels and restaurants continue to create jobs across the country.

AI is starting to show up in the labour market too. Swedbank cites a Swedish study finding that AI tools have begun to affect academics’ entry into work, particularly in exposed professions such as software development and customer service. Employment in business services has declined in recent months, and the sector is expected to remain cautious.

Housing is another broad economic signal that matters because Sweden’s household balance sheets, confidence and consumption patterns are closely tied to housing wealth and mortgage costs. Prices rose by 0.8% in the first three months of 2026 and were 2% higher in March than a year earlier. Tenant-owned apartment prices have increased by 3% over the past year, while house prices are up 1.5%. Transactions have returned to normal levels, but selling times remain longer than usual and bid premiums are low.

Regional divergence is significant. Stockholm’s tenant-owned housing market has been strongest, with prices up 5% over the past year and back at their pandemic peak, according to Valueguard. Gothenburg and medium-sized cities have been much flatter.

“We expect housing prices in Sweden to rise by about 3% both this year and next,” says Persson. “At the same time, price increases are being held back by increased risk awareness among households - and because rates are higher now than they were during the ultra low-rate period.”

The housing market helps confirm the report’s wider message: Sweden is recovering, but not overheating. A modest rise in prices supports household confidence without recreating the conditions of the ultra-low-rate period. Longer selling times and low bid premiums also show that consumers remain cautious, which tempers the outlook for discretionary spending.

A wider range of outcomes

The report makes it clear that Sweden’s resilience has limits. In Swedbank’s adverse scenario, the Strait of Hormuz remains closed, oil rises to US$140 per barrel for an extended period and LNG jumps to €100 per MWh. Inflation would rise above 5% in Sweden in 2027, CPI would exceed 6% at the start of next year and the Riksbank would respond with four consecutive 25 basis point hikes starting in June 2026. GDP growth would slow to 1.5% this year and 1.0% in 2027.

Such an outcome would alter the assumptions sitting beneath much of the base case. Higher energy costs would hit household purchasing power, weaken consumption, raise pressure on margins and force a rethink of the Riksbank’s steady-rate path. A stronger inflation shock could also test the krona’s recovery and make funding conditions less predictable.

That is not Swedbank’s central forecast. But Sweden’s resilience rests on the assumption that the energy shock fades. For now, low domestic inflation, rising real incomes, strong public investment and a steady Riksbank leave Sweden better placed than many economies to absorb the latest global shock. A longer war would quickly turn that resilience into a stress test.