Economic activity in Sweden is projected to pick up from the second half of 2025, primarily driven by a rebound in private consumption. Real GDP growth is set to increase from 1.5% in 2025 to 2.6% in 2026 and reach 2.3% in 2027. With previous inflationary pressures having fallen away, HICP inflation is expected to fall markedly in 2026 on the back of lower VAT on food and to remain below 2% in 2027. The labour market is expected to strengthen, in line with the economic recovery. In view of tax reductions and a marked increase in expenditure, notably on defence, the general government deficit is projected to reach 2.4% of GDP in 2026, before moderating somewhat in 2027. These deficits are set to increase the gross debt-to-GDP ratio to close to 36% in 2027.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 1.5 | 2.6 | 2.3 |
| Inflation (%, yoy) | 2.5 | 0.6 | 1.6 |
| Unemployment (%) | 9.0 | 8.4 | 7.9 |
| General government balance (% of GDP) | -1.7 | -2.4 | -2.0 |
| Gross public debt (% of GDP) | 34.5 | 35.3 | 35.8 |
| Current account balance (% of GDP) | 4.9 | 4.8 | 4.9 |
Conditions in place for a recovery in domestic demand
After a period of higher inflation and interest rates weighing on the confidence and spending decisions of Swedish households and corporations, conditions are now in place to support a recovery in domestic demand, primarily driven by household consumption, which had remained sluggish in the first part of 2025. Real GDP growth in 2025 is expected to average 1.5 %. In 2026, real household disposable income is set to be supported by fiscal measures, including tax reductions and lower indirect tax on food, gains in real wages, lower interest rates and falling inflation, all factors expected to contribute to increasing private consumption. Gross fixed capital formation is also expected to contribute to the upturn given increases in public investment, including capital outlays on defence, while the previous drag from housing construction is bottoming out. With improving business and consumer confidence, economic growth is set to reach 2.6% in 2026. In 2027, continued albeit slightly weaker momentum in domestic demand and some recovery in exports are projected to allow real GDP growth to grow by 2.3%. The balance of risks remains tilted to the downside, hinging on the willingness of households and firms to consume and invest in the current volatile global environment.
Labour market set to improve
The labour market has remained broadly resilient despite the weak cycle in the first half of 2025. Employment is set to gradually recover over the forecast horizon, following the increase in economic growth. The unemployment rate is expected to fall from a peak of 9% in 2025 to 7.9% in 2027. Structural unemployment is set to remain relatively high due to challenges in education and skills. Weak inflationary pressures should allow for real wage gains together with contained increases in unit labour costs.
Inflation to fall sharply in 2026 due to lower VAT on food
Consumer price inflation is set to decrease strongly from 2.5% in 2025 to 0.6% in 2026. The fading of supply disruptions, sufficient production capacity after a protracted weak cyclical phase, moderate wage increases, and the delayed impact of krona appreciation are expected to reduce price pressures. For 2026, the main factor pushing down inflation is set to be the temporary decrease in VAT on food from 12 to 6%, to take effect from April 2026 until 1 January 2028. Inflation is set to reach 1.6% in 2027.
Higher general government deficit
The general government balance in 2025 is set to end up with a deficit of 1.7% of GDP, due to weak economic growth. In 2026, despite a pick-up in activity, the deficit is set to deteriorate further to 2.4% of GDP. This is due to budgetary measures adding up to close to 2% of GDP (which is among the last decade’s largest packages, apart from the exceptional COVID-19 budgets) notably on defence and support to Ukraine as well as a decrease in income taxes and the temporary VAT reduction on food. As of 2026 the government expects to start spending on the multi-year support scheme for new nuclear facilities. In 2027, the general government deficit is set to decrease to 2% of GDP. With the output gap expected to almost close at the end of the forecast period, the structural balance is projected to show a similar deficit in 2027.
The decreasing trend of debt is expected to reverse in 2025, with the general government gross debt ratio reaching 34.5%. Debt is set to increase to 35.3% of GDP in 2026 and to just below 36% in 2027, still some 4 percentage points below the ceiling of Sweden’s own “debt anchor” rule.