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Cautious turnaround in the Swedish economy

The joint economic report by the Federation of Industrial Employers and the Federation of Swedish Technological Industries has recently been presented, giving an insight into inflation in Sweden and international trends

Inflation in Sweden, as well as in many other countries, has continued to decline in 2024. In Sweden, inflation is now close to the target rate. This decline is partly a result of tightened monetary policy and a consequently weakened economy. Sweden's GDP has remained more or less unchanged since early 2022, and the country is in a recession. Household finances have been strained by high inflation and interest rates, leading to a decline in real consumption. Additionally, there has been a significant drop in housing investments.


Inflation is expected to further ease and fall slightly below the target rate over the course of 2024. There is no alarming price pressure from input goods or the real economy, and there are no signs of a price-wage spiral in the labour market. The inflation rate for service prices is also expected to decline with a lag. KPIF inflation is projected to average 1.9 percent this year and 1.8 percent in 2025.

'This creates conditions for a cautious economic turnaround, but the recovery is not expected to gain momentum until 2025. We anticipate Sweden's GDP to grow by 1.0 percent this year and then accelerate to 2.6 percent in 2025,' the report says.

One reason for the increase in GDP growth is a rise in household consumption as the economy improves. The contribution from total fixed investments to GDP will remain negative this year, mainly due to reduced housing investments, but not as severely as in 2023. Despite weak foreign demand, trade in goods and services has positively contributed to Sweden's GDP growth in 2023. Public consumption has also contributed positively. This year, export growth is expected to slow slightly before returning to a more normal pace in 2025. Contributions from net exports and public consumption will remain positive this year but to a lesser extent than last year.

The outlook for Swedish industry is mixed. Demand for construction-related goods has been significantly negatively impacted both domestically and in export markets. Overall, industrial production is projected to decrease by 1 percent this year and increase by 3.5 percent in 2025. The increase follows from higher growth in Sweden and the rest of Europe in 2025.

Global trends
The post-pandemic inflation surge led central banks worldwide to rapidly raise their policy rates to high levels. However, the impact on the real economy varied across countries. Growth in the USA has been notably strong, driven by relatively high but declining employment growth. In Germany, GDP growth decreased slightly in 2023 and is expected to be slightly positive this year. Growth in the euro area is not expected to pick up until 2025. China's economy continues according to its politically set growth target, with GDP growth not expected to slow significantly in 2025, despite extensive problems in the real estate and construction sectors.

'Global GDP preliminarily increased by about 2.5 percent in 2023, half a percentage point lower than in 2022. We expect global GDP to reach the same growth rate this year as last year and to increase slightly more in 2025, by 2.7 percent, partly due to increased growth in the EU/EMU in 2025,' the report states.

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