Nordic Outlook: Hope rises amid autumn uncertainty

Uncertainty is high, but growth and markets continue to show resilience and strong adaptability. The rise in oil prices is being contained by factors including new transport routes, that the Strait of Hormuz `'leaks'' and lower Chinese oil imports. At the same time, the wider price gap between crude oil and different distillates shows that the market remains under strain. The growth outlook is broadly intact; if anything, revisions are on the upside. We see limited second-round inflation effects from higher energy prices, but central banks are under pressure and choosing somewhat different paths: the Fed remains on hold this year, while the ECB raises rates. Swedish growth is gaining momentum, and we revise our already optimistic GDP forecast for this year up by one tenth to 2.7 per cent, followed by 2.9 and 2.0 per cent in 2027 and 2028, respectively. The Riksbank will remain on hold for now but raise the policy rate in March and September next year.

"Although oil prices are higher than desirable, and prices for refined petroleum products are considerably higher still, the situation has not produced the severe shock to the global economy that many feared. At least not yet. In fact, the economic outlook looks somewhat better after the summer than it did before, despite the continuing wars in both the Middle East and Ukraine", comments SEB's Chief Economist Jens Magnusson.

The growth gap between the US and Europe is narrowing
We are cautiously revising our global growth forecast up to 3.1 per cent this year and to 3.2 and 3.3 per cent in 2027 and 2028, respectively. US growth remains just above 2 per cent throughout the forecast period. The euro area gains momentum, from just under 1 per cent this year to 1.5 per cent in 2028, although low gas inventories ahead of this winter pose risks to both inflation and production. Chinese growth settles at around 4.5 per cent. Exports remain the main growth engine, contributing to global trade tensions, not least with Europe, but also exerting downward pressure on inflation.

"The signals heading into autumn and winter are mixed. A resilient economy and more optimistic businesses and households provide grounds for hope. At the same time, the energy situation is still precarious. This summer's drought and exceptionally low water levels in Europe's rivers risk affecting both food and transport prices. On the financial side, the US federal debt has passed a staggering USD 40 trillion, which, together with high long-term interest rates, is contributing both to strained public finances and increasingly desperate measures, such as expanded bond buybacks and foreign-exchange interventions", says Jens Magnusson.

Major structural and cyclical forces are in motion
Risks to global growth remain tilted to the downside. The global investment cycle has acted as a counterweight supporting growth. However, a sharp rise in energy prices and higher interest rates could rapidly weaken prospects and generate negative spillover effects across many areas, including AI investment.

"Such a development could trigger a major repricing in financial markets and amplify the negative shock. But it is also possible that we are being too cautious in assessing the positive effects of the investment upswing now visible in several areas", says SEB'Head of Forecasting Daniel Bergvall.

Energy-driven inflation is putting central banks under pressure
In the US, the inflation picture has improved in recent months, while the earlier decline in the euro-area has stalled. In both economies, inflation remains too high. However, easing wage growth is helping to bring core inflation measures back towards target by the end of our forecast horizon. Over the summer, markets did some of the central banks' work by pricing in rate increases. Expectations for the Fed in particular have, however, become less hawkish recently.

"Interest-rate moves will go in different directions in different parts of the world in the near term. The Fed stays on hold this year and cuts slowly in 2027-2028, while the ECB first raises rates - in September - and then cuts them in early 2028", says Daniel Bergvall.

Sweden: Growth is gaining momentum
We have revised up our already optimistic GDP forecast for this year by one tenth to 2.7 per cent. We also maintain our forecast for 2.9 per cent growth next year. In 2028, GDP grows by 2.0 per cent, close to its underlying trend.

"Sweden has seen a clear acceleration, with investment, exports and - finally - consumption now jointly supporting growth", says Jens Magnusson.

Swedish industry stands out internationally
Manufacturing is leading the upturn, with particularly strong demand for defence equipment, pharmaceuticals and information technology. Parts of the basic industries, however, are facing weaker demand. Exports have risen steadily since 2022, with goods accounting for a growing share. Major investments in defence, AI and power transmission point to continued strong underlying investment appetite. Residential investment has bottomed out but still shows no clear upward turnaround.

Hesitant households but rising consumption
Consumer confidence has risen over the summer but remains well below its historical average. That has not prevented households from increasing their consumption. Very strong retail sales suggest that growth has picked up recently. We continue to expect consumption growth of close to 3 per cent in both 2026 and 2027, although some uncertainty remains. It will, for example, be important that the labour market strengthens in line with our forecasts. In 2028, consumption growth slows as the effects of fiscal stimulus measures fade.

"Our assessment is that the VAT cut on food will not be reversed and that real household incomes will continue to grow at a relatively strong pace in 2028. If VAT is nevertheless raised, it will probably be combined with other measures to compensate households", says Daniel Bergvall.

The labour-market turnaround is taking longer
Despite stronger growth, the labour market has been weaker than expected, and short-term indicators do not point to any clear turnaround in the near term. We continue to forecast higher employment and falling unemployment, but the turnaround has once again been pushed back by one to two quarters.

Higher but still moderate inflation
Several temporary fiscal measures have pushed down inflation excluding energy, but even after adjusting for the lower VAT on food and reduced public transport fares, inflation was 1.6 per cent in July. Volatile prices for foreign travel are one explanation, but underlying inflationary pressure is also beginning to rise. We expect inflation to continue rising to slightly above 2 per cent in the first half of next year. Fading indirect effects from energy will then contribute to a decline in core inflation. By the end of 2028, inflation is expected to be close to target.

"The energy-price forecast is highly uncertain due both to rapidly changing market prices and the possibility of a change of government. A red-green government would probably raise both indirect taxes and the biofuel blending mandate, something that has not been incorporated into this forecast", explains Daniel Bergvall.

No rate hike this year, but two in 2027
Our May forecast that the policy rate would not be raised until late 2027 is being challenged from several directions. The strong growth outlook has gained further support, while inflation is expected to be somewhat above target at times next year. Provided that the labour market starts to recover in early 2027, the Riksbank is likely to begin cautiously raising rates. 

"The widening interest-rate differential relative to the ECB and the fact that the policy rate is currently at the lower end of the Riksbank's estimated long-run neutral range also lend some support to this assessment. We expect the policy rate to be raised to 2.00 per cent in March and further to 2.25 per cent in September next year. We expect the rate to remain unchanged in 2028", says Jens Magnusson.

Tighter fiscal policy after the election
The September election makes the fiscal-policy outlook uncertain. A government relying on support from all four red-green parties currently has the backing of opinion polls but would have difficulty agreeing on large parts of economic policy.

"A red-green government would probably find it easier to agree on higher spending than on higher revenues, although there are also significant disagreements on the spending side. The probability of cross-bloc cooperation has also increased somewhat following recent political initiatives and shifts in the polls", says Jens Magnusson.

Deficits, but still a low debt ratio
Much suggests that fiscal policy will become more restrictive over the next two years, although the incoming government will probably not fully meet the budget target. General government debt as a share of GDP is projected to rise from 35 per cent in 2025 to 39 per cent in 2028.
"Both the deficits and, above all, the level of debt are low by international standards, but we nevertheless see a clear break with the long period of declining debt ratios. The situation is by no means acute, but in the longer term we cannot continue increasing debt at this pace either", concludes Jens Magnusson.

Key data: International & Swedish economy (figures in brackets from Nordic Outlook May 2026)