The US tariff hikes have created economic and political confusion, although uncertainty has eased this summer. The global economy is slowing, but slightly less than expected. Fiscal stimulus and further rate cuts support growth but also create risks. Global GDP is growing by about 3 per cent per year and inflation remains modest in most countries except the US, where the tariffs are temporarily boosting inflation. In Sweden, growth is being kept in check by cautious households, and it looks like the recovery will be delayed another six months. Those are among the conclusions in SEB's macroeconomic report Nordic Outlook.

Geopolitical conflicts and President Donald Trump's rapid policy shifts continue to create uncertainty. Although trade uncertainty has eased this summer, it remains at historically high levels. The US average effective tariff rate is 15-20 per cent, slightly higher than we had previously assumed. We are still revising our global growth forecast slightly higher. Global GDP is expected to grow by around 3 per cent per year in 2025-2027. The US is impacted the most by the tariffs, but the outlook is less gloomy than last spring and the risk of a recession has decreased. Growth is being slowed considerably by a weaker labour market and reduced consumption, but AI investments, interest rate cuts and, from 2026, fiscal stimulus are providing support. The euro area is gearing up with the help of defence and infrastructure investments, especially in Germany, and the outlook, despite the tariffs, is cautiously optimistic. China will reach its target of 5 per cent growth this year, but with help from fiscal support and increased exports to markets other than the US. Structural weaknesses persist, however. 

"Some uncertainty has eased now that the tariffs on US imports from a number of countries have been set. At the same time, the new agreements lack details and no one seems to know for sure how they will work or how long they will apply. The trade relationship between the US and China is evolving. How the cost of tariffs will be divided between exporters, importers and households is also important to how trade and the economy develop going forward," says Jens Magnusson, Chief Economist at SEB. 

Inflation headed down but at different rates
Higher tariffs mean temporarily higher US inflation. In other countries, disinflationary forces from China's price-squeezing overcapacity, a weaker dollar and stagnant commodity prices are more dominate. By the end of the period, inflation will be close to target in most places. A slowdown in the labour market and inflation expectations around target mean that the Fed can gradually lower interest rates to a neutral level of around 3.00 per cent. The ECB's rate cut cycle is nearing an end, and a final cut at the end of this year will be followed by a pause in 2026 and slow rate hikes starting in 2027.  

"Inflation readings since last spring have been marginally lower than we expected for both the US and the euro area. Inventory buildup in the spring may have slightly delayed the impact of the tariffs on prices, but firms also clearly do not want to raise prices and blame tariffs. Trump has already shown that he will not hesitate to publicly shame and pressure companies that criticise White House economic policy. But more importantly, we feel that weaker demand from US consumers is making it harder to raise prices, which is why the situation differs from the inflation spike in 2021-2023," says Daniel Bergvall, Head of Economic Forecasting at SEB.

Sweden: Recovery delayed again
Swedish households remain cautious, which is why growth was weaker than expected in the first half of 2025. Conditions are in place for higher consumption, but the recovery we predicted in May looks like it will be delayed for another half year. We are adjusting our GDP forecast lower to 1.1 per cent in 2025 (from 1.6 in May) and 2.7 per cent in 2026 (from 2.9 in May), followed by 2.9 per cent in 2027. 

"Global uncertainty and scars from years of runaway prices continue to weigh on consumer sentiment, so neither rising real wages nor lower interest rates and taxes are helping much, at least not yet. We continue to believe in a Swedish recovery, but it will take a while," says Jens Magnusson. 

Mixed outlook for resilient manufacturing sector
Manufacturing industry has been resilient, in part thanks to strong service exports. The outlook for the next one to two years is mixed. Increased defence and infrastructure investments, coupled with a slightly stronger European economy, will provide key support, while higher US tariffs will in all likelihood reduce exports there. Goods exports to the US are expected to decline by 10-15 per cent, equivalent to 1-1.5 percentage points of total goods exports. Still, total exports of goods and services will rise by 2.5 per cent this year, or just about as much as in 2024. 

Manufacturers have contributed to the steady rise in investments, with the exception of housing. Historically high levels suggest that the investments in industry and the public sector will initially decline even though growth accelerates. After dropping by approximately 40 per cent, housing investments are now levelling off, so total investments are still growing more quickly.

Households will decide when the economy turns around
Consumer confidence turned sharply lower at the end of 2024 in connection with an unexpected jump in inflation, and consumption has been significantly weaker than expected in the first half 2025. Rising real wages are the main reason for our forecast of increased consumption, but tax cuts and lower mortgage rates are also a factor. The consumption forecast has been adjusted lower, however. The saving ratio is expected to remain at record-high levels (15.5 per cent) and we expect consumption to increase in pace with incomes in 2025-2027. Worried households also help to explain why home prices are down this year after increasing by just 5 per cent in 2024. We estimate that home prices will rise by 5 per cent next year and 3 per cent in 2027.

Turnaround in unemployment by the end of the year at the earliest
The downward adjustment to growth also means that a labour market turnaround will be delayed. Indicators for the next 3-4 months show no signs of improvement. Our view is that conditions will not get better until late in the year, assuming that growth and consumption remain in line with estimates.

Inflation will fall after the summer
Rising service prices contributed to surprisingly high inflation this summer, but prices began to normalise in July. Goods inflation, excluding food, is near zero and low international prices, combined with a stronger krona, suggest that goods prices will fall in 2026. An unusual basket effect raises core inflation, excluding energy, by at least four tenths of a percentage point in 2025. Both CPIF and core inflation then drop just below target in 2026-2027. 

The Riksbank will cut rates again in September
The Riksbank stated in its August monetary policy update that its policy rate forecast from June, which indicates a 12 bps lower rate in the second half of 2025, is still reasonable. We have not changed our forecast that the rate will be cut in September, but it is important that inflation continues to fall in August in line with our forecast. When the recovery is on firmer footing, the Riksbank will gradually begin to raise the policy rate and by the end of 2027 it will again be at 2.00 per cent, the same level as today.

"The outlook for the policy rate is hard to assess. The delayed recovery suggests that interest rates could be cut more than we have in our forecast, but at the same time inflation will remain above target throughout 2025. Additionally, interest rates affect growth and inflation after a slight delay and the Riksbank's Executive Board could decide to await the impact of the cuts that have already been made. Many other central banks, including the ECB, seem to be reasoning that way," says Jens Magnusson.

Election-year budget with a focus on households 
We believe the Swedish government will find room for unfunded reforms of SEK 60-80 billion, equivalent to one or slightly more than one per cent of GDP, in the budget bill for 2026. 

"Households will probably be the focus in the run-up to next year's election, with an emphasis on low- to medium-income households. Another earned income tax deduction, lower taxes for pensioners and an extension of the home renovation and repair deduction (ROT) seem likely. Compared to recent years' budgets, there will probably also be more focus on increased benefits," says Daniel Bergvall.

The Swedish budget now shows a deficit after a long stretch of surpluses. This is being driven in part by temporary factors, including a capital injection to the Riksbank, but sluggish growth, expansionary fiscal policy and support for Ukraine suggest further deficits in the coming years. The government debt as a share of GDP will increase from 17.9 per cent in 2024 to an estimated 19.7 per cent in 2027, with the public sector deficit also rising by two percentage points, to 35.1 per cent in the same time.  

Key figures: International & Swedish economy (figures in brackets from Nordic Outlook May 2025)