Economic growth prospects were relatively good when 2025 began, but the new US administration has radically changed the situation. Above all, the US president's aggressive trade policy is leading to slower growth, volatile markets and a weaker dollar. Sweden and Europe will perform relatively better than other parts of the world, according to SEB's macroeconomic report Nordic Outlook.

Annual global GDP growth will be less than 3 per cent in 2025 and 2026, according to SEB's latest Nordic Outlook. The United States and China will be hardest hit, but growth-related and financial spillover effects will reach the entire world economy. Thanks to fiscal stimulus, Europe will do better, and central banks will continue to cut key interest rates. We are lowering our forecasts for the Swedish economy, but large increases in household income still suggest that Sweden will grow faster than that of the euro area in the next couple of years. A stronger krona and depressed international prices will cause core inflation to fall below 2 per cent in 2026. The Riksbank will cut its policy rate again in June 2025.

"The confusion surrounding tariffs, trade and global relations is having a major impact on the economic outlook. Uncertainty is making investment decisions more difficult and both businesses and households more cautious. In the longer term, serious questions are also being asked about what the financial and economic world order should look like. Declining international confidence in American policies has led to doubts about the role of both the US dollar as the world's reserve currency and US Treasury bonds as the safest asset in the financial system," says Jens Magnusson, Chief Economist at SEB. 

A slowdown, but no tariff recession
Yearly global growth will be a bit below 3 per cent in 2025-2026. These are low figures in a historical perspective. We have more than halved our US growth forecast for this year and lowered it by about half a percentage point in 2026, but the US will still avoid a recession. China will not achieve its politically established growth target of 5 per cent, and its economy is probably growing more weakly than the official statistics show. The euro area is doing better, mainly thanks to German fiscal stimulus, but we have still lowered our growth forecast by a few tenths of a point. 

"The US and China are clearly on an economic and security policy collision course. The EU, a region we believe both the US and China want on their side, must navigate between these giants. Given the right policies, the EU can end up as a relative winner," says Daniel Bergvall, Head of Economic Forecasting at SEB.

Both short- and long-term growth effects from tariffs
Aside from their short-term effects on trade, growth and financial markets, higher tariffs will also have various medium-and long-term negative effects. A lack of predictability will make it difficult for companies to plan. Trading systems will be reshaped, competition will be reduced, and innovation will diminish. But there are signs of hope.

"Negotiations are ongoing. We believe that new trade agreements will be concluded, with lower tariff levels. In recent years, households and businesses have built up a great deal of crisis experience and adaptability to unforeseen events. The weakening of the dollar will help rebalance the world economy, and European stimulus is another useful step in that direction. The US and European labour markets have been relatively resilient, and many consumers are ready to spend more, once interest rates and inflation fall. Many countries are developing plans to boost productivity, which will be crucial to long-term economic growth," says Daniel Bergvall. 

Deflationary tariff effects for most people
US tariffs will provide a temporary inflationary impulse in the US, partly offset by economic deceleration and reduced demand. In countries that do not introduce counter-tariffs, there will be no direct price-raising effect. Instead, we believe some countries may experience a slight downward effect on inflation as global demand slows while excess capacity and former US imports from China and Southeast Asia must now find other markets. Other restraining effects may include a weaker dollar, lower energy prices and potential productivity increases due to artificial intelligence (AI).

A complex situation for central banks 
Although inflation has fallen, in many countries it remains above target. Yet generally stable inflation expectations allow manoeuvring room for monetary policymakers. We believe that interest rate policy - in the US and Europe, for example - has good potential to support growth and the labour market through further interest rate cuts during 2025 and 2026.

Sweden: Households are crucial for growth; another Riksbank rate cut in June
Uncertainty has increased for both exports and consumption. Although growth was stronger than expected in late 2024, we have lowered our GDP forecast for 2025 to 1.6 per cent from 2.2 per cent in February. We have also revised 2026 growth down to 2.9 per cent from 3.1 per cent. Given support from fiscal policy and a solid starting position for industry, our image of the Swedish economy as being stronger than that of most comparable countries still holds.

"Households have continued to hold a bit more tightly onto their wallets than growth would need. We have seen a certain increase in consumption, supported by rising real wages and lower interest rates, but willingness to spend is still being held back by uncertainty, high prices and unstable markets. We are thus lowering our forecast for Swedish growth, but we still believe there is good potential for an acceleration during the second half of this year," says Jens Magnusson.  

Increased uncertainty for exports, but rising investments
Both weaker growth and higher tariffs suggest that exports to the US will fall this year. Meanwhile, there are signs of life among European manufacturers, mainly in Germany, which is Sweden's most important trading partner. We expect exports to the US to fall by 10 per cent this year, but total exports will nevertheless increase by 2.5 per cent. Increased uncertainty due to tariffs will probably make industrial companies more cautious in their investment decisions. Meanwhile, investments in battery production and green steel in northern Sweden will fall, but higher defence spending and continued high investments in energy production and transmission will provide support. We also expect slightly rising residential investments, contributing to a small increase in total investments during both 2025 and 2026.

"After a cautious start to the year in the housing market, we have lowered our forecast of home prices slightly. We expect them to climb by 3 per cent this year and by 4 per cent in 2026. The labour market situation is weaker than normal, but different unemployment metrics provide different pictures of how much. Assuming reduced uncertainty and rising growth, both the labour market and the housing market will stabilise after the summer," says Jens Magnusson.

Strong incomes will support consumption
Swedish households remain cautious, but there is good potential for a consumption upturn. Rising real wages and lower taxes are the main driving forces, but lower interest expenses and higher dividends will also contribute. The saving ratio rose to historic highs during 2024. Uncertainty about tariffs and turbulent financial markets are weighing on consumer confidence, but a bit further ahead there are many indications that confidence will recover, especially if the labour market rebounds, as we are forecasting. We expect consumption to grow by 1.5-2.0 per cent this year and almost 3 per cent in 2026. We have lowered our forecast for 2025 by just over 0.5 points compared to February.

Temporarily higher underlying inflation 
After two months of big upside surprises, March was a major relief. CPIF core inflation excluding energy - the Riksbank's most widely used underlying inflation metric - was unchanged at 3.0 per cent. Core inflation is still far above the 2 per cent target, but an unusually large basket effect that will disappear in January 2026 is a large part of the explanation. Inflation is expected to rise temporarily this spring and summer, but a stronger krona and depressed international prices will contribute to a decline in core inflation during 2026. 

At least one more Riksbank rate cut
Because inflation is trending lower, while economic growth is sluggish, the Riksbank will cut its policy rate in June. Despite unexpectedly high inflation, the central bank's rate path was unchanged in March and our assessment was that the interest rate would remain at 2.25 per cent until early 2028. Since then, both inflation and GDP growth (measured using the uncertain flash estimate) have been lower than the Riksbank's forecast. In March, the Riksbank saw both upside and downward risks to inflation from tariffs and other external factors. However, the assessment in the market and among many analysts seems to have shifted. They now believe that tariffs will result in lower, not higher, inflation in Europe. 

"We believe the Riksbank will agree that the inflation risk has shifted to the downside and will cut its policy rate by 25 basis points in June. We believe that there will be only one rate cut. However, inflation risks in 2026 will be larger on the downside, and further rate cuts are likely if household consumption does not pick up," says Jens Magnusson. 

Expansionary election year fiscal policy 
The Swedish government unveiled an additional SEK 11.5 billion worth of unfunded reforms in its spring budget for 2025, in addition to the SEK 60 billion in last autumn's budget bill. We believe that 2026 reforms and fiscal stimulus will be about the same size as this year and expect the government to present a new expansionary 2026 budget this September, including reforms totalling about SEK 60 billion. The fact that 2026 is an election year suggests that the reforms will be aimed a little more at households. We believe that lower taxes and increased benefits will increase household income by about SEK 30 billion, corresponding to almost 1 per cent of household income.
 

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