SEB: Nordic Outlook: Sustained growth despite an uncertain world

"The US elections are now over, which resolves some uncertainties, but many others remain. We assume that the US will raise tariffs against China in particular. However, the highest levels mentioned during the presidential election campaign - 60 per cent against China and 20 per cent against the rest of the world - will be used as a negotiating weapon. High tariffs can also damage the US economy, which is why we believe that both their levels and duration will be subject to negotiation. As a result, the impact of President-elect Donald Trump's trade policies is difficult to assess so far," says Jens Magnusson, Chief Economist at SEB.

"The big risk to our global growth forecast is that higher tariffs may be followed by increased countermeasures and greater uncertainty. Higher inflation, together with generally elevated uncertainty, may cause central banks to tighten their policies, households to save more and companies to hesitate about making investments during a negative growth spiral," says Jens Magnusson.

Growth convergence will be delayed, which will be reflected in central bank policies
We have raised our US growth forecast to 2.7 per cent in 2024 and 2.0 per cent in 2025, driven by households with strong consumption. Growth will be moderate in the euro area, reaching only 0.8 per cent this year and 1.3 per cent next year as Germany struggles with cyclical and structural problems. China is weighed down by earlier credit expansion, which has created problems in the real estate market, and by an export-oriented growth model that now faces trade barriers and tariffs. Inflation and growth are decelerating, as reflected in central bank policies. The US Federal Reserve's key interest rate will bottom out slightly higher than previously expected, at 3.50 per cent, and the European Central Bank's deposit rate slightly lower, at 1.50 per cent. 

"The inflation downturn is leading to higher real interest rates, and the rate cutting cycle needs to keep up the pace so as not to slow down the economy too much or stress asset prices, which are at high levels. Record public sector debt will make it necessary for monetary policymakers to assume greater cyclical responsibility; key rates may need to go below neutral in some countries," says Daniel Bergvall, Head of Economic Forecasting at SEB.

Moderate global growth
Future growth potential will depend on strong labour markets, rising real incomes and lower interest rates. At the same time, several factors suggest that we will have to get used to lower growth figures ahead. Demographic trends are worsening, stricter immigration rules are limiting labour supply and fiscal policies in most countries are tightening.

"The difficult task faced by fiscal policymakers in the coming years will be to hold back spending without slowing down the economy too much, while prioritising growth-friendly structural reforms - amid an environment of growing populism, structural challenges, green transition, higher interest rates and security policy uncertainty. The weak initial situation increases the risk of interest rate concerns," says Daniel Bergvall.

Sweden: Delayed recovery
After a strong start to the year, Swedish economic growth has been lower than expected. We predict that growth will gradually pick up speed in 2025 and 2026, with household consumption as the main driver. We expect GDP to increase by 0.5 per cent in 2024, 2.2 per cent in 2025 and 3.1 per cent in 2026 (previous forecasts: 0.6, 2.6 and 2.9 per cent, respectively). 

"Manufacturing confidence indices fell during the summer, but Swedish companies are still clearly more optimistic than their counterparts in Germany and the euro area generally, which indicates continued resilience to European economic weakness," says Daniel Bergvall.

The stage has been set for higher consumption, but households remain hesitant
Consumer confidence has increased markedly and is now above its historical average. Lower mortgage rates, rising real wages and more expansionary fiscal policy will support Swedish household incomes over the next 12 months. Rising consumption is expected to be the main driver for the predicted recovery in 2025 and 2026, but so far consumers have been reluctant to increase spending, and this is an uncertainty factor for the recovery. Consumption in current prices has slowed in line with falling inflation. 

"The conditions for consumption-led growth are good, not only because the Riksbank is first in the interest rate cutting cycle, but also because fiscal policy is now clearly supporting the economy. But it is of course crucial that part of stronger household incomes actually goes to consumption, not just to savings. Housing construction should also gradually recover, although the strength of this recovery is still uncertain," says Jens Magnusson. 

The number of housing starts has stabilised, and we expect starts and residential investments to increase gradually during 2025. Home prices have also begun to rise somewhat faster, which may support construction going forward. However, the latest construction statistics have been on the weak side, and the recovery will be delayed compared to our August forecast. 

Unemployment continues to weaken
Swedish labour market indicators are mixed, but still-high layoffs imply that the upward trend in unemployment will continue over the next 3-6 months. We expect unemployment to rise until early 2025 to nearly 9 per cent, before falling later in the year. Labour shortages are decreasing faster again, and the Riksbank's resource utilisation indicator is now well below its historic average. Wage demands ahead of next year's national union-employer negotiations have begun to be formulated. We predict that wages and salaries will rise by 3.4 per cent in 2025 and 2026 and see slight downside risks to the Riksbank's wage forecast (3.6 per cent). 

Core inflation to fall below target in 2025
Declining energy prices have helped lower CPIF inflation (CPI with constant interest rates) to just above 1 per cent. CPIF was 1.5 per cent in October, and the inflation rate will mostly stay below 1.5 per cent until next autumn. Core inflation (CPIF excluding energy) is back at close to the Riksbank's 2 per cent target. We believe that core inflation will level out at close to its current reading but will fall slightly below target during 2025 and 2026.

The Riksbank will cut its policy rate to 2 per cent next year 
As expected, the Riksbank cut its policy rate by 50 basis points in November. We expect this to be followed by cuts of 25 basis points at each of the central bank's next three meetings and for the policy rate to remain at 2 per cent starting in March 2025.

Continued strong central government finances
The Swedish government has proposed unfunded fiscal reforms amounting to SEK 60 billion in its budget bill for 2025, including tax cuts totalling about SEK 25 billion. We expect another SEK 15-20 billion in unfunded spending to be presented in the spring budget next April. Public sector ("general government") debt will rise in 2024-2026 on the back of weak growth, expansionary fiscal policy and aid to Ukraine but will stay below 35 per cent of GDP during our forecast period. 

Krona appreciation will be delayed
A stronger dollar, a weaker euro and an even weaker krona are a natural result of Trump's election victory, partly due to the likely consequences of interest rates and yields, tariffs and a possible trade war. Another contributing factor is that growth and interest rates in the US and the euro area are not converging in the way we previously expected. The appreciation of the Swedish krona in 2025 that we expected was also largely dependent on a weaker USD and a stronger euro. If tariffs and losses for the global export industry are not too extreme, there is still some support for the Swedish krona.  The SEK remains undervalued, and the upturn in economic growth that we are expecting will be driven mainly by better conditions for Swedish households. We thus still expect the SEK to eventually begin appreciating in 2025. But because of a less krona-friendly global environment, its recovery - especially against the dollar - will not be as strong as we previously forecasted.

Key figures: International & Swedish economy (figures in brackets from Nordic Outlook Aug. 2024)

International economy. 2023 2024 2025 2026
GDP. Year-on-year
changes, %
United States 2.9 2.7 2.0 (1.5) 1.7 (1.8)
(2.5) (2.5)
Euro area 0.4 0.8 1.3 (1.6) 1.6 (1.5)
(0.4) (0.8)
United Kingdom 0.3 1.0 1.4 (1.1) 1.5 (1.5)
(0.1) (1.1)
Japan 1.7 0.4 1.0 (1.0) 1.1 (1.1)
(1.7) (0.4)
OECD 1.7 1.8 1.9 (1.8) 1.7 (1.7)
(1.6) (1.7)
China 5.2 5.0 4.5 (4.5) 4.3 (4.3)
(5.2) (5.0)
Nordic countries 0.4 1.1 2.2 (2.5) 2.5 (2.6)
(0.4) (0.9)
Baltic countries 0.0 ( 0.9 2.4 (2.5) 2.7 (2.7)
-0.9) (1.3)
World (PPP) 3.2 3.2 3.1 (3.2) 3.1 (3.1)
(3.2) (3.1)
Nordic and Baltic
countries. GDP, y-o-y
changes, %
Norway 0.5 1.6 1.9 (2.4) 1.2 (2.2)
(0.5) (1.6)
Denmark 2.5 2.4 3.0 (3.1) 3.0 (3.0)
(2.5) (2.0)
Finland -1.2 ( -0.5 ( 1.5 (1.5) 1.8 (1.8)
-1.2) -0.6)
Lithuania 0.3 ( 2.4 2.8 (2.6) 2.9 (2.9)
-0.3) (2.4)
Latvia 1.7 ( -0.4 1.8 (2.2) 2.2 (2.5)
-0.3) (0.8)
Estonia -3.0 ( -0.9 ( 2.2 (2.5) 2.8 (2.7)
-3.0) -0.7)
Swedish economy. Y-o-y
changes, %
GDP, actual -0.3 ( 0.5 2.2 (2.8) 3.1 (2.9)
-0.2) (0.6)
GDP, day-adjusted -0.1 0.5 2.4 (3.0) 2.9 (2.7)
(0.1) (0.5)
Unemployment rate, % (EU 7.7 8.5 8.8 (8.5) 8.5 (8.2)
definition) (7.7) (8.5)
CPI 8.5 2.8 0.3 (1.2) 1.7 (1.1)
(8.5) (2.9)
CPIF 6.0 1.8 1.7 (2.0) 2.0 (1.8)
(6.0) (1.9)
Public sector balance, % -0.6 ( -1.0 ( -1.3 (-1.0) -0.5 (-0.5)
of GDP -0.6) -1.0)
Policy rate (December) 4.00 2.50 2.00 (2.25) 2.00 (2.00)
(4.00) (2.75)
Exchange rate, EUR/SEK 11.13 11.75 11.40 (10.80) 11.20 (10.55)
(December) (11.13) (11.10)