A Stronger Demand in Sweden: The Driving Force Behind Economic Recovery
In a recent report by the Riksbank, it was noted that a stronger demand in Sweden is fueling the recovery of the Swedish economy. This raises the question: when will household consumption turn around?
Andreas Wallström, the chief economist at Swedbank, gazes out over the snowy landscape of Arjeplog in Lappland, pondering before responding to the query. “It’s a bit of ‘anyone’s guess’. I still think the indicators point towards a swift turnaround,” he says. However, he emphasizes that this is not his “best estimate” nor Swedbank’s official forecast.
According to their forecast, households are expected to be more cautious and save a significant portion of their income, which improved for many in 2024. Therefore, consumption is projected to pick up around the summer of 2025. Wallström also notes the significant divergence in forecasts for 2025.
On one side, the Riksbank is more optimistic, believing that a base rate of 2.25% next year will be sufficient to lift Sweden out of the mild recession it currently faces. On the other side, there are many who argue that the base rate needs to go even lower. Among them are the Konjunkturinstitutet, predicting 1.50%, and Swedbank along with the majority of major banks.
“My assessment is that the Riksbank is overly optimistic in expecting a rapid and clear turnaround in consumption already. There are no signs of that. And when consumption does recover, it will not be explosive. Instead, it will be quite cautious,” says Andreas Wallström. He believes that households will continue to hold onto their money tightly, citing the economic challenges of recent years as an explanation.
The Biggest Threat to the Swedish Economy
What worries the chief economist the most for 2025 is not the interest rate. Even President Donald Trump’s threats of tariffs are not the primary concern. “It is the very tough economic situation in Germany. It risks becoming a prolonged economic crisis,” he says, adding, “It’s not just the fact that the country’s economy is struggling here and now, but there are several structural challenges that I find hard to see being resolved in the near future.”
He highlights Germany’s energy crisis, declining population, and dependence on exports to China as examples. As Sweden’s largest trading partner, Germany has historically been a crucial driver of Swedish exports. “What will happen to our export industry if the crisis persists? That is a big cloud of concern.”
“What are you most looking forward to in 2025?”
“Even though it seems unlikely, I hope for the cessation of the war in Ukraine. That would be a very significant event, and good for the economy as well.”
“What are you least looking forward to in 2025?”
“Besides Germany’s crisis, it’s still Trump’s tariffs,” says Andreas Wallström, adding, “And having to be active on X again to keep up with all the announcements. I just got a Bluesky account!”
As we look ahead to the economic landscape in 2025, uncertainties loom, but the resilience and adaptability of economies like Sweden’s will continue to shape their path forward.