Sweden’s central bank is poised to cut interest rates twice in 2025 as the economy slows and inflation expectations continue to fall, the National Institute of Economic Research (NIER) said Tuesday. The state-run think tank revised down its growth and inflation forecasts, citing weaker-than-expected performance in the first quarter and ongoing global uncertainties.
The Riksbank cut its policy rate by 25 basis points to 2.00% in June, in line with market expectations, and signaled the possibility of a second cut before the end of the year. This followed earlier decisions to hold the rate steady at 2.25% in March and May, after a quarter-point reduction in February.
In its May statement, the central bank noted that “it is somewhat more probable that inflation will be lower than higher compared to the March forecast,” which could justify “a slight easing of monetary policy going forward.”
NIER Revises Growth, Inflation, and Unemployment Forecasts
The NIER now expects the Riksbank to cut the policy rate twice this year, bringing it to 1.75%, where it will remain through 2026. This forecast reflects a deeper and more prolonged economic downturn, alongside a milder inflation outlook.
Sweden’s GDP growth for 2025 has been cut to 0.9% from a previous 1.7%, following a significantly weaker-than-anticipated first quarter. Calendar-adjusted growth was lowered to 1.1% from 1.9%.
Data from Statistics Sweden shows that the economy expanded by 0.9% year-on-year in Q1 2025, missing expectations of 1.1% and down from 2.4% in Q4 2024—the strongest pace since Q3 2022.
For 2026, the NIER trimmed its GDP forecast by 0.2 percentage points to 2.7%, with the calendar-adjusted figure now seen at 2.5%. Gross fixed capital formation is now expected to contract by 1.8%, a sharp reversal from the 2.0% growth forecast in March.
Exports are a rare bright spot, with growth now projected at 3.4%, up from 2.8%, while the import growth forecast has been revised downward to 1.4% from 2.3%.
Inflation and Labor Market Pressures Ease
Inflation continues to drift further below the Riksbank’s 2% target. Annual inflation fell to 0.2% in May 2025, the lowest since November 2020 and the tenth consecutive month below target. The CPIF measure, which strips out interest rate effects and is favored by the Riksbank, held steady at 2.3% for the third consecutive month.
The NIER lowered its CPIF forecasts for both 2025 and 2026 by 0.1 percentage points, to 2.4% and 1.5%, respectively.
Meanwhile, unemployment forecasts were also revised down slightly, to 8.8% for 2025 and 8.4% for 2026. However, the labor market remains under pressure: Sweden’s unemployment rate rose to 9.7% in May, the highest since January. The number of unemployed grew by 65,000 over the past year to 561,000, while employment also climbed by 44,000 to 5.23 million.
The outlook for Sweden’s economy remains challenging, with softening inflation, weak domestic demand, and persistent global uncertainties prompting the Riksbank to consider further monetary easing. While export resilience offers a glimmer of hope, downward revisions to growth and investment highlight the fragility of the recovery.
