High inflation and uncertainty slow down consumption and investment in the Swedish recession, according to KI.
“In addition, the uncertainty means that there is a risk that the weak cyclical development will continue longer than is forecast,” KI writes in a press release.
Lower GDP forecast than the Riksbank
For this year, KI’s economists expect growth to stay at 1.7 percent – which is a lower level than the Riksbank and the Ministry of Finance have expected. For 2026, however, KI’s growth forecast is slightly higher, at 2.9 percent.
We are in a recession, but our assessment is that there will be a recovery during the second half of the year. However, we have received statistics that show a weak during recovery during the first half of the year, says Ylva Hedén Westerdahl at a press conference.
Like the Riksbank and the Ministry of Finance, KI expects a CPIF inflation around 2.5 percent this year before inflation falls significantly to an average of 1.7 percent in 2026.
According to KI, the Riksbank’s policy rate is expected to remain at 2.25 percent until 2028, when it is increased to 2.50 percent according to the forecast.
The surprisingly high inflation means that the Riksbank will not lower interest rates anymore. Unemployment is clearly increased, says Hedén Westerdahl.
Depressed households
KI’s Barometer Indicator for Mars drops to 95.2 from 96.7 in February. Household confidence indicator drops to 89.8 from 94.6. KI describes it as a “much weaker mood than normal”.
Households’ budding optimism has been a thorn. Household confidence indicator has fallen quite a lot and so low it has never been as long as we have done surveys, says Hedén Westerdahl and draws parables with the financial crisis.
Trading companies’ price plans are rising at the same time.
“Trading companies’ expectations of the development of sales prices over the next three months increased further in March and are now significantly above normal,” KI writes.
For construction and civil engineering, the confidence indicator rose to 101.6 in March, which is the fifth month in a row with a listing around the 100-dash.
For the manufacturing industry – the weakest sector in business – the confidence indicator rose marginally to 96.4. For the service sector, however, there was a decline to 97.9, which KI describes as “a slightly weaker mood than normal”.