The longer the disruptions stemming from the war against Iran persist and the more infrastructure that is damaged, the greater the effects will be on energy supply, inflation, trade and global value chains. While energy prices give a clear inflationary impulse in the short term, the relationship between energy prices and core inflation is weak historically.
“Many are wondering if we’re back to the inflation crisis of 2022, and whether central banks need to raise interest rates again. This report argues that, although such a scenario cannot be ruled out, it is unlikely. Conditions are simply different this time. The second aspect – the growth risk – is currently more pronounced,” comments SEB’s Chief Economist Jens Magnusson.
Resilience tested anew
Companies, households and markets have, through recurring shocks, demonstrated impressive adaptability – a strength we in our main scenario expect will be maintained. Investments in areas such as AI, energy transition and security policy, together with slightly more predictable US trade policies, lend support to global growth. The effects of the current energy crisis are however expected to persist for a long time to come, even after a peace agreement has been reached in the Middle East. While we lower growth forecasts, global GDP is nevertheless expected to increase by 3.0 per cent in 2026 and 3.1 per cent in 2027. Regionally, Europe and Asia are hit harder than the US due to greater dependence on imported energy.
“Growth is slowing from a relatively strong starting point at the beginning of 2026, and, without the energy crisis, we would have made an upward revision to global growth. Our main scenario assumes that the conflict de-escalates before the summer and that the Strait of Hormuz will be gradually reopened. In that case, we do not see any major downturns or recession risks. However, the risk of a more protracted conflict has increased, and consequently downside risks clearly dominate. The energy market is living on borrowed time,” explains SEB’s Head of Economic Forecasting, Daniel Bergvall.
Cautious central banks
The market’s expectations of most central banks have shifted since the outbreak of the war from rate cuts to hikes.
“To some extent, tighter financial conditions mean that the market is doing part of central banks’ job for them. However, we consider the shift in pricing to be somewhat exaggerated. Our forecast is that most central banks will await incoming data and not make hasty decisions. The forecast is that the Fed cuts the rate again at the end of the year while the ECB implements a precautionary hike in June,” comments Jens Magnusson.
Targeted and limited fiscal support
Many economies have historically high debt levels following troubles such as the financial crisis, the euro area crisis and the pandemic. Limited fiscal space implies targeted and temporary energy price support measures.
“Several countries with a high dependence on fossil energy have high public debt to start with. Those that might be hit hardest by high energy prices therefore have the least scope to act. Large-scale stimulus may also trigger a loss of market confidence and force tighter monetary policy,” continues Daniel Bergvall.
Sweden: Growth despite an uncertain world
After a strong second half of 2025, the upswing in growth has dissipated. However, the underlying growth drivers have not changed and we expect household consumption to pick up again in the second quarter. It is also encouraging that industrial indicators have held up despite the turbulence from the war in the Middle East. Some downward adjustment in growth is inevitable, and the GDP forecast for 2026 has been trimmed to 2.6 per cent from 3.0 per cent in January. However, growth is still higher than in 2025 and we also maintain our optimistic forecast of 2.9 per cent for 2027.
The industrial sector has shown remarkable resilience despite the weak German economy and uncertain geopolitical landscape. Global and European rearmament is driving up demand for defence equipment, and the need for pharmaceuticals and electronic equipment is also increasing rapidly. However, there are signs that areas of basic industry are facing weaker demand, and the export sector is to some extent weighed down by a stronger SEK. Industrial investment has risen sharply in recent years and, despite contractions in some sectors, underlying investment appetite is considered stable. Total investments, including housing investments and the public sector, are expected to continue to rise in the coming years.
Households are key to the upswing
The renewed slowdown in household consumption at the beginning of the year, before the war in the Middle East, is concerning. A cold winter with high electricity prices is probably a contributing factor, now followed by sharply rising fuel prices in the spring. Real income growth is strong, however, driven in part by the reduction in VAT on food. Although the forecast for consumption this year has been adjusted downwards, we continue to expect an increase of almost 3 per cent. Consumption is expected to continue to grow at a decent rate in 2027.
After a somewhat shaky 2025, housing prices have started to move upwards. A lowered mortgage cap and the removal the special amortisation requirement for high loan-to-income households in April are expected to lead to further price increases. The forecast is still that housing prices will rise by a total of 5 per cent this year and 3 per cent in 2027.
The recovery in the labour market again appears to have been delayed despite somewhat lower than expected unemployment in recent months. While the risk of higher energy prices stemming from the war in the Middle East has increased uncertainty, very low inflation at the start of 2026 and downward pressure from reduced VAT on food suggest that the 2027 wage round will take place in an environment where real wages can continue to rise even with moderate nominal wage agreements.
Meagre inflation by all measures
CPIF excluding energy has been significantly lower than expected for five consecutive months, falling to 1.1 per cent in March. Rising fuel prices are pushing up overall inflation to some extent, while electricity prices are working in the opposite direction. A temporary reduction in tax on petrol and diesel will help to reduce fuel prices, especially if the EU approves the sizeable temporary tax cut proposed by the government. However, the risk of indirect effects from higher fuel prices is an uncertainty factor.
“The rise in energy prices has been moderate so far in a historical perspective. Our assessment is that both substantial price increases and other disruptions to transport and production would be needed for core inflation to rise more significantly. We see greater risks on the downside than the upside to our core inflation forecast,” comments Jens Magnusson.
Riksbank holding steady this year, with a hike in 2027
Despite inflation being well below target, the market priced in the Riksbank hiking rates at the same pace as the ECB. In recent weeks, however, expectations about the Riksbank have fallen back and the market now anticipates just over two hikes this year, compared with three from the ECB.
“The combination of low inflation, a weak labour market and low resource utilisation indicates that the Riksbank will hold the interest rate unchanged for a long time. We continue to expect the policy rate to be raised to 2 per cent only towards the end of 2027, while a rate cut cannot be ruled out should the conflict in Iran be resolved swiftly and energy prices fall back,” says Jens Magnusson.
Highly expansionary fiscal policy this year
The 2026 Budget Bill included SEK 80 billion in unfunded measures this year, chiefly in the form of lower taxes for households. If support for Ukraine and heightened defence spending, which are not covered by the budget targets, are included, the expansion amounts to just over 1.6 per cent of GDP – equalling just over SEK 130 billion. The government’s Spring Budget included new unfunded reforms just shy of SEK 8 billion, which could reach almost SEK 15 billion if the EU approves the proposal to further reduce fuel taxes.
“Scope for further expansion for the government that takes office after this autumn’s election will be very limited, at least if the ambitious budget targets – that the public-sector balance is to be in equilibrium over a business cycle – are to be met. We anticipate unfunded reforms of less than SEK 20 billion in 2027, which implies broadly neutral fiscal policy. However, Swedish public finances are still strong in an international comparison,” concludes Daniel Bergvall.
Key data: International & Swedish economy (figures in brackets from Nordic Outlook January 2026)
| International economy. GDP. Annual change in % | 2024 | 2025 | 2026 | 2027 |
| United States | 2.8 | 2.1 (2.2) | 2.1 (2.3) | 2.0 (2.0) |
| Euro area | 0.9 | 1.4 (1.4) | 0.8 (1.2) | 1.3 (1.4) |
| United Kingdom | 1.1 | 1.4 (1.4) | 0.8 (1.0) | 1.4 (1.4) |
| Japan | 0.1 | 1.2 (1.2) | 0.8 (1.0) | 0.7 (0.8) |
| OECD | 1.8 | 1.8 (1.8) | 1.6 (1.8) | 1.7 (1.7) |
| China | 5.0 | 5.0 (5.0) | 4.7 (5.0) | 4.5 (4.7) |
| Nordics | 1.6 | 1.5 (1.5) | 1.8 (2.0) | 2.0 (2.1) |
| Baltics | 1.6 | 2.2 (2.0) | 2.8 (2.9) | 2.3 (2.3) |
| World (PPP) | 3.3 | 3.2 (3.2) | 3.0 (3.1) | 3.1 (3.2) |
| Nordics and Baltics. GDP, annual change in % | ||||
| Norway | 1.4 | 1.1 (1.2) | 1.2 (0.9) | 0.6 (0.6) |
| Denmark | 3.5 | 2.9 (2.5) | 2.0 (2.7) | 3.0 (3.0) |
| Finland | 0.4 | 0.2 (0.1) | 0.7 (0.8) | 1.2 (1.5) |
| Lithuania | 3.0 | 2.9 (2.6) | 3.2 (3.2) | 2.1 (2.1) |
| Latvia | 0.0 | 2.1 (1.9) | 2.2 (2.3) | 2.4 (2.4) |
| Estonia | -0.1 | 0.6 (0.6) | 2.5 (2.7) | 2.7 (2.8) |
| Swedish economy. Annual change in % | ||||
| GDP, actual | 1.0 | 1.5 (1.7) | 2.6 (3.0) | 2.9 (2.9) |
| GDP, working-day adjusted | 1.0 | 1.8 (1.9) | 2.3 (2.8) | 2.7 (2.7) |
| Unemployment (%) (EU definition) | 8.4 | 8.9 (8.9) | 8.7 (8.8) | 8.4 (8.3) |
| CPI | 2.8 | 0.7 (0.7) | 0.7 (0.6) | 1.5 (1.7) |
| CPIF | 1.9 | 2.6 (2.6) | 1.4 (1.2) | 1.4 (1.4) |
| General government balance (% of GDP) | -1.7 | -1.5 (-1.0) | -2.7 (-2.4) | -2.1 (-2.2) |
| Policy rate (Dec) | 2.50 | 1.75 (1.75) | 1.75 (1.75) | 2.00 (2.00) |
| Exchange rate, EUR/SEK (Dec) | 11.48 | 10.83 (10.83) | 10.65 (10.45) | 10.30 (10.35) |