The Swedish government is lowering its growth forecast for this year to 2.8 percent after the outbreak of war in the Middle East, according to Finance Minister Elisabeth Svantesson. The Finance Ministry stated that the uncertainty in the global environment is currently high, mainly due to the war in the Middle East and its consequences. According to Dagens Nyheter, Elisabeth Svantesson described the uncertainty and unpredictability as factors that make it difficult to know exactly where the Swedish economy is heading.
Recent economic indicators present a complex picture for Sweden. Statistics Sweden SCB reported that Sweden's GDP fell by over one percent in January 2026 compared to December 2025. However, Sweden's GDP rose by 0.5 percent in the fourth quarter of 2025 compared to the third quarter of 2025, exceeding initial estimates of 0.2 percent. According to Svenska Dagbladet, Neda Shahbazi, an economist at SCB, described the Swedish economy as starting the new year with decreasing production in manufacturing, construction, and public authorities.
The global economic landscape has been significantly impacted by developments in the Middle East. Multiple reports indicate that since the war in the Middle East broke out, traffic in the Strait of Hormuz has essentially completely stopped. This stoppage has a large effect on oil prices, which have surged in recent days, according to multiple sources. The price of Brent oil topped around $119 per barrel overnight to Monday and circles around $100 per barrel during afternoon trading – the highest price since 2022, based on two major media reports.
The Swedish economy started the new year with decreasing production in manufacturing, construction, and public authorities.
Financial markets have reacted to these developments. The broad OMXS index closed down 1.7 percent, in line with leading European stock exchanges and initial trading on Wall Street, according to two major media sources. Concurrently, the inflation forecast is raised to 1.2 percent in KPIF inflation this year, from the previous 1.1 percent, as reported by multiple outlets. These adjustments reflect the heightened economic volatility stemming from geopolitical tensions.
Previous economic projections provide context for the current revision. The Finance Ministry's latest forecast from December 2025 predicted growth of 3.0 percent this year and 2.3 percent in 2027, according to six major media sources. Unemployment is expected to remain at 8.8 percent, based on three official sources. This stability in unemployment expectations contrasts with the downward adjustment in growth forecasts, highlighting the nuanced challenges facing policymakers.
The broader economic recovery trajectory remains a focus for analysts. Konjunkturinstitutet noted that the recovery in the Swedish economy continues, but it is taking somewhat longer. The Finance Ministry and Finance Minister stated that the recovery in the Swedish economy is expected to continue in 2026, driven by domestic consumption and investments, supported by active fiscal policy. The specific mechanisms through which this fiscal policy will operate have not been detailed, leaving questions about how the government plans to stimulate demand and investment.
The economic development in February was largely unchanged compared to January, with small movements in several large aggregates.
Historical data from late 2024 offers insights into earlier economic performance. Research from two sources indicates that GDP increased by 0.8% in Q4 2024, seasonally adjusted and compared with Q3 2024. The upturn in Q4 2024 is mainly explained by strong net exports of goods and gross fixed capital formation, according to the same research. Gross fixed capital formation rose by 1.8% in Q4 2024, and net exports contributed positively to GDP by 0.6 percentage points in that quarter.
More recent data from Q4 2025 reveals conflicting signals about economic drivers. Research from four sources shows that net trade weighed on GDP in Q4 2025, as exports fell 1.2%. Changes in inventories subtracted 0.5 percentage points from GDP in Q4 2025, while household consumption was unchanged at 0.9%. However, other interpretations suggest the upturn in Q4 2025 is mainly explained by gross fixed capital formation and general government final consumption, with no mention of net trade impact. This disagreement highlights different interpretations of the key drivers of economic growth in late 2025, which could affect policy responses and economic forecasts, and the exact reasons for the discrepancy remain unclear.
Employment and public finance data from Q4 2024 add another layer to the economic analysis. The total number of employed persons decreased by 0.2% in Q4 2024, based on research from two sources. Public administration showed a deficit of SEK 61.6 billion in Q4 2024, according to the same research. These figures underscore the fiscal pressures that existed even before the current geopolitical disruptions.
The uncertainty and unpredictability mean we do not know exactly where the Swedish economy is heading.
Economist predictions for Q4 2025 growth provide a benchmark for actual performance. According to Bloomberg's compilation, economists had, on average, predicted growth of 0.4% for Q4 2025 quarter-on-quarter. The actual growth of 0.5 percent slightly exceeded these expectations, suggesting some resilience in the economy despite emerging headwinds. According to Realtid, Asuman Erenel, an economist at SCB, described the economic development in February as largely unchanged compared to January, with small movements in several large aggregates.
Regional tensions beyond the Strait of Hormuz continue to simmer. According to the state news agency Sana, Syria accuses Iran-backed Hezbollah of firing artillery shells into the country from Lebanon overnight. Whether this alleged artillery shelling has been independently verified or if there have been any casualties or damage is not known, adding to the uncertainty in the region.
Diplomatic frictions elsewhere also contribute to global instability. Multiple reports indicate that Russia's Foreign Ministry summoned Japan's ambassador in Moscow to protest a Japanese company's investment in a Ukrainian drone manufacturer. This move reflects ongoing tensions related to the conflict in Ukraine and its broader geopolitical ramifications.
Several key unknowns persist regarding the economic outlook. What specific measures, if any, the Swedish government plans to implement in response to the lowered growth forecast and economic slowdown remains to be seen. Additionally, how long the stoppage in the Strait of Hormuz is expected to last and its projected long-term impact on global oil prices and the Swedish economy are uncertain factors that could shape future economic conditions. Former U.S. President Donald Trump claimed on social media that the war with Iran is largely over, but he also threatened that the U.S. can strike Iran '20 times harder' if they stop oil ships heading through the Strait of Hormuz, highlighting the volatile nature of the situation.