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The Swedish regions heading for a recession

Sweden's booming economy is heading for an economic slowdown, but some regions will be worse affected than others. A new report predicts where in Sweden the downturn will hit first.

The Swedish regions heading for a recession
The Swedish economy is slowing down, but some will be hit harder than others. Photo: Fredrik Sandberg/TT

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“Growth in Sweden is expected to be bleak in autumn 2019, and it cannot be ruled out that we will be seeing negative GDP figures for one or several quarters. Employment is falling and unemployment is rising. Resource utilization will be lower than normal, which (the report defines as) a recession,” warns Nordic banking giant Nordea in a new report on the Swedish regional economy.

The Swedish national economy is expected to grow 1.3 percent between 2019 and 2020, which is a significant slowdown compared to previous years and follows an overall global downturn.

“Brexit and increased geopolitical tensions are putting a wet blanket on global development,” states the report, also singling out the ongoing trade conflict between the US and China as a risk factor.

And there are three areas of Sweden were things are looking especially bleak.


The region of Småland and islands Gotland/Öland, northern-mid Sweden (which includes the Gävleborg and Dalarna regions) and northern Sweden are predicted to be hit the hardest in terms of their gross regional product (GRP), the market value of final goods and services produced in the region.

Småland's economy is expected to shrink by -0.2 percent this year, followed by -0.4 percent next year, while northern Sweden is set to see a downturn of -0.3 percent this year and -0.2 percent next year.

Northern-mid Sweden's GRP is expected to fall -0.1 percent this year and -0.2 percent next year.

Northern Sweden – or Norrland as the vast and diverse region is usually referred to in Swedish – is with its major raw materials industry sensitive to global market movements and is often seen as the canary in the coalmine for the rest of the Swedish economy, with national downturns often starting there.

Employment in Norrland has fallen by four percent since mid-2018, notes Nordea.

“Norrland reacts first, which indicates further deterioration during the autumn in the rest of the country. Meanwhile, the domestic economy has been stomping in the same spot for over a year,” said Susanne Spector, senior analyst at Nordea, in a statement presenting the report.

However, investment in Sweden's booming tech sector such as new data centres and the battery factory Northvolt in Skellefteå, which is expected to create hundreds of jobs for the region, creates a small light on the horizon, states the report. Tourism is also boosted by the weak Swedish krona.

The Northvolt battery factor is being built in Skellefteå. Photo: Henrik Montgomery/TT

Businesses in both Norrland and northern-mid Sweden are crying out for more employees, states Nordea, with the lack of skilled workers described as a major obstacle to growth in the latter region.

In Småland, comparatively high unemployment is a concern, with Kronoberg county recording the highest unemployment rate in the whole of Sweden in the second quarter of 2019 at 9.3 percent.

However, Gotland and Jönköping counties had among the lowest unemployment rates in Sweden in the same period. And the construction industry keeps growing with a lot of optimism for the future.

READ ALSO: 10 things Sweden should do to make life better for international talent

The report also highlights eastern-mid Sweden (which includes the Södermanland, Uppsala, Östergötland, Västmanland and Örebro regions) as a region performing comparatively well with falling unemployment. However, it notes that the region traditionally takes longer than the rest of Sweden to react to economic fluctuations, and predicts that it will eventually follow the others' slowdown.

Finally, it is worth noting that the report also predicts that a slight upturn in the economy in 2021 will stabilize the situation both for Sweden as a whole and for the worst-affected regions.

Read the full report (in Swedish) here.

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What will Sweden’s interest rate hikes mean for foreigners in Sweden?

Sweden's Riksbank now expects its base interest rate to be close to two percent in three years' time. What will this mean for foreigners living in Sweden?

What will Sweden's interest rate hikes mean for foreigners in Sweden?

How high could interest rates go? 

The Riksbank on Thursday increased its key interest rate above zero for the first time since the autumn of 2014.

But it isn’t going to stop there, it expects to hike the rate in small increments over the next three years, to 1.18 in the middle of next year, to 1.57 in the middle of 2024, and to 1.81 in the middle of 2024. 

At a press conference on Thursday, the bank’s governor Stefan Ingves said that people should prepare for higher rates, but stressed that there would be “no extreme rate levels”. 

“We’re not slamming on the brakes, more taking our foot off the pedal,” he said. 

It’s worth remembering, though, that in the run-up to the Swedish banking crisis in the early 1990s, the key interest rate moved from 1 percent to 2 percent to as high as 10 percent, before the Riksbank finally upped it to 500 percent in a desperate attempt to defend the krona. 

As recently as February the Riksbank was not expecting to raise rates from zero until 2024, so if inflation proves more stubborn than expected, the key rate could possibly go higher. 

But Robert Boije, chief economist at Swedish state-owned mortgage lender SBAB, said that as inflation today is most likely the result of higher energy prices, and supply-side constraints, rather than because there’s too much money in the system, the risk of seeing higher rates than the Riksbank has outlined is relatively small.  

“There’s a higher probability of a lower repo interest rate [than expected] in 2024 than of a higher interest rate,” he said. 

How will higher interest rates affect mortgage rates? 

According to Claudia Wörmann, SBAB’s housing economist, interest rates on floating mortgages could nearly double over the next year from around 1.8 percent today to about 3 percent in January 2026.

She expects two-year fixed mortgages, which are now at around 2 percent to rise to 3.4 percent in January 2025, while five-year fixed-rate mortgages will rise from 2.5 percent today to 3 percent in 2023 and 4.1 percent in 2026. 

Many mortgage lenders had already anticipated Thursday’s rent rise, with Handelsbanken/Stadshypotek, Skandiabank, and SBAB all upping their mortgage rates by as much as 0.25 percentage points last week. 

Bigger monthly payments for those with loans

According to Wörmann, someone with a million kronor mortgage who currently has a two percent interest rate, would see their monthly payment double from about 1,160 to 2,330 if their mortgage rate rises to four percent. 

As most borrowers pay more than they need to simply to meet their interest payments, however, many have some flexibility, meaning they can slow down their repayments to make it easier to bear the increased cost, she said.  

“One aspect is the interest rate, but you need to bear in mind that a normal household amortises much more than they pay in interest rates,” she said. 

Lower buying power for those without a mortgage

For foreigners in Sweden looking to borrow to buy a house, higher mortgage rates will reduce the amount of money they can borrow to buy a house or apartment.  

Houses and flats in Sweden might get more affordable

Two years of rising house prices showed signs of coming to halt last month. 

The Swedish financial supervisory authority warned earlier this month that in its worst-case scenario, where rising interest rates are compounded by higher power costs for consumers, house prices could fall by as much as 30 percent. 

In its less dramatic scenario, the prices of apartments owned as part of a cooperative – so-called bostadsrätter – would fall only slightly, while the price of detached houses would fall 10 percent. 

“Our prognosis is that housing prices at the end of 2024 will be about ten percent lower than what they were on January 1st this year,” said Boije. 

The decline will start with a 1.3 percent drop this year, followed by a bigger 6.1 percent drop next year, and then a 3.8 percent drop in 2024. 

For most buyers the affordability of housing will not change very much, Boije points out, as higher interest rates will reduce the amount they can borrow. 

“If there’s a one-to-one correlation between the interest rate and housing prices, then the use cost of housing in economic terms will not change very much,” he said. 

Foreigners who are able to buy in Sweden without taking out a loan, will see a benefit, however.

It will also become easier for those taking out a mortgage to gather together the 15 percent of the value of the property they are required, under Swedish law, to pay in cash. 

READ ALSO: Will Swedish housing prices plummet as interest rates rise?

Wörmann said there was little doubt that the increase would start to pull down house prices, particularly when you looked at rising costs and post-pandemic effects. 

“It’s more expensive to buy food, you have to take into account that people are spending much more money on electricity and on fuel,” she said.

“We are leaving a pandemic where we were stuck in our homes, which might have meant that people didn’t mind paying a lot of money for their house as they spent so much time there. Now we are released from our home, and that might change how we look at our homes and our willingness to buy something expensive.” 

For foreigners who have yet to buy a house or flat in Sweden, a 30 percent fall in prices would of course be quite welcome, increasing the affordability of property in the country. 

Foreigners paid in local currency may benefit from a stronger krona

The hike in interest rates saw the value of the Swedish krona rise against both the dollar and the euro on Thursday.

If the Riksbank has now left behind the loose monetary policy which saw it keep the key interest rates negative between February 2015 and December 2019, the krona could strengthen against other currencies. 

“If markets now expect the Riksbank to be more hawkish relative to the Fed in the US and the ECB, this should increase the value of krona,” Boije said. 

This will mean foreigners paid in kronor will earn more once their salary is converted into another currency. Conversely, those paid in euros or dollars, but living in Sweden, could see an effective salary cut.