In the last few weeks, the Swedish krona has strengthened against both the dollar and the euro. Food prices barely rose in March and it looks like wages may increase more than inflation this year.
What’s on the horizon for the Swedish economy? How could that affect immigrants living here, and should you change your financial strategy as the value of the krona rises?
What can we expect for the Swedish economy in 2025?
“We’re a small, open economy,” SEB household economist Américo Fernández told The Local, speaking a few days before US President Donald Trump’s planned tariffs on EU goods came into force on April 2nd.
“We can’t avoid being affected by these things,” Fernández said, while adding that “new press conferences from Donald Trump,” made it difficult to make any serious predictions when it comes to the economy.
“Apart from the formal disclaimer in these uncertain times, where Trump has a real firm grip on the stock market, but also economic development around the world, I would say that last year was a bit of a disappointment when it comes to economic growth,” he said.
“We thought that Swedish households were going to go out on the town and consume, and that that would bring a lot of growth, especially when interest rates went down. The result was the opposite.”
Instead of increased consumption, Swedish households continued to save, which eventually led to zero growth last year. The original forecast for this year, Fernández said, also looked good.
“We thought ‘okay, a couple of interest rate cuts again, and then Swedish households will consume’. Now it’s a little bit more uncertain. Food prices, inflation is coming back on the horizon, it’s a little bit worrying. We see that consumer confidence is not really that positive.”
It’s not all bad news, though.
“We still believe wages will increase a bit more than inflation, which means purchasing power will go up this year. We have tax cuts for a lot of people in Sweden that are working, and although we don’t have any more planned or forecasted interest rate cuts, mortgage costs have come down,” Fernández said.
“So a lot of things are going in the right direction, and we believe that, especially during the second half of the year, we’ll have a clear growth scenario, with Swedish households going back to more regular consumption.”
Despite the black clouds on the horizon, he still believes that households will notice a change in their finances over the coming year.
“It depends on the salary you have of course, and whether you decide to consume it or not. But if we look at the 3.4 percent wage increase that the labour unions are discussing right now, if you have a salary of let’s say 40,000 Swedish kronor, that would give around 900 kronor more every month,” he said, while adding that planned tax cuts would add more onto that amount.
This he said would be "significant" for people's wallets. "But from a historic perspective I wouldn’t say this is a big salary year. So I’d say there will be a moderate effect.”
What about the krona? Will that get stronger or weaker?
Currency exchange rates are notoriously difficult to predict, and the Swedish krona is no different.
“Everyone, every Swedish economist during the last ten years has said ‘this will be the year that the Swedish krona will strengthen’, and we’ve had a decade of a weaker Swedish krona. And the first year we believe the opposite, then we get a stronger Swedish krona,” Fernández said.
The reason for the rise isn’t clear, but Fernández believes there are a few factors that could be playing a part.
“The Swedish krona usually gets weaker in times of economic uncertainty, like what we’re seeing now. But what’s happening in this case is that the country that has mainly created the economic uncertainty is the US, which means we don’t have a push for American dollars. Instead, you have more of a safe haven in the Swedish krona and in euros.”
In the short term, he said, households will notice the difference during the summer when they go on holiday.
“If you’re planning a vacation abroad, we’ve had a decade of a weak krona, weak purchasing power outside of Sweden’s borders. Now we’ll probably have a stronger summer, which could give households some breathing room in that sense.”
That’s not the only positive we can expect to see in the short term.
“A strong Swedish krona also dampens or lessens the risk of importing inflation,” Fernández added. “This was the opposite during the high inflation years, when we had a weak Swedish krona, we imported a lot of inflation, because we import a lot of goods which we had to pay more for. Now we have the opposite situation, which is good for inflation.”
In the long term, however, a stronger Swedish krona could actually be bad news for the economy.
“We are a really strong exporting country, and if we have a strong Swedish krona it dampens exports. That’s not good for our bigger exporting companies. In the long term, they would see decreased revenues, and that’s not good for the labour market or in the longer perspective for households.”
What about international households with income or savings in another currency?
While people who get paid in euros or dollars may have seen a drop in their income as the krona has strengthened, Fernández doesn’t advise switching over the currency you’re paid in just yet.
“Although the same wage in US dollars is worth less in Sweden today than it was a year ago, I wouldn’t change that much in my strategy, because the krona and the exchange rate in general are very volatile and very difficult to forecast,” he said.
“I wouldn’t say that this is necessarily the effect we’ll see in a year’s time.”
As far as foreign investments are concerned, Fernández recommends that investors hold onto their investments and don’t sell just yet.
“We have a saying in Sweden, sitt still i båten, sit still in the boat, meaning ‘do nothing’. Be balanced. Don’t react too much to the stock market noise, because it doesn’t matter which economist or which strategist you talk to, no one actually knows where the stock market is going.”
“The only thing we do know is that when there’s a lot of gloomy news, that creates a lot of uncertainty, which people react to. We have a lot of herd instinct on the stock market, meaning that people tend to panic and sell at a lower point and then come back at a much higher price. So households in general should just play it cool and try to ride out this uncertain wave.”
The same applies to other types of savings in foreign currencies, like pensions.
“We live longer and longer. The life expectancy, at least in Sweden, is above 80. I wouldn’t base my long-term retirement strategy on these short-term movements. I wouldn’t change my long-term pension strategy just because of the last few weeks or the last month.”
Although it can be tempting to make the most of the exchange rate and finally make that big foreign purchase you’ve been thinking about for years, especially since interest rates in the eurozone may fall further, Fernández advises to keep the long-term perspective in mind.
“Make these decisions as part of a long term strategy, not with a timing perspective. If you think ‘I should buy this house or this property now because now, specifically it’s a good opportunity’, that would only be a solid strategy if it’s something you will still be able to afford five or ten years down the line.”
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