In 2017 and 2018, the Swedish economy grew by 2,4% annually, supported by a flexible monetary policy, strong domestic demand, and solid growth in investment and exports.
In 2019, economic growth is expected to slow to less than 2%, as both domestic and external demand weaken. As a small, open economy heavily reliant on exports, Sweden is exposed to a potential recession in world trade.
Swedish corporate insolvencies increased in 2017 and 2018, following three years of annual declines. A further 3% increase is expected in 2019, mainly due to the spillover effects of the large increase recorded in 2018.
In order to combat deflation and weaken the currency, the Swedish central bank has been repeatedly lowering interest rates since 2014. Despite the increase in December, the rate remains negative (-0,25%). Inflation is expected to remain close to the central target of 2% in 2019 and 2020.
The soundness of public finances provides room for fiscal relief in the event of an economic recession. A potential downside risk to the Swedish economy remains the high level of household debt, caused by easy access to credit and homeownership. Despite stricter mortgage repayment requirements, the ratio of household debt to disposable income remained above 180% in 2018, making them vulnerable to sharp falls in housing prices and rising interest rates.
