What’s going to happen to the Swedish economy in 2024 – mortgages, cost of living and salaries

“An economic winter is on the horizon,” chief economist Mattias Persson warns in Swedbank’s most recent Economic Outlook, released in November 2023, which predicts that Sweden will be the only one of twelve countries included in the report to have a negative GDP in 2024.

Inflation may be falling and slowly-but-surely getting closer to the 2 percent goal set by Sweden’s central bank, the Riksbank, but we’re not out of the woods just yet, Swedbank predicts.

“The direction we’re heading in is going to be the same as in most countries: falling economic activity,” Persson writes.

“The full effect of high interest rates and more restrictive finances are still ahead of us and will dampen economic growth.”

However, there is a plus side to the bad news, at least for homeowners who have had their finances pressed by rising key interest rates over the last year.

“Lower growth, higher unemployment and a very limited capacity for more expansive financial policy means that the central banks will start to drop key interest rates in the middle of 2024 when inflation starts to fall.”

Swedbank’s predictions for the next two years

The bank predicts that consumption growth will be “mediocre” next year at 0.2 percent, while the key interest rate will peak at 4.25 percent in November this year, before remaining the same until June 2024, where it will start to drop.

It predicts that fewer than 25,000 homes will be built in 2024 and 2025 combined, and that the Swedish krona will strengthen slightly against the Euro to 11.2 kronor in December next year (at the time of writing one Euro cost 11.49 kronor).

Swedish GDP is expected to shrink 0.4 percent in 2024, while all other countries in the report – the USA, China, Germany, France, Italy, Spain, Estonia, Latvia, Lithuania, Norway and the UK – are expected to see positive growth (albeit under 1 percent in most cases).

This is a slightly better prediction for Sweden’s economy than the EU commission’s prediction in its autumn economic prognosis, which expects the country’s economy to shrink by 0.5 percent next year – the worst prognosis among all countries in the EU.

Sweden’s GDP is, however, expected to be positive again in 2025, where the bank expects it to grow by 2 percent.

Swedbank further predicts that Sweden’s unemployment rate will hit 8.5 percent next year, as a predicted 40,000 people will lose their jobs.

It also expects inflation to fall to 2.4 percent, close to the Riksbank’s 2 percent goal, dropping to 1.4 percent in 2025.

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What’s going to happen to mortgage rates?

The Handelsbanken bank believes that the variable mortgage rates offered by banks are close to reaching their peak, hitting around 5 percent for new loans by the end of this year.

Factoring in the fact that some fixed-rate mortgages are up for renewal this year, and these mortgages will be put on a higher interest rate, it predicts that Swedish homeowners will on average be paying mortgage rates of around 4 percent by the end of 2024.

Rates will start to drop in the second quarter of next year, Handelsbanken predicts, with the rate reaching around 3.5 to 4 percent over the next two years.

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State of the labour market varies depending on sector

Some industries, like construction and other related industries such as architecture and technical consultants, are likely to be hard hit over the next year or so, with fewer new homes expected to be built, Swedbank predicts.

Other industries, like tourism and trade, will also be affected as household consumption drops and the worsening economic situation in other countries has a negative effect on demand from abroad.

Some industries are likely to be less affected, the bank predicts.

“Export of services is expected to fare better, with industries like IT, defence and green technology all experiencing a high demand,” the report reads.

“Needs within the public sector are also high and even though the economic situation is tough, investments in parts of the public sector, like law and order, are somewhat countering the decline.”

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Real salaries expected to start rising mid-2024

Salaries agreed by unions and employer organisations under collective bargaining agreements are contributing to an overall salary increase of 3.8 percent for workers in Sweden as a whole over this year and next year, the Swedbank report reads, although the real salaries when inflation is taken into consideration have fallen more in Sweden than in many other countries.

It predicts that real salaries will start to rise again in the middle of next year.

It also mentions the new work permit salary threshold for non-EU citizens, which was introduced at the beginning of November, and what knock-on effects this could have on the labour market as a whole.

“The higher work permit threshold for non-EU citizens represents a challenge for the Swedish model where salaries are set by negotiations between both parties without political influence,” it reads.

“Above all, the size of the overall labour force could be affected by this, which is a problem considering Sweden is already experiencing a structural lack of key skills.”

It adds that demographic factors are already contributing to a smaller labour force, as well as an increased need for workers in the healthcare industry.

It’s unclear what the Swedish property market will look like in 2024. Photo: Fredrik Sandberg/TT

What about households’ disposable income?

Those living in Sweden have no doubt noticed their money stretching less far over the past year, and the Swedbank report expects that this will remain the case for some time yet.

“Over 2024, the real disposable incomes for households are expected to remain unchanged compared with this year, which means that incomes on average will fall slightly per capita,” it reads.

The bank predict that disposable incomes will start to rise again in 2025 as the labour market improves and interest payments start to drop.

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Unclear how housing prices will be affected

In its report, Swedbank argues that housing prices could continue to fall a further 5 percent over the next six months, due to factors mentioned above like rising interest rates, households’ buying power remaining low and the number of new builds being put up for sale further saturating the market.

“The situation on the housing market remains cautious, with unusually few transactions, long sales times and a low number of bids,” it reads.

It expects that housing prices will bottom out in the first half of next year, before household buying power starts to improve in the spring and interest rates start to drop in the summer, and it predicts an overall drop of 15 percent in property prices from the peak in March 2022.

Handelsbanken, however, paints a more positive picture. In its report, analysts argue that prices will remain stable, although activity on the property market will be “calmer” than it has been over the past few years.

Although there are many new homes coming on to the market, most sellers are not under any pressure to sell quickly, as the majority of people are waiting to sell before they buy.

If, however, people looking to sell their homes start experiencing more pressure to sell quickly – whether that’s due to economic factors or something else – then prices could decrease further as sellers become more desperate.

It adds that the risk of prices dropping further is highest outside Sweden’s major cities.

Prices for newly built apartments could also drop, Handelsbanken argues, as these haven’t seen a decrease in price consistent with already existing apartments.