Swedbank lowers Sweden's economic growth forecast, expecting the central bank to cut interest rates twice this year to 1.75%

According to the Zhitong Finance APP, Sweden's central bank has recently released its "Economic Outlook" report, significantly adjusting its forecast for the benchmark interest rate. It now predicts a cumulative rate cut of 50 basis points to 1.75% before the end of the third quarter of this year, a major shift from its previous forecast of "a single rate cut of 25 basis points to 2.25% in August." This adjustment clearly breaks through last month's survey, where "most analysts expected a rate cut to 2% in the fourth quarter."

The bank's economic analysis team pointed out that the largest economy in the Nordic region is currently facing threefold pressure: external uncertainty caused by the Trump administration's trade policies, concerns over stagnation in domestic economic recovery, and the constraints of persistently high core inflation on monetary policy. The latest data shows that although there are signs of overall inflation retreating, the core CPI, excluding energy and food, remains sticky, contrasting with the weak performance of GDP growth, which may fall below 1.5%.

"The chain reaction of U.S. tariff increases cannot be ignored," the report emphasizes, stating that trade friction will impact the Swedish economy through three channels: reduced export orders, slowed corporate investment, and weakened consumer confidence. Based on this, the Swedish bank has lowered its economic growth forecast for 2025 from last month's prediction of 2.7% to 2.5%, while maintaining its growth estimate of 1.5% for this year. The bank believes that tariff pressures will indirectly drive inflation rates to decline moderately, providing the Swedish central bank with policy space.

For its neighboring country Norway, the Swedish bank maintains its baseline forecast for the European Central Bank to start cutting rates in September, but has added expectations for a second rate cut in December, predicting four consecutive rate cuts to 3% in 2026. It is noteworthy that the Norwegian central bank previously indicated that it might delay the start of its easing cycle until September.

Analysts point out that the Swedish central bank's policy shift reflects the unique dilemmas faced by Nordic economies: the need to guard against imported inflation risks while also addressing the impact of trade protectionism on export-oriented economies. As major central banks begin their easing cycles, the divergence in Nordic monetary policy may exacerbate market volatility