Sweden to Outpace EU Growth in 2026 as Fiscal Stimulus Spur Expansion

Sweden's Economy: Growth Outlook and Investment Implications

Sweden's economy is expected to grow by 3% in 2026, nearly doubling the expansion seen in 2025, according to the finance ministry. Finance Minister Elisabeth Svantesson announced the forecast during a news briefing in Stockholm, stating that the recovery has begun. The updated projection reflects a faster pace of economic expansion than previously anticipated according to the finance ministry.

The government revised its 2026 growth forecast down slightly to 3% from 3.1% in September, while raising its 2025 growth estimate to 1.6% from 0.9%. The shift underscores confidence in a turning point for the largest Nordic economy, which has struggled with sluggish growth and high unemployment. "We see that households will have greater purchasing power next year," Svantesson said according to government statements.

Monetary and fiscal stimulus are expected to boost household spending in 2026, helping Sweden to outpace the European Union's average growth rate for the first time since the pandemic. The finance ministry also raised its 2025 growth forecast, citing an economic recovery that has started despite lingering uncertainties. The EU executive now anticipates Sweden's growth to reach twice the bloc's average in 2026 according to EU economic projections.

Drivers of the Recovery

The government's budget for 2026 includes a deficit of 2.4% of GDP, up from 1.4% in 2025, as spending on defense and tax cuts on earned income and food purchases aim to stimulate growth. The central bank has also cut interest rates over the past 18 months, further supporting economic activity. Svantesson highlighted the importance of real wage growth and reduced taxes in helping households regain strength.

Sweden's public sector debt remains relatively low at 34.8% of GDP in 2025, with the figure expected to rise slightly to 35.8% in 2026. The government has emphasized fiscal prudence, even as it increases spending to support defense and economic revival. Growth is expected to ease to 2.3% in 2027, with a further slowdown projected for 2028 according to the finance ministry's revised projections.

Risks to the Outlook

Despite the improved forecast, the recovery remains uneven. While some sectors show strength, many individuals continue to face financial challenges. The government acknowledged that the economic turnaround is not yet universal, but it remains optimistic about the trajectory of growth.

Sri Lanka, in contrast, is facing the potential for slower economic expansion in 2026 due to the impact of a recent cyclone. The country's economy grew by 5.4% in the third quarter of 2025, but analysts expect a contraction of 0.5–0.7% due to cyclone-related damage. Reconstruction efforts may offset some of the losses, but the outlook remains uncertain according to Reuters analysis.

What This Means for Investors

The improved growth forecast for Sweden is likely to attract attention from investors, particularly as the country emerges from a period of weak performance. Phillips 66, an energy company with interests in the European market, recently announced a $2.4 billion capital budget for 2026, signaling continued investment in the region. The firm's projects include gas processing and pipeline expansion, with operations expected to begin as early as 2027 according to company announcements.

Sweden's economic recovery could also benefit the broader Nordic region. With a more robust growth outlook, Sweden's economy may become a key driver for neighboring markets. The government faces the challenge of maintaining momentum ahead of national elections in 2026, where a strong growth performance could bolster support for the current coalition.

Sweden's 2026 growth forecast reflects a combination of monetary and fiscal policies aimed at boosting household spending and investment. The economy is expected to expand at the fastest rate in five years, driven by improved purchasing power and a more favorable policy environment. The outlook remains positive, though risks persist due to global uncertainties and internal challenges.