Sweden's Riksbank and the Strategic Case for Defensive Equity Exposure in a Low-Rate Environment

Sweden's Riksbank has maintained a policy rate of 1.75% since November 2025, signaling a prolonged period of monetary easing as inflation stabilizes near its 2% target. This decision, coupled with fiscal stimulus measures such as tax reductions and a temporary VAT cut on food, has created a favorable environment for equity markets, particularly for defensive sectors like utilities, consumer staples, and healthcare. As the Swedish economy transitions into a recovery phase, investors are increasingly turning to these sectors for resilience and long-term value, supported by low borrowing costs and improved macroeconomic conditions.

The Riksbank's Policy Framework and Economic Outlook

The Riksbank's decision to hold rates steady at 1.75% reflects its dual mandate of controlling inflation and supporting economic growth. With inflation now aligned with the 2% target and GDP growth projected to rise from 1.5% in 2025 to 2.6% in 2026, the central bank has emphasized that its accommodative stance will remain unchanged for the foreseeable future. This stability reduces uncertainty for businesses and investors, enabling long-term planning and capital allocation. According to Bloomberg, the Riksbank's forward guidance suggests a potential rate hike by late 2026, but markets anticipate a gradual approach.

Fiscal stimulus has further amplified the Riksbank's efforts. The 2025 budget bill, which includes tax cuts and reduced indirect taxes, is expected to boost household disposable income and private consumption. These measures, combined with the central bank's low-rate policy, have created a "double stimulus" effect, driving demand for goods and services while keeping borrowing costs low for businesses.

Defensive Sectors in a Low-Rate Environment

Defensive equity sectors-utilities, consumer staples, and healthcare-are particularly well-positioned to benefit from this environment.

1. Utilities: Infrastructure Investment and Stable Demand
The utilities sector has historically been a cornerstone of Sweden's capital markets, supported by its role in energy transition and public infrastructure. With the Riksbank's low-rate policy reducing financing costs, utilities companies are better positioned to fund long-term projects, such as renewable energy infrastructure and grid modernization. A report by the European Commission notes that public investment in defense and infrastructure will further support sectoral growth. While specific Q3 2025 revenue metrics for utilities are not available, the broader economic upturn- marked by a 1.1% GDP growth in Q3 2025-suggests increased demand for energy and utilities services.

2. Consumer Staples: Fiscal Stimulus and Household Resilience
Consumer staples, which include food, beverages, and household goods, are set to benefit from fiscal measures that directly increase household spending power. The temporary VAT cut on food, for instance, is expected to drive demand for essential goods. According to OECD analysis, Sweden's real GDP growth is projected to nearly double in 2026 compared to 2025, driven largely by private consumption. While short-term valuation pressures exist due to global trade uncertainties, the sector's fundamental resilience-rooted in inelastic demand-positions it for steady performance.

3. Healthcare: Structural Growth and Regulatory Tailwinds
The healthcare sector, though facing competitive pressures (e.g., from pharmaceutical giants like Novo Nordisk), remains a strategic play in Sweden's economic recovery. Fiscal stimulus and rising disposable incomes are expected to boost demand for medical devices and pharmaceuticals. Additionally, regulatory clarity and tariff certainty in Europe have made healthcare stocks more attractive to investors. While Q3 2025 stock performance data is limited, the sector's strong earnings and undervalued status relative to global peers suggest long-term potential.

Risks and Considerations

Despite the favorable outlook, investors must remain cautious. Global economic headwinds, such as slower U.S. monetary easing and geopolitical tensions, could introduce volatility into Swedish equity markets. Moreover, wage growth in Sweden is projected to remain constrained in 2025-26, which may temper the pace of recovery in labor-intensive sectors. However, the Riksbank's commitment to maintaining low rates and the government's fiscal support mitigate these risks, creating a buffer for defensive equities.

Conclusion

Sweden's Riksbank has crafted a policy environment that prioritizes economic stability and gradual recovery. By maintaining low interest rates and supporting fiscal stimulus, the central bank has laid the groundwork for defensive sectors to thrive. Utilities, consumer staples, and healthcare are poised to benefit from reduced borrowing costs, increased household spending, and structural growth drivers. While macroeconomic uncertainties persist, the strategic case for these sectors remains compelling, particularly for investors seeking resilience in a low-rate environment.