General government net lending strengthens this year

The business cycle in Sweden remains weak, but GDP growth is expected to pick up pace this year and reach just over 2 per cent. The recovery is supported by the fact that inflation and interest rates are now at significantly lower levels than two years ago, although expansionary fiscal policy also contributes. The turbulent global situation adds considerable uncertainty to economic developments. At present, the effects of US tariffs and countermeasures are assessed to be limited for the Swedish economy. The Riksbank is expected to keep the interest rate unchanged during the forecast period. Inflation is expected to exceed the target this year, but this is considered temporary. Employment is projected to increase slightly this year, but since the labour force is growing more rapidly, unemployment will rise somewhat further. Next year, as GDP growth picks up, unemployment is expected to decline.

Tax revenue in the general government sector continues to be dampened by the economic downturn. At the same time, tax cuts in the Budget Bill for 2025 contribute to limiting the increase in revenue this year. Overall, tax revenue develops somewhat more weakly than last year. Both taxes on labour and taxes on capital income grow more slowly this year, while revenue from value added tax increases again after having been largely unchanged for two years. Next year, revenue rises significantly faster due to stronger growth in tax bases, and the absence of further decided tax cuts.

Ceiling-restricted expenditure increases substantially this year, partly due to expenditure increases in the Budget Bill for 2025. Continued additional expenditure for Defence accounts for a significant share of the increase, but expenditure for the expenditure areas Transport and Communications as well as Justice also rises considerably. The high inflation in 2023 contributes to the rise in expenditure, as some expenditure items are affected by inflation with a time lag. Expenditure in the old-age pension system outside the central government budget also increases substantially this year due to a significant increase in the income index. Total central government budget expenditure does not rise as much as ceiling-restricted expenditure this year. This is partly due to last year’s temporarily high total expenditure following a capital injection to the Riksbank, and the fact that expenditure in the old-age pension system – which largely contributes to the increase in ceiling-restricted expenditure – is not included in total central government budget expenditure. Next year, ceiling-restricted expenditure rises less than this year and grows more slowly than total expenditure.

General government net lending strengthens significantly this year, but there is still a deficit of SEK 51 billion, largely due to the economic downturn. Net lending improves in all subsectors, with the greatest improvement seen in the local government sector, where expenditure grows considerably more slowly than last year and at a slower pace than income. The largest deficit is in the central government sector. Net lending is expected to strengthen further next year, mainly due to improvements in central government net lending. The central government budget balance shows a deficit of nearly the same size as net lending this year. Next year, the deficit in the budget balance is larger, primarily because accruals cause tax income to be lower than tax revenue.

Structural net lending – that is, net lending adjusted for the effects of the business cycle and one-off effects – remains close to the target level of the surplus target both this year and next. The deficit is thus largely explained by the economic downturn that Sweden is currently experiencing.

The Maastricht debt increases this year as a result of the weak business cycle and measures in the Budget Bill for 2025. Next year, the debt level continues to rise in nominal terms, but since the economy grows more, the debt decreases in relation to GDP. The Maastricht debt remains below the debt anchor throughout the forecast period, although within the tolerance interval.

Compared with ESV’s previous forecast, GDP growth for 2025 has been revised upwards. Despite the upward revision of GDP, employment growth has been revised down in the short term and unemployment is higher. Inflation has been surprisingly strong and has been revised upwards for 2025. Tax revenue has been revised down for this year but upwards for the remaining years. Compared with the November forecast, we now expect significantly lower expenditure this year. For the other years, revisions are smaller. General government net lending has been revised up by just over SEK 40 billion in 2025, primarily due to a smaller deficit in the central government sector. Net lending has also been adjusted upwards for the other forecast years, though not to the same extent as for 2025.

Table: The forecast in figures

Sources: ESV and Statistics Sweden.