EU Lowers Growth Forecast Amid Trade Tensions, Impacting Sweden
The EU Commission has downgraded its 2025 growth forecast to 1.1%, impacting Sweden with rising unemployment and concerns over U.S. trade tensions.
Key Points
- • EU growth forecast for 2025 downgraded to 1.1% from 1.5%.
- • Sweden's growth projected at 1.1% this year, with unemployment rising to 8.7%.
- • U.S. tariffs predicted to negatively affect global economy and trade.
- • EU's average budget deficit expected to increase, but Sweden maintains a strong fiscal position.
The EU Commission has downgraded its growth forecast for the region to 1.1% for 2025, a significant revision from the previous estimate of 1.5%. This downward trend, attributed to escalating trade tensions and uncertainties surrounding U.S. tariffs, raises concerns about economic stability across the union and specifically affects Sweden's economic outlook.
Valdis Dombrovskis, the EU's economic commissioner, indicated that increasing global uncertainties are weighing heavily on growth prospects. He highlighted the negative impact of U.S. tariffs, which include a 10% levy on most goods imported from the EU and 25% on steel, aluminum, and automobiles. The tariffs are projected to lead to a global GDP decline of approximately 0.4% and a staggering 2.9% drop in world trade. Interestingly, Dombrovskis noted that the U.S. might face a more significant setback, with expected growth reductions exceeding 1% in the upcoming years.
Germany, Europe's largest economy, faces a particularly stark forecast of zero growth for 2025, contrasting sharply with Spain and Ireland, which are anticipated to perform strongly. In Sweden, the commission predicts a growth of 1.1% for this year and 1.9% for 2026, albeit coupled with a slight increase in unemployment, expected to rise to 8.7% this year.
Despite the downturn in forecasted growth, positive indicators exist. Inflation rates are expected to decrease, nearing 2% within the year, while the labor market shows signs of resilience, with projections of a 1% increase in employment from 2025 to 2026. By 2026, unemployment in the EU may decline to 5.7%, marking a significant historical low.
Additionally, the EU’s overall budget deficit is predicted to rise moderately to 3.4% of GDP next year. In contrast, Sweden's fiscal health remains robust, with a forecasted budget deficit of only 1.5%. Moreover, increasing defense spending is viewed as a potential booster for growth, with expenditures anticipated to escalate from 1.4% of GDP in 2024 to 1.6% by 2026. However, the commission cautions about the ongoing risks, particularly the escalation of trade conflicts with the U.S.
As the economic landscape continues to evolve, Sweden's recovery remains intertwined with the broader EU response to external pressures, strengthening the need for adaptive policies to mitigate impending risks.