Anna Breman in Kiruna: How trade barriers affect Swedish growth and inflation

“Trade barriers are negative for an export-dependent country like Sweden. However, the impact of increased protectionism will depend on the scope of the tariffs, which countries are affected, and how these countries respond with various countermeasures. Swedish GDP would slow down, while the effect on inflation in Sweden is uncertain,” said Ms Breman.

It is not certain that tariffs in the United States would lead to higher inflation in Europe, as they could at the same time slow down growth in Europe - and low demand can dampen inflation.

She pointed out that one way of counteracting the negative effects of trade barriers is to invest in reforms that strengthen productivity.

“Increased productivity is important for increased welfare, competitiveness and real wage growth. But higher productivity would also make us more resilient in an uncertain world. An economy with high productivity growth can have faster growth, a strong labour market and rising real wages without high inflationary pressures. All else being equal, productivity protects an economy against inflation.”

In the United States, productivity has picked up in recent years, but we do not see the same trend in Sweden. A comparison with factors assessed to have increased productivity in the United States shows that Sweden could increase productivity through investing in education that strengthens matching in the Swedish labour market, investing in new technologies, including AI, as well as promoting entrepreneurship and facilitating a dynamic business environment.

"It is positive that we have both a Productivity Commission and an AI Commission in Sweden," said Ms Breman. “Reforms that increase productivity are always important, but with the increasing trade barriers we see, it is even more important that Sweden invests in increased productivity in the near future."

Ms Breman also emphasised that Sweden is well placed to deal with global uncertainty. “Sweden has a diversified and competitive business sector that has shown a high capacity to adapt to new conditions. We have strong public finances, and we at the Riksbank have both the tools and the preparedness to act to keep inflation at a low and stable level.”

In this context, she also commented on current monetary policy. 

“We have now cut the policy rate six times, by a total of 1.75 percentage points. These cuts increase the purchasing power of households and lower financing costs for firms. The overall picture is that Sweden is well placed for a good economic recovery in 2025 and for inflation to remain in line with the target. But if the outlook changes, we are prepared both to raise and to lower the policy rate."

Breman noted that there will be more information about the economic outlook ahead of the next monetary policy meeting, including one further month of inflation.

“In the Riksbank's current business survey, we are asking specific questions on increased trade barriers, which may provide an indication of how Swedish firms are adapting to the threat of tariffs. An overall assessment of the outlook for inflation and economic activity will determine the next steps for monetary policy.”