Forecasts of the Central Government budget and public finances – June 2025

Economic growth decreased in early 2025, after some brightening at the end of last year. The unclear messages from the US administration regarding tariffs have created significant uncertainty, resulting in financial turbulence. This has contributed to both households and firms feeling subdued, according to several surveys. GDP is set to increase by 1.5 percent this year, largely driven by temporarily high export levels in the first quarter before the tariffs came into effect. The underlying growth is weak, prompting the Riksbank to lower the repo rate once more this year, despite inflation temporarily exceeding the target. The labour market situation is subdued, and unemployment thus remains at its current high level for most of the year. Growth is expected to be strong next year, resulting in a drop in unemployment. Inflation is projected to be slightly below the target level.

The public sector's tax revenue is developing more weakly this year than last year. Both the economic downturn and tax cuts are curbing this development. The taxes on labour and taxes on capital are experiencing slower growth this year, while revenues from value-added tax are rising again after being virtually unchanged for two years. Next year, tax revenue is expected to grow significantly more than this year as economic activity accelerates.

Ceiling-restricted expenditure is increasing significantly this year. Continued allocations to Defence account for nearly half the increase in expenditure. However, expenditure for Communications, the Judiciary, and the old-age pension system outside the central government budget is also rising substantially. The previous high inflation contributes to the rise in expenditure, as some costs are affected by inflation with a certain delay. Total central government budget expenditure is increasing less than ceiling-restricted expenditure this year, partly because last year's expenditure was temporarily high due to a capital injection to the Riksbank. Next year, both ceiling-restricted and total expenditure will grow more slowly than this year.

The public sector net lending shows a deficit of SEK 90 billion this year, largely due to the economic downturn. Nonetheless, it marks a slight improvement from last year, mainly explained by lower pension costs in the local government sector. In contrast, the central government sector's net lending weakens significantly, resulting in the largest deficit occurring here. The deficit in the general government sector will be considerably smaller next year, particularly as net lending in the central government sector improves. The difference between the central government budget balance and central government net lending is slight both this year and next year.

Structural net lending, defined as net lending adjusted for the impact of the business cycle and one-off effects, is projected to show a deficit of 0.2 percent of potential GDP this year. This suggests it is on the verge of a clear deviation. Next year, structural net lending will show a surplus but remain below the target level.

The Maastricht debt is rising this year because both the central government and the local government sectors are in deficit. Next year, the debt will continue to increase in numerical terms, but since the growth of the economy is higher, it will decrease relative to GDP. The Maastricht debt is in line with the debt anchor this year but will undershoot the anchor in the coming years.

Compared to the previous forecast, GDP growth has been revised downwards for this year and next year due to a deteriorating global economy and weaker-than-expected outcomes. Unemployment is expected to be slightly higher in both years, while inflation remains virtually unchanged compared to our previous forecast. Tax revenues have been revised downward for this year and next year. Expenditure has been increased for this year but reduced for next year. Public sector net lending has been reduced by nearly SEK 40 billion this year, mainly due to revisions in the central government sector's net lending. Public sector net lending has also been adjusted downward slightly for next year.

Table: The forecast in figures

Sources: ESV and Statistics Sweden.