Forecasts of the Central Government budget and public finances September 2025

ESV’s September forecast is published close to the presentation of the Budget bill for 2026, and the Government has already presented several proposals from the forthcoming budget. Since ESV’s method is to base forecasts on unchanged fiscal policy, the proposals are not included in the forecast.

The business cycle in Sweden remains weak, and GDP will grow by 1.2 per cent this year. However, uncertainty regarding trade policy has eased somewhat, and several indicators suggest that households and firms are no longer as pessimistic about the future. We expect GDP growth to pick up markedly during the autumn and to be strong next year. The labour market remains subdued, and unemployment will decline only next year. Inflation will be temporarily high this year, but the Riksbank will nevertheless cut the interest rate once more this year.

Tax revenue in the general government sector will be dampened by the weak business cycle, but also by tax cuts. This year, tax revenue will increase by only about half as much as last year. It is taxes on labour and capital that will grow more slowly this year. Revenue from value added tax will increase after having been virtually unchanged over the past two years. Next year, tax revenue will increase considerably more as the business cycle strengthens.

Ceiling-restricted expenditure will rise sharply this year, in historical terms. Continued allocations to defence account for just over half of the expenditure increase. Expenditure on Communications and the Judicial system will also increase significantly. Expenditure within the old-age pension system outside the government budget also accounts for a large share of the increase. Next year, ceiling-restricted expenditure will grow significantly less than this year. In the old-age pension system, expenditure will decline somewhat as the number of pensioners falls when the age limits in the pension system are raised. Total central government budget expenditure will grow considerably less than ceiling-restricted expenditure this year. This is partly due to the fact that expenditure was temporarily high last year owing to a capital injection to the Riksbank. Moreover, the old-age pension system outside the central government budget is not included here. Next year, total expenditure will increase more than this year.

General government net lending will show a deficit of SEK 100 billion this year. Net lending in the central government sector will weaken as a result of the economic downturn, tax cuts and large expenditure increases. This is also where the deficit will be greatest. In the local government sector, on the other hand, net lending will strengthen this year, despite income rising much more slowly than last year. This strengthening is explained by expenditure declining somewhat, as pension costs return to a more normal level after two years of temporarily high costs. Overall, however, the local government sector will still show a deficit.

Next year, the general government deficit will be smaller. It is primarily net lending in the central government sector that will then strengthen, but net lending in the old-age pension system will also contribute. Net lending in the local government sector, on the other hand, will weaken next year as income continues to grow relatively slowly.

Structural net lending, i.e. net lending adjusted for the impact of the business cycle and one-off effects, is expected to show a deficit of -0.4 per cent of potential GDP this year. This means that there is a clear deviation from the surplus target this year. Next year too, structural net lending will show a deficit, although smaller than this year. It will then be on the threshold of a clear deviation, already before the proposals in the Budget bill have been taken into account. According to our forecast, in other words, there is no budgetary scope for 2026.

The Maastricht debt will rise this year as both the central government sector and the local government sector show deficits. Next year, the debt will continue to rise slightly in nominal terms, but since the economy will grow more rapidly, it will decline in relation to GDP. The Maastricht debt will be in line with the debt anchor both this year and next.

Compared with ESV’s previous forecast, GDP growth has been revised down this year. It is primarily net exports that have been revised down. Household consumption and investments, on the other hand, have been revised up. Unemployment has been revised up for next year. Tax revenue has been revised down both this year and next, with taxes on labour showing the largest reduction. Total expenditure has been revised down this year, but revised up next year as the EU contribution has been raised substantially. Net lending in the general government sector has been revised down by almost SEK 10 billion this year and just over SEK 22 billion next year. The downward revision is mainly due to lower tax revenue. Expenditure has also been revised down, but not as much as income.

Table: The forecast in figures

Sources: ESV and Statistics Sweden.