Sweden's Riksbank published an Economic Commentary analysing how a gradual tightening of US fiscal policy to stabilise the federal debt-to-GDP ratio could spill over to Sweden. Under the modelled scenario, Swedish GDP would be lower, while the effect on inflation would be moderate. The analysis highlights two main transmission channels. Through trade, weaker US demand reduces imports, weighing on Swedish exports, and a weaker US dollar could strengthen the krona and further dampen export prospects. Through financial markets, the effects on interest rates, exchange rates, equity markets and term premiums can be either supportive or contractionary, depending on economic conditions and market confidence in the credibility of the US tightening plan. In the scenario, the United States consolidates by 4% of GDP, modelled as a reduction in government consumption of one-third of a percent of GDP per quarter for 12 quarters. Using the Riksbank’s MAJA general equilibrium model, Swedish GDP is estimated to be just under 0.4% lower after 12 quarters than in a no-tightening baseline, with roughly half of the impact coming directly from the United States and half indirectly via the euro area; the weaker activity path lowers resource utilisation and leads to a cut in the policy rate. Compared with studies focused on the European Union, the results suggest Sweden would be slightly more affected, which the Commentary links to Sweden’s relatively high degree of openness.
Riksbank 2025-10-23
Sweden's Riksbank estimates US fiscal consolidation could lower Swedish GDP by just under 0.4% after 12 quarters
Sweden's Riksbank published an Economic Commentary analyzing the potential spillover effects of a gradual tightening of US fiscal policy on Sweden. The analysis, using the Riksbank’s MAJA model, suggests Swedish GDP could be nearly 0.4% lower after 12 quarters, with impacts transmitted through trade and financial markets. The study indicates Sweden may be more affected than the EU due to its high degree of openness.