Sweden's Riksbank publishes research estimating March 2025 uncertainty could reduce Swedish GDP by just under 0.5% in Q2 2025

Sweden's Riksbank published an Economic Commentary reviewing empirical evidence on how the early 2025 surge in uncertainty could affect the economy, with a focus on Sweden. The analysis finds that higher uncertainty typically depresses real economic activity, with larger effects when the economy is weak or when uncertainty remains elevated for a prolonged period, while inflation outcomes are less clear and depend on whether uncertainty mainly hits demand or creates supply shocks and exchange rate movements. The commentary highlights transmission channels including firms postponing investment and hiring, households increasing precautionary saving, and investors demanding higher risk premiums that raise effective borrowing costs. It summarises VAR-based studies showing that a one standard deviation increase in uncertainty is associated with a peak decline in US industrial production of 0.5–1.5% and a dampening of euro area GDP of 0.3–0.7% after 6–12 months, while Swedish evidence links a one standard deviation rise in US economic policy uncertainty to Swedish industrial production being about 0.7% lower after one year. A simple VAR using Swedish data indicates a one standard deviation rise in uncertainty could reduce Swedish GDP by about 0.2% in the next quarter and implies that the high uncertainty in March 2025 may dampen Swedish GDP by just under 0.5% in the second quarter of 2025, with the caveat that effects could be larger if uncertainty stays historically high or smaller if it declines quickly.