Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Sweden (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 10 February 2025.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Kingdom of Sweden’s long-term AAA/Stable ratings are underpinned by the following credit strengths: i) the country’s wealthy, diversified and competitive economy; ii) a strong fiscal framework and low public debt; and iii) a robust external position driven by consistent current account surpluses, a net international creditor position and substantial international reserves that shield the country from short-term shocks.

The main credit challenges relate to: i) financial stability risks, including from high levels of household and corporate debt; and ii) risk of a severe, persistent correction in the housing market.

In 2023, Sweden's economy shrank by 0.2% as rising interest rates and inflation curbed investment and consumption. However, strong exports and a resilient labor market mitigated the decline. Real GDP growth remained flat in the first quarter of 2024, before starting to recover gradually in Q2. Scope anticipates a steady economic recovery as inflation continues to subside and interest rates decrease, fostering increased household consumption and stabilizing the housing market. Scope projects annual real GDP growth to increase from 0.6% in 2024 to 1.8% in 2025 and 2.8% in 2026.

The government will implement a moderately expansionary fiscal policy in the coming years. The 2025 Budget Bill introduces unfunded policy measures for SEK 60bn in 2025 and SEK 67bn in 2026, accounting for approximately 0.9% of GDP. These measures include, among others, tax cuts and increased spending on defense, healthcare, and education. Despite an anticipated headline fiscal deficit of approximately 1.4% of GDP in 2025 and 0.8% in 2026, public debt remains low. Scope expects a slight rise in the debt-to-GDP ratio to 37.2% in 2025, from 36.4% in 2023, while remaining below the peak of 40.3% in 2020, before declining to approximately 34.4% by 2029.

The recent rise in interest rates has led to a market correction in the Swedish real estate sector, with house and apartment prices remaining approximately 13% and 5% below their 2022 peak, respectively. The market's sensitivity to interest rate changes is attributable to the combination of high private debt and short rate fixation. However, the decline in interest rates and the gradual recovery in economic output from the second half of 2024 have led to an increase in house and apartment prices, together with a slow recovery in new constructions. Consequently, the financial conditions of property companies have started to improve, after significant challenges were faced in the past two years amid higher interest costs. The sector has seen an uptick in bond issuance, indicating an improvement in overall funding conditions and a distribution of credit risk between bondholders and banks. However, property companies maintain significant levels of debt, and a persistent decline in the rental market can adversely impact property values. This poses a risk to financial stability due to the significant exposure of Swedish banks and other financial institutions to these entities.

The Stable Outlook reflects Scope’s view that the risks Sweden faces over the next 12 to 18 months are well balanced.

Downside scenarios for the ratings and Outlooks are if, individually or collectively: i) the fiscal outlook deteriorated significantly, resulting in a sharp increase in public debt; and/or ii) there is a significant deterioration in the economic outlook, for example resulting from a sharp correction in the housing market.
 
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Alessandra Poli, Analyst

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