(Bloomberg) -- Sweden’s largest bank raised its forecasts for economic growth in the Nordic nation after output fell less than expected last year, citing “budding optimism among households and businesses.”

The biggest Nordic economy will expand 0.5% this year, compared with a prior forecast of 0.1%, SEB AB said in a statement on Thursday. Growth will accelerate to 2.8% in 2025, unchanged from the prior forecasts in January.

A reduction in interest rates by the Riksbank from the current 4% this month is “highly probable,” SEB Chief Economist Jens Magnusson said. The bank now expects a second cut in August, rather than June, keeping four cuts penciled in this year, and another three in 2025. That is set to bring the benchmark rate to 2.25% by October 2025.

“We believe that against a backdrop of declining inflation but anemic growth and a weak labor market, the Riksbank sees good reasons to cut its policy rate earlier than both the Fed and the ECB,” Magnusson said. “The big worry, of course, is the krona, but the effect of a rate cut that has already been priced in by the market should not be exaggerated.”

Slowing inflation and strong central government finances will pave the way for expansionary fiscal policy in the 2025 budget bill, which will be unveiled in September, according to SEB.

“There will also be great pressure from political leaders as well as labor and employer organizations to lower interest rates, especially because of the sharp slowdown in residential construction,” Magnusson said.

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