Sweden: Country Profile

Country Report | 16 Aug 2019

The economy will lose some momentum in 2019. Modest wage increases, sagging
house prices and global uncertainties are encouraging households to save. Following
house price declines, residential investment is falling steeply. Declining business
confidence and global uncertainties hold back corporate investment. Exports will
moderate and sluggish domestic demand is damping imports. Growth of real GDP will
be around 2.0% in 2022-2026. This is roughly equal to the potential rate of growth.

KEY POINTS
ΠThe Swedish economy will moderate in 2019. Real GDP will rise by 1.5%, down
from 2.4% in 2018.
ΠThe real value of private final consumption rose by 1.2% in 2018 and growth of
1.0% is forecast for 2018. Despite good income development, partly due to low
interest rates and reduced taxes, households have become increasingly less
optimistic about economic developments. The high level of household debt is a
drag.
ΠThe employment rate has risen to 78.0% thanks to rapid job creation.
Unemployment was 6.3% in 2018 and it will rise to 6.4% in 2019. The rise in
unemployment can be explained by the increase of those who historically have
found it difficult to find work in the labour force; such as those who lack upper-
secondary education and were born outside Europe. Rises in productivity and
inflation are driving wage growth.
ΠGrowth of real GDP will be 1.6% in 2020, before growing to around 2.0% on
average per year in 2020-2026. This is roughly equal to the potential rate of
growth. Because Sweden is a small, open economy, the threat of increased
protectionism is a major concern.

Chart 1 Real GDP Growth and Per Capita GDP: 2013-2019

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

Note: Data for 2019 is forecast. GDP per capita are in constant 2018 prices

Page 1 of 10
FACTS

Area
410,300 square kilometres

Currency
Swedish krona (SEK = 100 ore)

Location
Sweden occupies the eastern and southern section of the Scandinavian Peninsula
which runs southwest from the Arctic Circle to meet with Denmark across the
narrow sea channel which gives access to the Baltic from the North Sea. The
terrain is predominantly hilly and mountainous. The main population centres are in
the south and east.

Capital
Stockholm

GOVERNMENT

Head of State
HM King Carl XVI Gustaf (1973)

Head of Government
Stefan Löfven (2014)

Ruling Party
Social Democrats lead a coalition with the Green Party, the Liberal Party and the
Centre Party

Political Structure
Sweden is a constitutional monarchy where the King performs solely a
representative role. The prime minister is appointed by parliament. Legislative
authority is vested in a unicameral 349-seat Parliament (Riksdag), which is elected
by universal suffrage for a term of four years. Sweden became a full member of the
EU in January 1995 after having been in the European Monetary System for many
years.

Last Elections
General elections were held in September 2014. The Social Democratic Party took
113 seats while the Moderate Party won 84 seats and the Sweden Democrats
received 49 seats. Other parties in the new parliament include the Green Party (24
seats), the Centre Party (22 seats), the Left Party (21 seats), the Liberal Party (19
seats) and the Christian Democrats (17 seats). Stefan Löfven was appointed as
prime minister. In September 2018, Löfven lost a vote of no confidence against him
and his cabinet. As a result, snap elections were called. In January 2019 Löfven
was duly re-elected, after a drawn-out negotiation process. In September 2003,
voters rejected the government's plan to adopt the euro.

Political Stability and Risks

Page 2 of 10
The influx of refugees has stretched housing options and placed strains on the
country's immigration services. In 2016 officials introduced restrictions that will
restrict the right to family reunification and limit residence permits. Government
spending on refugees has risen nonetheless.
Big business continues to be disappointed by the decision to remain outside the
eurozone, arguing that foreign investment in Sweden is deterred.

International Issues
Sweden is known internationally for its emphasis on neutrality. This policy has led
to a number of Swedish politicians taking on international roles, often mediating
between conflicting groups or ideologies. Although the country is an EU member
state it has not adopted the euro.

Government Finance
Public debt amounted to SEK1,869 billion in 2018 - equivalent to 39.0% of GDP. In
real terms, public debt fell by 3.6% in 2018.

In 2017, Sweden managed a budget surplus equal to 1.4% of GDP. Another surplus
of 0.9% was reported in 2018 and a surplus of 0.6% is planned for 2019.

Public spending on social security and welfare accounted for 40.8% of all
government expenditure in 2018 followed by spending on health (14.0%).

Chart 2 Public Debt: 2013-2018

Source: Euromonitor International

ECONOMY

Economic Structure and Major Industries

Agriculture employs 1.9% of the workforce. The number of farms and related
agricultural activities has been halved since 1970. Dairy farming is the most
important agricultural activity in terms of value. Farming is the main livelihood in the
north, but elsewhere forestry and related products are dominant.
Manufacturing makes up 14.4% of GDP and employs 10.5% of the workforce.
Sweden is a leader in mobile phone usage and development of the mobile internet.
However, Ericsson, the country's leading telecoms firm, is struggling owing to
several massive write-downs. Biotechnology is another important industry. The
country's automobile producers have been reorganised or consolidated. Gross

Page 3 of 10
manufacturing value added (in real terms) grew by 0.3% in 2018.

The service sector makes up 75.1% of GDP. Sweden's banking sector is very large -
approximately four times the size of GDP. The government is committed to
strengthening the banking system's capital requirements. The real value of inbound
tourist and business travel receipts rose by 3.8% in 2018 and gains of 2.9% are
expected in 2019.

Overview of the Economy

The economy staged a quick recovery after the Great Recession but the sovereign-
debt crisis in the eurozone stifled growth. Sweden's close trade and financial links
with the rest of the Nordic region accentuated the problem. A modest recovery was
launched in 2014 and 2015 thanks to steady gains in household consumption, solid
investment growth, a vibrant construction sector and a rise in government
spending. The economy continued to pick up 2016-2018. Domestic demand,
investment in housing and robust exports were drivers.
The share of household consumption in GDP has been falling for some time while the
share of total trade (exports plus imports) has been rising. These secular trends
reflect a steady process of increasing globalisation. By some measures, the degree
of Sweden's globalisation is second only to that of the USA.

Sweden's labour market struggled for a number of years, handicapped by structural

problems. The dilemma eventually led to an ambitious reform of labour market
policies which has recently begun to show results.

Foreign Trade
Exports (in dollars) rose 8.5% in 2018 and growth of 1.6% is expected in 2019.
Weakening growth in major global and European markets is dampening exports. The
share of exports represented 30.1% of GDP in 2018.

Approximately 59.4% of Sweden's exports were sold in the EU in 2018. Germany and
Norway are Sweden's most important trading partners. Sweden's export base is
dominated by machinery and electrical equipment which constituted 24.4% of total
exports in 2018.
Sweden hopes to support exporters by improving access to export markets for small
and medium sized companies, pushing through a single European patent process
and negotiating more free trade agreements.
The current account surplus was 1.7% of GDP in 2018 and it will widen to 3.2% in
2019.

Chart 3 Total Foreign Trade: 2013-2019

Page 4 of 10
Source: Euromonitor International from national statistics/OECD/IMF
Note: Data for 2019 is forecast.

Economic Prospects
The Swedish economy will moderate in 2019. Real GDP will rise by 1.5%, down from
2.4% in 2018. Modest wage increases, sagging house prices and global
uncertainties are encouraging households to save. The construction boom is now
over and following house price declines, residential investment is falling steeply.
Declining business confidence and global uncertainties hold back corporate
investment. Exports will moderate and sluggish domestic demand is damping
imports. Skill mismatches hamper further reductions in unemployment. Inflation is
close to target, albeit partly due to rising energy prices.

Prices rose by 2.0 in 2018 and inflation of 1.8% is expected in 2019. The exchange
rate is expected to appreciate at the same time as energy prices will increase at a
slower rate, dampening inflation. The central bank raised interest rates by just
0.25% in January 2019 and another modest rise is expected later in the year. The
cautious policy has kept the krona weak, helping exporters.

The real value of private final consumption rose by 1.2% in 2018 and growth of
1.0% is forecast for 2018. Despite good income development, partly due to low
interest rates and reduced taxes, households have become increasingly less
optimistic about economic developments. The high level of household debt is a
drag.
The employment rate has risen to 78.0% thanks to rapid job creation.
Unemployment was 6.3% in 2018 and it will rise to 6.4% in 2019. The rise in
unemployment can be explained by the increase of those who historically have
found it difficult to find work in the labour force; such as those who lack upper-
secondary education and were born outside Europe. Rises in productivity and
inflation are driving wage growth.

Chart 4 Real GDP Growth: 2013-2019

Page 5 of 10
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF
Note: Data for 2019 is forecast

Evaluation of Market Potential

The economy's prospects will moderate in the future. There should be strong fixed
investment and faster wage growth. However, weaker residential investment and
slower growth in key global and European trading partners will likely dampen
activity, while elevated household debt poses a downside risk. Unemployment will
continue to increase, but at a slower pace, as the jobless pool will consist mainly of
the poorly educated or recent immigrants.

Growth of real GDP will be 1.6% in 2020, before growing to around 2.0% on average
per year in 2020-2026. This is roughly equal to the potential rate of growth.
Because Sweden is a small, open economy, the threat of increased protectionism is
a major concern.
Sweden's working-age population could shrink over the next decade. The downward
trend is likely to accelerate as the number of immigrants falls. Maintaining Sweden's
per capita growth rate will become harder as the dependency ratio rises. Thus, the
government's renewed emphasis on policies to boost labour supply and potential
growth is appropriate.

BUSINESS ENVIRONMENT
Despite a reduction in the number of public-sector jobs, the public sector remains
significant both in terms of employment and value. Government spending amounts
to more than 50% of GDP; roughly 30% of all services originate in the public sector.
Labour reforms have proven to be successful but more will have to be done as
demographic pressures mount. The country's comparatively equal wage structure
creates problems, particularly for the less skilled. Labour income taxes have been
cut substantially to boost employment and household income. A wage agreement
with modest wage increases limits inflationary pressures.
Taxes are very high by international standards. The top income tax is 57%, one of
the highest in the world. Tax revenues represent 42.4% of GDP. The large number
of state-owned enterprises creates distortions in the economy.

ENERGY
Sweden has no indigenous fuels except for its hydroelectric energy. In a normal
year, about half of the country's electric power is produced by 12 commercial
nuclear reactors. Sweden's energy efficiency (defined as GDP per tonne of energy

Page 6 of 10
consumed) is roughly equal to the average for Western Europe. Energy efficiency
rose by 4.3% per year on average in 2013-2018 - significantly higher than the
regional rate of change.

Chart 5 Primary Energy Supply (% of total): 2018

Source: Euromonitor International from International Energy Association (IEA)

SOCIETY

Population
Sweden's population has been growing slowly and totalled 10.1 million in 2018. This
gradual upward trend will be sustained through 2030 when population reaches 11.1
million. Meanwhile, Swedish society will be steadily ageing. The median age in 2018
was 40.6 years and it will grow to 40.9 years by 2030. The number of elderly and
retired people is rising surprisingly slowly despite Sweden's generous pension and
medical systems. This trend reflects the increasing number of immigrants.

Fertility stood at 1.8 births per female in 2018 - up from 1.6 in 2000. It will
gradually rise as a result of immigration, reaching 1.9 births per female by 2030.

Sweden is a popular destination for refugees and asylum seekers. Immigrants

already make up more than 15% of its population and this share is certain to rise.

Chart 6 Age Pyramid in 2018 and 2030

Source: Euromonitor International from national statistics/UN

Note: Data for 2030 is forecast

Page 7 of 10
Income and Expenditure
Declining levels of wealth, coupled with a slowdown in lending to households, have
resulted in a gradual rise in savings rates in recent years. Sweden's savings ratio
was 12.3% of disposable income in 2018 and it will increase to 12.8% in 2019.

Consumer expenditure per capita was SEK203,276 (US$23,389) in 2018. Growth of

0.2% in real terms is expected in 2019.

In the period 2019-2030, total consumer expenditure will grow at an average annual
rate of 2.1%. It will increase by a cumulative value of 25.3% during that period.
Total consumer expenditure will represent 42.6% of GDP in 2019. Spending on
hotels and catering will see the largest increase in 2019-2030 followed by health
goods and medical services.

Disposable income per capita totalled SEK230,989 (US$26,578) in 2018. It will rise
by 0.6% in real terms in 2019.
During the period 2019-2030, total disposable income will increase by a cumulative
value of 26.0% in real terms - growing at an average annual rate of 2.1%.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio:
2013-2019

Source: Euromonitor International from national statistics/trade sources/OECD

Note: Data for 2019 is forecast. Per capita income and spending are in constant 2018 prices

Statistical Summary
2012 2013 2014 2015 2016 2017 2018
Inflation 0.9 0.0 -0.2 0.0 1.0 1.8 2.0
(%
change)
Exchange 6.78 6.51 6.86 8.43 8.56 8.55 8.69
rate (per
US$)
GDP (% -0.3 1.2 2.6 4.5 2.7 2.1 2.4
real
growth)
GDP 3,688,871.0 3,773,939.0 3,940,925.0 4,201,543.0 4,385,497.0 4,578,833.0 4,789,853.0
(national
currency
millions)
GDP (US$ 544,423.5 579,340.0 574,742.1 498,203.5 512,403.4 535,761.9 551,128.1
millions)

Page 8 of 10
Birth rate 11.9 11.8 11.9 11.7 11.8 11.5 11.4
(per '000)
Death rate 9.7 9.4 9.2 9.3 9.2 9.1 9.0
(per '000)
No. of 4,360.4 4,389.0 4,432.6 4,481.7 4,536.2 4,593.5 4,655.1
households
('000)
Total 172,430.9 167,490.7 164,736.5 140,037.6 139,344.5 152,947.8 165,968.9
exports
(US$
millions)
Total 164,539.2 160,579.7 162,301.4 138,370.4 141,038.6 154,239.5 170,198.4
imports
(US$
millions)
Urban 8,119.7 8,211.6 8,318.1 8,436.2 8,555.4 8,709.8 8,847.7
population
('000)
Urban 85.6 85.9 86.2 86.5 86.8 87.1 87.4
population
(%)
Population 16.7 16.9 17.1 17.3 17.4 17.6 17.7
aged 0-14
(%)
Population 64.5 64.0 63.5 63.1 62.8 62.6 62.4
aged 15-64
(%)
Population 18.8 19.1 19.4 19.6 19.8 19.8 19.8
aged 65
(%)
Male 49.8 49.9 49.9 50.0 50.1 50.2 50.2
population
(%)
Female 50.2 50.1 50.1 50.0 49.9 49.8 49.8
population
(%)
Life 79.9 80.2 80.4 80.4 80.6 80.8 81.0
expectancy
male
(years)
Life 83.6 83.8 84.2 84.1 84.1 84.1 84.2
expectancy
female
(years)
Infant 2.6 2.6 2.1 2.4 2.4 2.3 1.9
mortality
(deaths per
'000 live
births)
Adult 99.9 99.9 99.9 99.9 99.9 99.9 99.9
literacy
(%)

Imports and Exports

2018 2018
Major export destinations Share (%) Major import sources Share (%)
Exports (fob) to Europe 73.9 Imports (cif) from Europe 83.0

Page 9 of 10
 Exports (fob) to Asia 10.6 Imports (cif) from Asia 10.3
Pacific Pacific
Exports (fob) to North 7.6 Imports (cif) from North 3.0
America America
Exports (fob) to Africa and 3.8 Imports (cif) from Africa 2.4
the Middle East and the Middle East
Exports (fob) to Latin 2.0 Imports (cif) from Latin 1.0
America America
Exports (fob) to Australasia 1.3 Imports (cif) from 0.2
Australasia

© Euromonitor International 2019

Page 10 of 10