Sweden: Economy

The Swedish economy emerged from the financial crisis as one of the strongest in Europe. A high-tech local economy and a comprehensive system of welfare benefits allow Sweden to enjoy one of the highest standards of living in the world. Sweden has one of the most globalized and competitive economies today.

From the early 1990s until 2008, Sweden enjoyed a sustained economic upswing fueled by strong exports and rising domestic demand. In the fourth quarter of 2008, Sweden entered a recession. Heavily dependent on exports of autos, telecommunications, construction equipment, and other investment goods, Sweden was hit hard by the contraction in external demand due to the global financial and economic crisis. As a result, GDP fell 4.9% in 2009.

GDP grew by 5.5% in 2010, beating expectations. It is expected to grow 4.2% in 2011. The Swedish economy bounced back more quickly than other similar economies due to strong public sector finances and a reliable export-driven economy. Main Swedish exports include machinery and transport equipment, chemical and rubber products, food, clothing, textiles and furniture, and wood products. Exports and investments are rapidly increasing, and the Swedish export market is expected to grow by 8% each year through 2013.

Central Bank policy is guided by inflation targeting to keep the Consumer Price Index (CPI) at or around 2% on an annual basis. To meet the monetary policy target, the Central Bank recently raised the main steering rate to 2%.

One of Sweden’s tools in maintaining solid public figure finances is a budget process that calls for Parliamentary-designated spending ceilings. The ceilings are set for SEK 1.024 trillion (U.S. $144.7 billion) in 2010, SEK 1.063 trillion (U.S. $150.3 billion) in 2011, SEK 1.083 trillion (U.S. $153.1 billion) in 2012, and SEK 1.093 trillion (U.S. $154.5 billion) in 2013. While spending ceilings can technically be surpassed, they represent a promise the government makes to the people and they are adhered to.

Sweden entered the financial crisis with a budget surplus due to prior economic growth and conservative fiscal policy. This was a key factor that allowed Sweden to ride out the crisis better than most other economies. In 2008, Sweden had a surplus of SEK 58 billion (U.S. $8.2 billion). By 2009, the surplus dipped into a deficit of SEK 176 billion (U.S. $24.8 billion). The budget showed only a slight deficit for 2010, and the budget will go back into surplus again for the full year 2011. The Swedish Government released a conservative budget for 2011 aimed at reestablishing a surplus and consolidating the economic recovery. The budget contains new spending aimed at job creation, maintaining the welfare state, promoting exports and tackling climate change. A series of additional reforms, such as lowering taxes on low and middle income earners, may be implemented if economic conditions allow.

One of the ways Sweden stimulates growth and raises revenue is through the sale of public assets. The government set a goal of selling some $31 billion in state assets between 2007 and 2010. Major sales have included selling V&S (Vin & Sprit AB) to French Pernod Ricard for some $8.3 billion, and the Swedish OMX stock exchange to Borse Dubai/Nasdaq for $318 million. Additionally, the government sold most of its 946 apoteket (pharmacy) stores and eliminated its monopoly on pharmacies. The government has also approved the sale of Svensk Bilprovning (the Swedish Motor Vehicle Inspection Company).

The Swedish banking sector is highly concentrated, with the four large banking groups (Nordea, Svenska Handelsbanken, Swedbank, and SEB) accounting for roughly 80% of sector assets. Swedish banks are heavily invested in the Baltic states, some of the countries hardest hit during the financial crisis. Swedish banks suffered considerably as a result, forcing authorities to respond with a bank support package in 2008. The package included guarantees for new debt insurance, increased deposit insurance, and a fund that would provide up to $6 billion in equity injection to systemically important institutions. In August 2010, the government revoked the license of the embattled HQ Bank, as risky securities deals and an over-valued trading portfolio threatened its survival. The bank was subsequently purchased by investment bank Carnegie. Despite this, the Swedish banking industry is strong. All Swedish banks passed summer 2010 EU stress tests with wide margins.

Profit returned to the Baltic states in the third quarter of 2010, as the economies stabilized and funding costs to Swedish banks in the Baltic region decreased. Swedbank, one of the Swedish banks most heavily invested in the Baltics, showed a net interest income rise in the third quarter of 2010, the same time that the Baltic market began to turn. This was the first such rise in six quarters and growth has continued.

Unemployment is slowly falling and was at 7.9% as of May 2011. Continued decline is expected, to an estimated 7.2% in 2012 and 6.4% in 2013. Youth unemployment is disproportionately high at around 28% for those between 15 and 24. The 2011 budget includes programs designed to better prepare young people to enter the work force and bring the economy into full employment.

Over 70% of the Swedish labor force is unionized; however, membership is decreasing. For most unions there is a counterpart employers' organization for businesses. The unions and employer organizations are independent of both the government and political parties, although the largest federation of unions, the National Swedish Confederation of Trade Unions (LO), always has maintained close links to the largest political party, the Social Democrats. There is no national minimum wage. Instead, wages are set by collective bargaining.

The World Bank ranked Sweden 18th in “ease of doing business” and 43rd in “ease of starting a business” in 2010. Starting a business in Sweden takes 15 days and costs 0.57% of GNI per capita. The World Bank ranking data set included 183 economies worldwide, including 27 Organization for Economic Cooperation and Development (OECD) high-income economies. As of 2009, there were 1,100 American companies operating in Sweden. American companies in Sweden employed 101,700 Swedes in 2008--the largest number of employees of all foreign countries doing business in Sweden. The majority of employees in Swedish-controlled affiliates abroad are in Europe and America, although the number of employees in America was decreasing as of 2008.
 

Sources: