IMF Executive Board Concludes 2019 Article IV Consultation with Sweden
IMF News, March 27, 2019
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- Published: March 27, 2019
Recent performance and near‑term outlook
- Growth averaged 2.4 percent in 2016–18.
- Current account surplus halved to 2 percent of GDP in 2018.
- Real GDP projected to slow to 1.2 percent in 2019 due to lower global growth and weaker domestic demand.
- Housing investment is expected to fall after a 6 percent housing price decline in late 2017; housing prices have since stabilized.
- Household credit growth eased to 5.3 percent y/y in 2018.
- Lower growth in 2019 implies the fiscal surplus will likely be below the budget estimate of 0.9 percent of GDP.
- Public debt reported as moderate at 38 percent of GDP.
Inflation and monetary policy
- Headline inflation around the 2 percent target rate in 2017-18, partly reflecting rising energy prices.
- Core CPIF inflation remained below target at an average rate of 1.5 percent in 2018, broadly unchanged from 2016.
- Wage rises subdued at 2.6 percent in 2018.
- The Riksbank deferred its first interest rate increase until late 2018, raising the repo rate by 25 basis points to -0.25 percent.
- The Swedish krona depreciated 4.3 percent in effective terms in 2018.
- The Riksbank stated that the next repo rate increase will likely be in the second half of 2019, provided the economic outlook and inflation prospects develop as it expects.
- Executive Directors: monetary policy should remain cautious and data‑dependent to ensure inflation remains close to target and inflation expectations are firmly anchored.
Labor market and inclusiveness
- Strong job creation reduced unemployment to a post‑crisis low of 6.2 percent.
- Directors commended employment gains but noted unemployment among the foreign‑born and low‑skilled remains high.
- Directors welcomed the social partners’ plan for “entry agreements” to enable migrants and the low‑skilled to combine work and training at reduced cost to employers.
- Directors encouraged the social partners to update wage formation to reflect structural changes, for example by broadening sectors that set the benchmark for wage rises.
Fiscal policy and public finances
- Directors welcomed the authorities’ intention to allow automatic fiscal stabilizers to operate fully in 2019.
- Directors supported reducing the cyclically‑adjusted surplus to the new medium‑term target by 2020, given little risk of overheating from the resulting small stimulus amid slowing growth.
- Several Directors noted higher public investment needs arising from demographic shifts or other factors could be addressed by shifts in the budget.
- Consideration of a temporary cut in the medium‑term surplus target would need to be balanced with preserving its credibility.
Housing, financial stability, and macroprudential measures
- Directors encouraged comprehensive housing market reforms to improve housing affordability, supporting labor market mobility and inclusive growth.
- Policy measures with merit, according to Directors:
- Liberalizing rents for newly‑built apartments.
- Phasing out rent controls, while cushioning adjustment by expanding access to the housing allowance.
- Promoting efficient use of existing property via higher recurrent property taxes, including by phasing out mortgage interest deductibility.
- Strengthening competition in the construction sector to lower construction costs.
- Directors welcomed adoption of stricter mortgage amortization requirements and called for continued close monitoring of risks.
- Recommended actions:
- Collect household level balance sheet data.
- Continue review of banks’ commercial property risk management and the health of commercial property borrowers.
Financial integrity and payments innovation
- Directors emphasized continued work to correct remaining deficiencies in Sweden’s AML/CFT framework and to strengthen regional cooperation.
- Directors welcomed the authorities’ exploration of the e‑Krona and encouraged assessment of:
- Potential economic implications of the digital currency.
- Regulatory options to ensure reliable and efficient private payments.
Key indicators (selected figures from Table 1)
- Real GDP: 2016 = 2.7; 2017 = 2.1; 2018 = 2.3; 2019 (projection) = 1.2; 2020 = 1.8; 2021 = 1.9; 2022 = 2.0.
- Domestic demand (percent change): 2016 = 3.2; 2017 = 1.1.
- Private consumption (percent change): 2016 = 2.9; 2017 = 2.2; 2018 = 1.7.
- Public consumption (percent change): 2016 = 3.6; 2017 = 0.0; 2018 = 0.9; 2019 = 1.3; 2020 = 1.0.
- Gross fixed investment (percent change): 2016 = 4.2; 2017 = 6.0; 2018 = 3.3; 2019 = 3.0.
- Net exports (contribution to growth): 2016 = -0.4; 2017 = -0.5; 2018 = 0.4; 2019 = -0.1; 2020 = 0.1.
- Exports of G&S (percent change): 2016 = 3.5; 2017 = 2.5; 2018 = 2.8.
- Imports of G&S (percent change): 2016 = 4.3; 2017 = 4.8.
- HICP inflation (e.o.p): 2016 = 1.4.
- HICP core inflation (e.o.p): 2016 = 1.6; 2017 = 1.5.
- Unemployment rate (percent): 2016 = 6.9; 2017 = 6.7; 2018 = 6.3; 2019 = 6.4; 2020 = 6.5; 2021 = 6.6.
- Gross national saving (percent of GDP): 2016 = 28.3; 2017 = 28.4; 2018 = 28.5; 2019 = 28.8; 2020 = 29.0; 2021 = 29.4; 2022 = 29.7; 2023 = 30.0.
- Gross domestic investment (percent of GDP): 2016 = 24.5; 2017 = 25.6; 2018 = 26.3; 2019 = 26.1; 2020 = 26.5; 2021 = 26.7; 2022 = 26.9; 2023 = 27.1.
- Output gap (percent of potential): 2016 = 0.5; 2017 = 0.3.
- Total revenues (percent of GDP): 2016 = 49.9; 2017 = 49.5; 2018 = 49.4; 2019 = 49.3; 2020 = 49.1.
- Total expenditures (percent of GDP): 2016 = 48.8; 2017 = 48.4; 2018 = 48.7; 2019 = 49.0.
- Net lending (percent of GDP): 2016 = 0.8.
- Structural balance (as a percent of potential GDP): 2016 = 0.7.
- General government gross debt, official statistics (percent of GDP): 2016 = 42.4; 2017 = 40.8; 2018 = 39.0; 2019 = 37.2; 2020 = 35.5; 2021 = 33.9; 2022 = 32.3; 2023 = 30.9.
- M3 (year‑on‑year, percent change, eop): 2016 = 7.5; 2017 = 8.0; 2018 = 5.9.
- Bank lending to households (year‑on‑year, percent change, eop): 2016 = 7.1; 2017 = 6.8; 2018 = 5.3.
- Repo rate (percent, end of period): 2018 = -0.25.
- Current account (percent of GDP): 2016 = 3.8; 2017 = 2.4; 2018 = 2.6.
- Foreign direct investment, net (percent of GDP): 2016 = -2.6; 2017 = 0.2; 2018 = 0.6.
- International reserves, changes (in billions of US dollars): 2017 = -1.1.
- Net international investment position: 2016 = 4.4; 2017 = 7.6; 2018 = 8.4; 2019 = 9.1; 2020 = 10.0; 2021 = 10.8; 2022 = 11.7.
- SEK per euro (period average): 2016 = 9.5; 2017 = 9.7; 2018 = 10.3; 2019 (data as of February) = 10.5.
- SEK per U.S. dollar (period average): 2016 = 8.6; 2017 = 8.5; 2018 = 8.7.
- Nominal effective rate (2010=100): 2016 = 97.1; 2017 = 96.2; 2018 = 91.5.
- Real effective rate (2010=100) (based on relative unit labor costs in manufacturing): 2016 = 94.5; 2017 = 93.7; 2018 = 89.4.
- Fund position (December 31, 2018) — Quota (in millions of SDRs): 4,430.
- Holdings of SDRs (in percent of allocation): 98.5.
- Other indicators: GDP per capita (2017, USD): 52,925; Population (2017, million): 10.1.
Source: IMF Executive Board Concludes 2019 Article IV Consultation with Sweden (March 27, 2019).
