IMF Executive Board Concludes 2021 Article IV Consultation with Sweden
IMF News, March 25, 2021
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- Published: March 25, 2021
Economic impact and near-term outlook
- 2020 output is estimated to have fallen by about 3 percent.
- Sweden’s Covid-19 infection and mortality rates have been somewhat above the EU average but much higher than in its Nordic peers.
- Sweden is projected to grow at about 2 percent in 2021, but uncertainties have increased recently regarding the new strains for the virus and the rollout of vaccination.
- The external current account surplus widened on the back of compressed imports and buoyant exports.
- The fiscal response shifted from small surpluses in past years to a deficit of about 4 percent of GDP in 2020.
- Inflation hovered around 1 percent in 2020; its medium-term projection is slightly below the 2 percent target.
- Unemployment increased sharply, with temporary workers, the youth, and foreign-born suffering disproportionately.
Executive Board assessment — key findings
- Sweden fared the crisis better than many European neighbors due to substantial buffers and generally strong fundamentals.
- The authorities’ large support package was timely and adequate, providing ample support to households and businesses, averting a financial crisis, and stabilizing markets.
- The 2020 fall in output is projected at around 3 percent, which is less than the EU average.
- The increase in unemployment—especially of the young and foreign-born—was larger than in countries that suffered a deeper recession.
- It was appropriate that most of the crisis measures were extended to June 2021 given heightened uncertainties.
Fiscal policy recommendations
- Fiscal policy should continue to support the economy and lead the recovery.
- It is important to not prematurely return to the surplus target.
- The eventual withdrawal of support measures should be cautiously gradual to minimize scarring as the recovery takes hold.
- There is room for increasing public expenditure over the medium term to enhance growth and achieve Sweden’s green and inclusion objectives.
- Review the design of support measures to facilitate structural transformation; in particular:
- Redesign the short-term work scheme to make it more flexible and more supportive for temporary workers and to incentivize retraining and hiring.
Monetary policy, central banking, and financial stability
- Monetary policy has been accommodative, with ample liquidity provision, a large asset purchase program, and a reduction of the Riksbank overnight lending rate.
- Forward guidance suggests the policy (repo) rate will likely remain at the same level over the medium term (following its increase to zero effective January 2020).
- The monetary policy stance has been appropriate; the expansion of the Riksbank’s asset purchase program contributed importantly to supporting the economy and stabilizing key markets.
- As liquidity constraints seem to have been alleviated, the policy mix should focus on fiscal support, while the Riksbank should stand ready to complement fiscal measures as needed.
- Any amendments to the Riksbank law should preserve its operational independence and ability to quickly deploy a broad range of instruments in future crises.
- The e-krona pilot project will help design a central bank currency proposal to maximize benefits while minimizing risks, including for financial intermediation and cybercrime.
- Amendments to the anti-money laundering framework and its enforcement are welcome.
Financial vulnerabilities and monitoring
- Banks’ exposures to the CRE sector and high household debt call for better data collection to enhance monitoring and guide possible further strengthening of prudential regulations, especially for CRE.
- A prolonged recession, and accelerated shifts to e-commerce, teleworking, and less travel, could result in dwindling revenue streams for CRE companies with high exposure to affected sectors.
- Close monitoring of corporate vulnerabilities and bond markets is necessary to preserve financial stability.
Structural challenges and housing market recommendations
- Imperative to address long-term structural challenges: limited employment prospects for the foreign-born and youth, shortages in affordable housing, and demographic shifts.
- The 2021 Budget Bill contained higher spending on training and education, lower social security contributions for the youth, and initiatives geared towards the foreign-born, especially women.
- A further reduction of the high labor tax wedge is desirable.
- The overly regulated rental market, with its long queues, favors existing tenants; introduce a simpler market-based system complemented with adequate housing allowances.
- Streamline complex local regulations to help increase supply and competition in the construction sector, driving down costs.
- Comprehensive reforms, including gradually increasing property taxes from their extremely low level, would make the housing market more dynamic, improve efficiency and equity, and facilitate labor mobility.
Selected economic indicators (2018–26)
- Real GDP (percent change)
- 2018: 2.0
- 2019: 1.4
- 2020: -2.8
- 2021 (projection): 3.3
- 2022 (projection): 2.9
- 2023 (projection): 2.4
- 2024 (projection): 2.1
- Domestic demand (percent change)
- 2018: 1.7
- 2019: -0.3
- 2020: -3.0
- 2021 (projection): 3.0
- 2022 (projection): 2.8
- 2023 (projection): 2.3
- Private consumption (percent change)
- 2018: 1.8
- 2019: 1.2
- 2020: -4.7
- 2021 (projection): 3.2
- 2022 (projection): 2.2
- Public consumption (percent change)
- 2018: 0.8
- 2019: 0.3
- 2020: -0.5
- 2021 (projection): 2.7
- 2022 (projection): 1.5
- 2023 (projection): 1.3
- 2024 (projection): 1.0
- Gross fixed investment (percent change)
- 2018: -3.1
- 2019: 0.6
- 2020: 3.5
- 2021 (projection): 3.1
- Net exports (contribution to growth)
- 2018: 0.0
- 2019: 0.4
- 2020: 0.1
- 2021 (projection): -0.2
- Exports of G&S (percent change)
- 2018: 4.2
- 2019: 4.8
- 2020: -5.2
- 2021 (projection): 5.4
- 2022 (projection): 4.1
- Imports of G&S (percent change)
- 2018: 3.8
- 2019: -5.8
- 2020: 4.9
- 2021 (projection): 3.4
- HICP inflation (e.o.p)
- 2018: 0.7
- 2019: 1.6
- 2020: 1.9
- Unemployment rate (percent)
- 2018: 6.3
- 2019: 6.8
- 2020: 8.3
- 2021 (projection): 8.7
- 2022 (projection): 8.4
- 2023 (projection): 7.7
- 2024 (projection): 7.2
- Gross national saving (percent of GDP)
- 2018: 28.6
- 2019: 29.8
- 2020: 29.7
- 2021 (projection): 30.0
- 2022 (projection): 30.4
- 2023 (projection): 30.5
- 2024 (projection): 30.7
- 2025 (projection): 30.8
- Gross domestic investment (percent of GDP)
- 2018: 26.0
- 2019: 24.7
- 2020: 24.5
- 2021 (projection): 25.2
- 2022 (projection): 25.7
- 2023 (projection): 26.5
- 2024 (projection): 27.1
- 2025 (projection): 27.4
- 2026 (projection): 27.8
- Output gap (percent of potential)
- 2018: 2.5
- 2019: -1.1
- 2020: -0.8
- 2021 (projection): -0.6
- 2022 (projection): -0.4
- Public finance (percent of GDP)
- Total revenues
- 2018: 49.6
- 2019: 48.8
- 2020: 49.1
- 2021 (projection): 48.4
- 2022 (projection): 49.2
- 2023 (projection): 49.3
- 2024 (projection): 49.4
- Total expenditures
- 2018: 48.3
- 2019: 53.1
- 2020: 52.2
- 2021 (projection): 50.6
- 2022 (projection): 49.0
- Net lending
- 2018: 0.5
- 2019: -4.0
- 2020: -3.9
- 2021 (projection): -1.8
- Structural balance (as a percent of potential GDP)
- 2018: -3.5
- 2019: -1.5
- 2020: 0.2
- General government gross debt, official statistics
- 2018: 38.9
- 2019: 35.1
- 2020: 38.5
- 2021 (projection): 40.7
- 2022 (projection): 39.3
- 2023 (projection): 37.8
- 2024 (projection): 36.1
- 2025 (projection): 34.4
- Money and credit (year-on-year, percent change, eop)
- M3 1/
- 2018: 5.9
- 2019: 7.9
- 2020: 17.8
- Bank lending to households
- 2018: 5.3
- 2019: 5.0
- 2020: 5.5
- Interest rates (percent, end of period)
- Repo rate: -0.25
- Balance of payments (percent of GDP)
- Current account
- 2018: 2.6
- 2019: 4.6
- 2020: 4.5
- 2021 (projection): 4.3
- 2022 (projection): 3.9
- Foreign direct investment, net
- 2018: 1.1
- International reserves, changes (in billions of US dollars)
- 2018: -6.6
- Net international investment position
- 2018: 8.6
- 2019: 18.4
- 2020: 23.3
- 2021 (projection): 27.7
- 2022 (projection): 32.0
- 2023 (projection): 35.8
- 2024 (projection): 39.2
- 2025 (projection): 42.4
- 2026 (projection): 45.4
- Exchange rate (period average)
- SEK per euro
- 2018: 10.3
- 2019: 10.5
- 2020: 10.2
- SEK per U.S. dollar
- 2018: 9.5
- Nominal effective rate (2010=100)
- 2018: 92.8
- 2019: 89.2
- 2020: 90.8
- Real effective rate (2010=100) 1/
- 2018: 93.4
- 2019: 88.7
- 2020: 93.5
- Other indicators
- GDP per capita (2019, USD): 51,434
- Population (2019, million): 10.3
- Key export markets: Germany, Norway, United Kingdom
Press Release No. 21/80 — IMF Executive Board Concludes 2021 Article IV Consultation with Sweden
