IMF Executive Board Concludes 2023 Article IV Consultation with Sweden
IMF News, March 16, 2023
Source details
- Canonical URL
- IMF Executive Board Concludes 2023 Article IV Consultation with Sweden
Other formats
Bibliographic details
- Published: March 16, 2023
Overview and recent developments
- Following the pandemic, Sweden’s economy experienced a strong recovery, which continued well into 2022.
- GDP growth is projected at around 3 percent in 2022.
- The labor market improved, while general labor shortages persisted.
- A higher budget surplus is expected for 2022.
- Inflationary pressures intensified in 2022 despite several monetary policy actions.
- Strong borrowing by households and real estate firms fueled price and value growth, with both house prices and total household debt in relation to income peaking in end-2021.
- House prices started to decline in the second half of 2022.
- Commercial real estate (CRE) companies took on more debt, with the sector becoming highly concentrated.
Risks, outlook, and scenario
- Risks are on the downside.
- A mild recession is expected in 2023 reflecting a slowdown in private consumption as households continue to grapple with high inflation and greater debt servicing costs.
- A mild recession is thus anticipated, while inflation continue to be stubbornly high.
- The 2023 budget aims at a fiscal stance that is conducive to reducing aggregate demand pressures.
- Developments in the real estate sector will further dampen demand and investment.
Executive Board assessment and policy recommendations
- Directors noted that following a strong post-pandemic recovery, a mild recession is expected amid weaker external demand and higher inflation and interest rates.
- Building on Sweden’s strong fundamentals, Directors encouraged the authorities to:
- maintain a tight monetary policy stance and prudent fiscal position to stabilize prices and maintain financial stability;
- advance structural reforms to support inclusive, green growth.
- Given the high uncertainty, Directors stressed that the fiscal stance should adapt to developments, including by allowing the automatic stabilizers to fully operate.
- Directors stressed the need for energy support to be well-targeted and phased out as energy prices decline.
- As inflation subsides, Directors called on the authorities to increase social and infrastructure investments to support a green transition and inclusive growth.
- Directors welcomed the pension reform that links retirement age to life-expectancy.
- Directors recommended reducing the labor tax wedge and rationalizing unemployment benefits to further increase the labor supply.
- Gradually increasing the extremely low property tax was suggested to help improve the tax structure, finance new investments, and reduce distortions in the housing market.
- Directors commended the authorities’ strong policy actions to stem inflation and urged continuous review of the appropriate pace and magnitude of monetary tightening, including of the ongoing tapering of the asset purchase program.
- Directors noted positive early indications from the constructive wage negotiations, which should reduce the risk of a wage-price spiral.
- Directors welcomed the timely recommendations of the FSAP and emphasized the need to closely monitor developments in residential and commercial real estate markets and improve the collection of household balance sheet data.
- Recommendations to strengthen financial-sector resilience included:
- expanding the macroprudential toolkit;
- considering higher capital buffers for banks’ exposure to commercial properties;
- gradually increasing the mortgage amortization requirement;
- abolishing the interest rate deductibility.
- Directors called for continued actions to strengthen the AML/CFT and crisis management frameworks.
- On structural reforms to improve inclusive growth and social outcomes, Directors emphasized:
- addressing high unemployment among the youth, foreign-born, and low-skilled through education enhancements and increasing the efficiency of programs and regional services;
- reforms in the rental market to help address housing market distortions;
- complementing Sweden’s high carbon tax with increased investments in renewables and green technology infrastructure and enhancing the electricity grid.
Financial sector and real estate vulnerabilities
- Banks have structurally higher profitability than its European peers, high regulatory capital, and liquidity positions exceeding regulatory minima.
- The banking sector is highly exposed to mortgages and CRE and could come under pressure if downside risks are amplified.
- CRE sector has become highly concentrated as companies took on more debt.
Key statistics and selected economic indicators (2020–28)
- Real GDP: -2.2 (2020); 5.1 (2021); 2.8 (2022); -0.3 (2023); 1.4 (2024); 2.3 (2025).
- Domestic demand: -2.3 (2020); 5.7 (2021); 4.2 (2022); -0.6 (2023); 0.7 (2024); 2.1 (2025); 2.0 (2026).
- Private consumption: -3.2 (2020); 6.0 (2021); -0.2 (2022); 1.5 (2024).
- Public consumption: -1.8 (2020); 0.2 (2021); 1.0 (2024).
- Gross fixed investment: 1.7 (2020); 6.4 (2021); 5.6 (2022).
- Net exports (contribution to growth): 0.0 (2020); -1.2 (2021); 0.3 (2022); 0.4 (2023).
- Exports of G&S: -5.5 (2020); 7.9 (2021); 4.4 (2022); 0.1 (2023); 3.4 (2024); 3.5 (2025).
- Imports of G&S: -6.0 (2020); 9.6 (2021); 7.8 (2022); -0.4 (2023); 1.9 (2024); 3.0 (2025).
- HICP inflation (average): 2/ 2.7 (2020); 8.1 (2021); 6.5 (2022).
- HICP core inflation (average): 1.6 (2020); 5.5 (2021); 5.2 (2022); 2.6 (2023); 2.2 (2024).
- Unemployment rate (percent): 8.5 (2020); 8.8 (2021); 7.5 (2022); 7.7 (2023); 8.0 (2024).
- Gross national saving (percent of GDP): 31.0 (2020); 32.2 (2021); 31.7 (2022); 31.5 (2023); 31.9 (2024); 32.0 (2025); 32.1 (2026).
- Gross domestic investment (percent of GDP): 25.1 (2020); 25.9 (2021); 27.9 (2022); 28.0 (2023).
- Output gap (percent of potential): -2.6 (2020); 1.3 (2021); -0.9 (2022); -1.1 (2023); -0.5 (2024).
- Total revenues (percent of GDP): 48.3 (2020); 48.4 (2021); 47.5 (2022); 46.9 (2023); 47.7 (2024); 48.0 (2025).
- Total expenditures (percent of GDP): 51.0 (2020); 48.5 (2021); 46.8 (2022).
- Net acquisition of nonfinancial assets: 1.2.
- Net lending: -2.8 (2020); -0.1 (2021).
- Structural balance (as a percent of potential GDP): -1.7.
- General government gross debt, official statistics: 39.5 (2020); 36.3 (2021); 31.3 (2022); 31.1 (2023); 30.5 (2024); 29.5 (2025); 28.4 (2026); 27.2 (2027).
- M3 (year-on-year, percent change, eop): 17.8 (2020); 9.7 (2021); 2.4 (2022).
- Bank lending to households (year-on-year, percent change, eop): 6.8.
- Repo rate (percent, end of period): 2.5.
- Ten-year government bond yield (percent, end of period): (table lists header but no value provided in source).
- Mortgage lending rate (percent, end of period): (table lists header but no value provided in source).
- Current account (percent of GDP): 6.3 (2020); 3.8 (2021); 3.6 (2022); 4.0 (2023).
- Foreign direct investment, net: 1.1 (2020); 0.8 (2021).
- Reserves coverage (months of imports of goods and services): 3.2.
- Net international investment position: 22.1 (2020); 33.4 (2021); 37.5 (2022); 41.6 (2023); 45.8 (2024); 50.1 (2025).
- SEK per euro (period average): 10.2 (2020); 10.3 (2021); 10.9 (2022).
- SEK per U.S. dollar (period average): 8.4 (2020); 9.1 (2021); 11.1 (2022).
- Nominal effective rate (2010=100): 90.7 (2020); 93.7 (2021); 88.1 (2022).
- Real effective rate (ULC) (2010=100) 1/: 93.8 (2020); 97.2 (2021); 91.1 (2022).
- REER ULC long run average deviation: -8.6 (2020); -5.1 (2021); -10.8 (2022).
- Real effective rate (CPI) (2010=100): 87.7 (2020); 90.2 (2021); 84.6 (2022).
- Fund Position (December 31, 2022): Quota (in millions of SDRs) 4,430; Reserve tranche position (in percent of quota) 29.1; Holdings of SDRs (in percent of allocation) 103.2.
- Memorandum Items: CPIF inflation (average) 0.5.
- Other Indicators: GDP per Capita (2021, USD): 60,029; Population (2021, million): 10.4.
- Key Export Markets: Germany, Norway, and Netherlands.
Source: IMF Executive Board conclusions and staff report for the 2023 Article IV consultation with Sweden.