IMF Executive Board Concludes 2024 Article IV Consultation with Sweden
IMF News, March 11, 2024
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- Published: March 11, 2024
Overview
- On March 7, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Sweden and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- GDP is estimated to have declined by 0.3 percent in 2023, after a strong post-pandemic rebound.
- Activity is expected to remain subdued during 2024 and pick up gradually thereafter.
Economic outlook and growth projections
- Growth is projected to average 0.2 percent in 2024.
- Growth is projected to average 2.3 percent in 2025.
- Balance of risks to growth: tilted to the downside, with the main risk from larger-than-projected effects from tight financial conditions.
- Uncertainty around the outlook: described as high.
Inflation and monetary policy
- Inflation has been declining at a faster clip in recent months, largely driven by energy prices.
- HICP core inflation was 5 percent y/y in December 2023.
- Inflation is expected to average 2.6 percent in 2024.
- Inflation is expected to return to the target by mid-2025.
- Monetary policy stance: described as appropriately restrictive and advised to remain in place during the first half of 2024 to ensure inflation returns to target.
- The Riksbank should remain ready to adjust monetary policy settings if risks to the inflation outlook materialize on either side and continue clear, forward-looking communication to anchor inflation expectations.
Labor market, credit, and financial sector conditions
- Labor market: showing signs of cooling; employment growth has moderated.
- Wage growth: modest.
- Private credit: declining.
- Real estate and equity prices: have fallen from their 2022 peaks.
- Corporate bankruptcies: have picked up sharply.
- Commercial real estate (CRE) sector: severely hit, with highly leveraged and lowered-rated firms experiencing significant deterioration in debt-carrying capacity indicators.
- Banking system: remains resilient with strong profitability and sizeable capital and liquidity buffers.
Macroprudential policy and financial stability recommendations
- Macroprudential policy settings: should remain tight amid elevated systemic risks.
- Main sources of systemic risk: elevated levels of debt and high financial sector exposure to both RRE and CRE risks.
- Policy actions noted as timely: increase in the CCyB and the extension of risk weight floors for banks’ RE and CRE loan exposures to further enhance bank resilience.
- Recommended further actions:
- Improve collection of granular household balance sheet data and standardized disclosures for the CRE sector.
- Continue to improve risk analyses and increase onsite and intrusive supervision.
- Continue strengthening crisis management strategies.
- Over the medium term, introduce higher capital requirements on banks’ CRE exposures to contain systemic risks.
- Tighten borrower-based measures (BBMs) to contain risks related to high household debt.
- Continue improvements to the AML/CFT framework to support financial stability.
Fiscal policy assessment
- The planned broadly neutral fiscal policy stance in 2024 is appropriate.
- The 2024 budget includes well-targeted measures to support vulnerable populations.
- If the recession deepens, substantial fiscal space is available for further fiscal support; such measures should be well designed to avoid inflationary pressures and targeted towards the vulnerable.
- Sweden’s strong fiscal framework has underpinned sustainable public finances.
- Medium-term fiscal needs: address structural and demographic-related spending pressures and new investment needs to support the green transition.
- Other fiscal priorities recommended:
- Tax reforms to rationalize dividend taxation.
- Lower labor income taxes.
- Reduce interest tax deductibility.
- Improve property taxation.
- A small deviation from the surplus target, while preserving the key elements of the framework, could allow financing for growth-enhancing public investment and social spending over the medium term.
Structural reforms and climate transition
- Structural reforms recommended to strengthen medium-term growth, social inclusion, and the green transition:
- Upskilling and education opportunities.
- Strengthening working incentives.
- Bolstering active labor market policies, tailored training, and reskilling programs to address skill gaps and mismatches.
- Addressing housing market challenges by easing restrictions on new construction (including building and permit regulations) and easing rent control to raise housing supply and encourage labor mobility.
- Increasing supply of renewable energy and green infrastructure; more measures will be needed to meet Sweden’s ambitious climate goal targets.
Executive Board Assessment (summary of endorsement)
- The near-term economic outlook is subdued.
- Growth: projected average of 0.2 percent in 2024 and 2.3 percent in 2025.
- Inflation: expected to average 2.6 percent in 2024 and reach target by mid-2025.
- Monetary policy: appropriately restrictive; remain in place during first half of 2024; Riksbank should be ready to adjust and communicate clearly.
- Macroprudential: remain tight; monitor systemic risks, continue FSAP recommendations, and consider higher capital requirements on CRE exposures and tighter BBMs.
- Fiscal policy: broadly neutral stance in 2024 appropriate; use fiscal space if needed with well-targeted measures.
- Structural reforms: important for medium-term growth, inclusion, and green transition.
Key statistics and selected indicators (2021–29, as presented)
- Real GDP: 2021: 6.1; 2022: 2.9; 2023: -0.3; 2024: 0.2; 2025: 2.3; 2026: 2.2; 2027: 2.1.
- Final domestic demand: 2021: 5.7; 2022: 2.4; 2023: -0.6; 2024: 0.5; 2025: 1.9; 2026: 1.8.
- Private consumption: 2021: 6.3; 2022: -1.7; 2023: 1.1.
- Public consumption: 2021: 3.3; 2022: -0.1; 2023: 1.2; 2024: 1.0.
- Gross fixed investment: 2021: 7.1; 2022: 6.0; 2023: -1.5; 2024: -1.2; 2025: 2.0; 2026: 1.7.
- Exports of G&S: 2021: 11.1; 2022: 7.3; 2023: 2.7; 2024: 3.2; 2025: 3.5.
- Imports of G&S: 2021: 11.6; 2022: 9.2; 2023: -0.4; 2024: 0.9; 2025: 2.6; 2026: 3.0.
- HICP inflation (average): 2021: 8.1; 2022: 5.9.
- HICP inflation (Q4 on Q4): 2021: 3.9; 2022: 10.3.
- HICP core inflation (average): 2021: 1.6; 2022: 5.5; 2023: 7.4.
- HICP core inflation (Q4 on Q4): 2021: 7.8; 2022: 5.3.
- Unemployment rate (percent): 2021: 8.9; 2022: 7.5; 2023: 7.7; 2024: 8.4; 2025: 8.2.
- Gross national saving (percent of GDP): 2021: 32.9; 2022: 34.2; 2023: 33.1; 2024: 32.6; 2025: 33.0; 2026: 33.3; 2027: 33.5; 2028: 33.4; 2029: 33.6.
- Gross domestic investment (percent of GDP): 2021: 25.9; 2022: 28.3; 2023: 27.0; 2024: 26.6; 2025: 27.7; 2026: 28.6; 2027: 29.1; 2028: 29.4; 2029: 29.6.
- Output gap (percent of potential): 2021: 1.5; 2022: -0.2; 2023: -0.9; 2024: 0.0.
- Total revenues (percent of GDP): 2021: 48.1; 2022: 47.1; 2023: 47.4; 2024: 47.9; 2025: 48.9.
- Total expenditures (percent of GDP): 2021: 46.8; 2022: 47.2; 2023: 48.0; 2024: 48.6.
- Net acquisition of nonfinancial assets (percent of GDP): 2021: 1.3; 2022: 1.4.
- Net lending (percent of GDP): 2021: -0.7.
- Structural balance (as a percent of potential GDP): 2021: -0.5; 2022: 0.4.
- General government gross debt, official statistics (percent of GDP): 2021: 36.5; 2022: 34.0; 2023: 34.5; 2024: 32.4; 2025: 31.3; 2026: 30.3.
- M3 (year-on-year, percent change, eop): 2021: 10.7; 2022: -1.4.
- Bank lending to households (year-on-year, percent change, eop): 2021: 6.7.
- Policy rate (percent, end of period): 2021: 2.5; 2022: 4.0.
- Ten-year government bond yield (percent, end of period): (value not listed explicitly in source table).
- Mortgage lending rate (percent, end of period): 2021: 3.4; 2022: 4.7.
- Current account (percent of GDP): 2021: 5.8; 2022: 4.4.
- Net international investment position (percent of GDP): 2021: 19.0; 2022: 30.9; 2023: 31.7; 2024: 34.1; 2025: 34.6; 2026: 35.1.
- Exchange rate (period average): SEK per euro: 2021: 11.0; 2022: 11.2.
- SEK per U.S. dollar: 2021: 9.1; 2022: 10.4.
- Nominal effective rate (2010=100): 2021: 93.7; 2022: 88.0; 2023: 83.0.
- Real effective rate (ULC) (2010=100): 2021: 96.8; 2022: 89.9; 2023: 84.4.
- REER ULC long run average deviation: 2021: -5.5; 2022: -11.9; 2023: -16.8.
- Real effective rate (CPI) (2010=100): 2021: 90.3; 2022: 84.8; 2023: 83.1.
- Fund Position (December 31, 2023): Quota (in millions of SDRs): 4,430.
- Reserve tranche position (in percent of quota): 28.2.
- Holdings of SDRs (in percent of allocation): 105.2.
- Memorandum items: GDP per Capita (2022, USD): 65,496; Population (2022, million): 10.5.
- Key Export Markets: Germany, Norway, and Netherlands.
IMF Communications Department press release, March 11, 2024.