## Sweden: Great Economic Performance but Mind the Debt

_IMF News, November 17, 2016_

## Source details

**Canonical URL:** [Sweden: Great Economic Performance but Mind the Debt](https://www.imf.org/en/news/articles/2016/11/14/111716sweden-great-economic-performance-but-mind-the-debt)

## Other formats

- [Markdown version](/en/news/articles/2016/11/14/111716sweden-great-economic-performance-but-mind-the-debt/index.md)
- [Structured JSON version](/en/news/articles/2016/11/14/111716sweden-great-economic-performance-but-mind-the-debt/index.json)
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## Bibliographic details
- Published: November 17, 2016

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### Overall assessment
- The Swedish economy is in good health and growing robustly.
- Growth was very strong at 4.1 percent in first half of 2016 (after 4.1 percent in 2015), driven mainly by domestic demand.
- Unemployment has come down to just under 7 percent (from 8 percent in 2011-14).
- The relative comfort of the broader economic situation masks several challenges: housing market imbalances, the need to upgrade prudential oversight to match the scale of the financial sector, and ensuring labor-market integration of refugees received in 2015.

### House prices and household debt
- Home prices in Sweden have risen to high levels, especially in the main cities.
- Rising shares of new mortgage borrowers have debts that are "staggeringly high relative to income" (see Chart 1 referenced in source).
- Quote: “As more people take on a lot of debt, the economy becomes vulnerable over time,” said Craig Beaumont.
- The primary risk is not a wave of mortgage defaults but a cut in household spending as households prioritize servicing their debts, with knock-on effects on employment, demand, and small firms.
- Policy suggestions from the report:
  - Build more housing to moderate the long uptrend in housing prices.
  - End the deductibility of mortgage interest.
  - Phase out rent controls while protecting the vulnerable.
  - In the shorter term, the financial supervisor should adopt tools to lean against the rise in the share of highly indebted households.

### Large and regionally‑interconnected financial sector
- Sweden’s financial system is one of Europe’s largest relative to the country’s economy (see Chart 2 referenced in source).
- The sector is complex and highly interconnected domestically and internationally, reflecting Sweden’s role as a regional financial hub.
- Quote: “The systemic nature of the Swedish financial sector raises expectations for the quality of the financial sector policy framework and financial safety nets,” said Martin Cihak.
- Analysis findings:
  - Swedish financial institutions are largely resilient to solvency shocks.
  - Reliance on funding through capital markets makes institutions sensitive to global market sentiment.
  - A house price decline combined with lower confidence in Swedish housing market collateral could trigger disturbances across the region.
- Key recommendations:
  - Upgrade the financial oversight system in terms of resources, toolkit, and mandate.
  - Fix deficiencies in the legal framework for macroprudential policy to allow timely action.
- Recent development noted: Swedish authorities recently announced a political agreement on expanding the ability of the country’s financial supervisory authority to counteract financial imbalances in the credit market.

### Integration of immigrants
- Almost 163,000 asylum seekers arrived in Sweden last year—the highest in Europe relative to population.
- Asylum applications dropped to roughly 15,000 in the first half of 2016.
- The stretched administration struggles to process residence permit applications and to find suitable housing in municipalities, slowing migrants’ integration into the labor market and Swedish society.
- Recommendations from the report:
  - Focus on affordable housing.
  - Streamline wage subsidies.
  - Introduce temporary targeted exceptions to high entry-level wages.
- Fiscal note: Migrant-related spending doubles from 2015 to 2017; the country’s strong fiscal position and the temporary nature of this spending has not compromised the country’s overall fiscal health.

*IMF News — Sweden: Great Economic Performance but Mind the Debt (November 17, 2016).*

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## Content in this bundle

- [Country Report (PDF)](/external/pubs/ft/scr/2016/cr16353.pdf){rel="external" type="application/pdf"}
- [Country Report (PDF)](/external/pubs/ft/scr/2016/cr16355.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the press release](http://www.imf.org/en/News/Articles/2016/11/16/PR16511-Sweden-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation-with-Sweden)
- [Blog: Negative interest rates](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44332.0-)
- [Sweden and the IMF](http://www.imf.org/external/country/SWE/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/11/14/111716sweden-great-economic-performance-but-mind-the-debt_