IMF Executive Board Concludes 2023 Article IV Consultation with Sweden
March 16, 2023
Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Sweden on March 13, 2023.
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 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.
Banks have structurally higher profitability than its European peers, high regulatory capital, and liquidity positions exceeding regulatory minima. The sector is highly exposed to mortgages and CRE and could come under pressure if downside risks are amplified.
Executive Board Assessment [2]
Executive 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, while advancing 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 also 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. They noted that it would also be important to reduce the labor tax wedge and rationalize unemployment benefits to further increase the labor supply. Gradually increasing the extremely low property tax would also 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. Considering the exceptionally high level of uncertainty, they urged continuous review of the appropriate pace and magnitude of monetary tightening, including of the ongoing tapering of the asset purchase program. Directors noted the 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. They emphasized the need to closely monitor developments in residential and commercial real estate markets and improve the collection of household balance sheet data. Directors saw merit in expanding the macroprudential toolkit and considering higher capital buffers for banks’ exposure to commercial properties. Gradually increasing the mortgage amortization requirement and abolishing the interest rate deductibility would also help attenuate risks. Directors called for continued actions to strengthen the AML/CFT and crisis management frameworks.
Directors stressed that structural reforms are essential to improve inclusive growth and social outcomes. While commending the employment gains in recent years, they noted that unemployment remains high among the youth, foreign-born, and low-skilled. This should be addressed through education enhancements and increasing the efficiency of programs and regional services. Directors agreed that reforms in the rental market would help address housing market distortions. They also noted that to achieve Sweden’s ambitious climate goals, its high carbon tax should be complemented with increased investments in renewables and green technology infrastructure and enhancing the electricity grid.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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Sweden: Selected Economic Indicators, 2020–28 |
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Est. |
Projections |
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2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
|
|
Real Economy (percent change) |
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|
Real GDP |
-2.2 |
5.1 |
2.8 |
-0.3 |
1.4 |
2.3 |
2.3 |
2.3 |
2.3 |
|
Domestic demand |
-2.3 |
5.7 |
4.2 |
-0.6 |
0.7 |
2.1 |
2.0 |
2.0 |
2.0 |
|
Private consumption |
-3.2 |
6.0 |
2.8 |
-0.2 |
1.5 |
2.8 |
2.8 |
2.8 |
2.8 |
|
Public consumption |
-1.8 |
2.8 |
-0.2 |
0.2 |
0.7 |
1.0 |
1.0 |
1.0 |
1.0 |
|
Gross fixed investment |
1.7 |
6.4 |
5.6 |
-2.3 |
1.0 |
1.7 |
1.7 |
1.7 |
1.7 |
|
Net exports (contribution to growth) |
0.0 |
-0.3 |
-1.2 |
0.3 |
0.7 |
0.3 |
0.4 |
0.4 |
0.4 |
|
Exports of G&S |
-5.5 |
7.9 |
4.4 |
0.1 |
3.4 |
3.4 |
3.5 |
3.5 |
3.5 |
|
Imports of G&S |
-6.0 |
9.6 |
7.8 |
-0.4 |
1.9 |
3.0 |
3.0 |
3.0 |
3.0 |
|
HICP inflation (average) 2/ |
0.7 |
2.7 |
8.1 |
6.5 |
3.0 |
2.3 |
2.0 |
2.0 |
2.0 |
|
HICP core inflation (average) |
1.5 |
1.6 |
5.5 |
5.2 |
2.6 |
2.2 |
2.0 |
2.0 |
2.0 |
|
Unemployment rate (percent) |
8.5 |
8.8 |
7.5 |
7.7 |
8.0 |
7.9 |
7.9 |
7.9 |
7.9 |
|
Gross national saving (percent of GDP) |
31.0 |
32.2 |
31.7 |
31.5 |
31.9 |
32.0 |
32.1 |
32.1 |
32.2 |
|
Gross domestic investment (percent of GDP) |
25.1 |
25.9 |
27.9 |
28.0 |
27.9 |
28.0 |
27.9 |
27.9 |
27.9 |
|
Output gap (percent of potential) |
-2.6 |
0.4 |
1.3 |
-0.9 |
-1.1 |
-0.5 |
0.0 |
0.0 |
0.0 |
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Public Finance (percent of GDP) |
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Total revenues |
48.3 |
48.4 |
47.5 |
46.9 |
47.7 |
48.0 |
48.0 |
48.0 |
48.0 |
|
Total expenditures |
51.0 |
48.5 |
46.8 |
46.8 |
48.0 |
48.0 |
47.7 |
47.7 |
47.7 |
|
Net acquisition of nonfinancial assets |
1.6 |
1.3 |
1.2 |
1.2 |
1.4 |
1.3 |
1.3 |
1.3 |
1.3 |
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Net lending |
-2.8 |
-0.1 |
0.7 |
0.0 |
-0.3 |
0.0 |
0.3 |
0.3 |
0.3 |
|
Structural balance (as a percent of potential GDP) |
-1.7 |
-0.2 |
0.2 |
0.4 |
0.1 |
0.2 |
0.3 |
0.3 |
0.3 |
|
General government gross debt, official statistics |
39.5 |
36.3 |
31.3 |
31.1 |
30.5 |
29.5 |
28.4 |
27.2 |
25.9 |
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Money and Credit (year-on-year, percent change, eop) |
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|
M3 |
17.8 |
9.7 |
2.4 |
... |
... |
... |
... |
... |
... |
|
Bank lending to households |
5.5 |
6.8 |
3.5 |
... |
... |
... |
... |
... |
... |
|
Interest Rates (percent, end of period) |
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|
Repo rate |
0.0 |
0.0 |
2.5 |
... |
... |
... |
... |
... |
... |
|
Ten-year government bond yield |
0.0 |
0.3 |
1.5 |
... |
... |
... |
... |
... |
... |
|
Mortgage lending rate |
1.4 |
1.4 |
3.4 |
... |
... |
... |
... |
... |
... |
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Balance of Payments (percent of GDP) |
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|
Current account |
6.0 |
6.3 |
3.8 |
3.6 |
4.0 |
4.0 |
4.2 |
4.2 |
4.2 |
|
Foreign direct investment, net |
0.7 |
1.0 |
1.6 |
1.7 |
1.4 |
1.3 |
1.2 |
1.1 |
0.8 |
|
International reserves, changes (in billions of US dollars) |
-0.3 |
6.0 |
... |
... |
... |
... |
... |
... |
... |
|
Reserves coverage (months of imports of goods and services) |
3.2 |
2.8 |
2.7 |
2.7 |
2.7 |
2.6 |
2.5 |
2.5 |
2.4 |
|
Net international investment position |
8.8 |
22.1 |
25.9 |
29.5 |
33.4 |
37.5 |
41.6 |
45.8 |
50.1 |
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Exchange Rate (period average, unless otherwise stated) |
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SEK per euro |
10.2 |
10.3 |
10.9 |
... |
... |
... |
... |
... |
... |
|
SEK per U.S. dollar |
8.4 |
9.1 |
11.1 |
... |
... |
... |
... |
... |
... |
|
Nominal effective rate (2010=100) |
90.7 |
93.7 |
88.1 |
... |
... |
... |
... |
... |
... |
|
Real effective rate (ULC) (2010=100) 1/ |
93.8 |
97.2 |
91.1 |
... |
... |
... |
... |
... |
... |
|
REER ULC long run average deviation |
-8.6 |
-5.1 |
-10.8 |
... |
... |
... |
... |
... |
... |
|
Real effective rate (CPI) (2010=100) |
87.7 |
90.2 |
84.6 |
... |
... |
... |
... |
... |
... |
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Fund Position (December 31, 2022) |
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Quota (in millions of SDRs) |
4,430 |
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Reserve tranche position (in percent of quota) |
29.1 |
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Holdings of SDRs (in percent of allocation) |
103.2 |
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Memorandum Items |
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CPIF inflation (average) |
0.5 |
2.4 |
7.7 |
... |
... |
... |
... |
... |
... |
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Other Indicators |
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GDP per Capita (2021, USD): 60,029; Population (2021, million): 10.4. |
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Key Export Markets: Germany, Norway, and Netherlands. |
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Sources: IMF World Economic Outlook; Swedish Ministry of Finance; Statistics Sweden; and IMF staff calculations. |
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1/ OECD based Unit Labor Cost (ULC) real effective exchange rate indicator. |
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2/ The unemployment rate and inflation represent actual figures, not predictions. |
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Camila Perez
Phone: +1 202 623-7100Email: MEDIA@IMF.org