Abstract
IMF Country Report No. 23/111
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IMF Country Report No. 23/111
SWEDEN
2023 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SWEDEN
March 2023
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2023 Article IV consultation with Sweden, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its March 13, 2023 consideration of the staff report that concluded the Article IV consultation with Sweden.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on March 13, 2023, following discussions that ended on January 27, 2023, with the officials of Sweden on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 17, 2023
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Sweden.
The documents listed below have been separately released.
Selected Issues
Financial Stability System Assessment
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2023 International Monetary Fund
Press Release
PR23/76
IMF Executive Board Concludes 2023 Article IV Consultation with Sweden
FOR IMMEDIATE RELEASE
Washington, DC – March 16, 2023: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 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 Assessment2
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.
Sweden: Selected Economic Indicators, 2020–28
OECD based Unit Labor Cost (ULC) real effective exchange rate indicator.
The unemployment rate and inflation represent actual figures, not predictions.
Sweden: Selected Economic Indicators, 2020–28
| Est. | Projections | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | |
| Real Economy (percent change) | |||||||||
| 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 |
| Public Finance (percent of GDP) | |||||||||
| 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 |
| 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 |
| Money and Credit (year-on-year, percent change, eop) | |||||||||
| M3 | 17.8 | 9.7 | 2.4 | … | … | … | … | … | … |
| Bank lending to households | 5.5 | 6.8 | 3.5 | … | … | … | … | … | … |
| Interest Rates (percent, end of period) | |||||||||
| 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 | … | … | … | … | … | … |
| Balance of Payments (percent of GDP) | |||||||||
| 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 | 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 |
| Exchange Rate (period average, unless otherwise | |||||||||
| 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 | … | … | … | … | … | … |
| 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 | 2.4 | 7.7 | … | … | … | … | … | … |
| Other Indicators | |||||||||
| GDP per Capita (2021, USD): 60,029; Population (2021, million): 10.4. | |||||||||
| Key Export Markets: Germany, Norway, and Netherlands. | |||||||||
OECD based Unit Labor Cost (ULC) real effective exchange rate indicator.
The unemployment rate and inflation represent actual figures, not predictions.
Sweden: Selected Economic Indicators, 2020–28
| Est. | Projections | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | |
| Real Economy (percent change) | |||||||||
| 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 |
| Public Finance (percent of GDP) | |||||||||
| 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 |
| 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 |
| Money and Credit (year-on-year, percent change, eop) | |||||||||
| M3 | 17.8 | 9.7 | 2.4 | … | … | … | … | … | … |
| Bank lending to households | 5.5 | 6.8 | 3.5 | … | … | … | … | … | … |
| Interest Rates (percent, end of period) | |||||||||
| 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 | … | … | … | … | … | … |
| Balance of Payments (percent of GDP) | |||||||||
| 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 | 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 |
| Exchange Rate (period average, unless otherwise | |||||||||
| 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 | … | … | … | … | … | … |
| 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 | 2.4 | 7.7 | … | … | … | … | … | … |
| Other Indicators | |||||||||
| GDP per Capita (2021, USD): 60,029; Population (2021, million): 10.4. | |||||||||
| Key Export Markets: Germany, Norway, and Netherlands. | |||||||||
OECD based Unit Labor Cost (ULC) real effective exchange rate indicator.
The unemployment rate and inflation represent actual figures, not predictions.
Title page
SWEDEN
STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION
February 17, 2023
KEY ISSUES
Sweden experienced a strong post-pandemic rebound in 2021–22 but is potentially heading into a recession. Global headwinds started to steadily put breaks on consumption and business confidence in the third quarter of 2022, as external demand weakened, and higher inflation and interest rates are increasing the burden on households and firms. A slightly negative GDP growth and a moderate decline in inflation are expected in 2023. The recovery will be gradual over the medium term, and inflation is expected to decelerate towards its 2 percent target, but the uncertainty surrounding this outlook is high.
The fiscal stance is slightly contractionary in 2023, which is appropriately supportive of monetary policy. This stance should, however, be regularly reviewed in line with growth and inflation developments. Automatic stabilizers should be allowed to fully operate and, if needed, discretional expenditures should be adjusted. Temporary energy support measures could be better targeted, and fuel subsidies should be phased out as energy prices normalize to meet climate goals. As inflation stabilizes, and given the ample fiscal space, the pace of returning to the fiscal surplus target of 0.33 percent of GDP could be slowed to allow for greater green and growth-enhancing expenditure. A gradual increase in property taxes from their extremely low level would help finance part of the above spending and improve the structure of revenues. The pension reform that links retirement-age to life expectancy will further improve long-term debt dynamics. Reductions in labor taxation are also desirable to help raise employment.
The rapid and decisive monetary policy response targeted at reigning in record high inflation is well justified. Notwithstanding the uncertain environment, given the priority to reduce inflation, the recent tightening and readiness to tighten further is welcome. To safeguard financial stability, emphasis should be placed on closely monitoring the high bank exposures to household and commercial real estate (CRE) debt and on improving the collection of relevant balance sheet data. Higher bank capital requirements for CRE should be considered and the macroprudential tool kit should be expanded to enhance resilience, in line with 2022 FSAP recommendations.
Concrete progress in structural reforms is needed. Reforms should aim at addressing long-standing shortcomings in the labor and housing markets, educational gaps, employment of the foreign-born, and the bankruptcy framework. Fulfilling Sweden’s ambitious climate agenda will also require substantial effort and funding.
Approved By
Oya Celasun (EUR) and Geremia Palomba (SPR)
The Article IV Consultation discussions took place in Stockholm during January 18–27, 2023. The staff team comprised K. Sakr (mission chief), J. Bricco, S. Dell’Erba, A. Fotiou, and S. Vtyurina (all EUR). A. Ekelund (OED) accompanied the mission. F. Jiang and H. Jung (both EUR) assisted the team. The mission worked closely with the FSAP team led by T. Mancini Griffoli. The mission met with Minister of Finance Elisabeth Svantesson and State Secretaries Johanna Lybeck Lilja and Johan Almenberg; Governor and First Deputy Governor of the Central Bank of Sweden Erik Thedéen and Anna Breman; other senior officials; parliamentarians; and representatives of labor unions, business community, banking sector, and academics.
Contents
CONTEXT AND RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy
B. Monetary Policy
C. Financial Sector and Macroprudential Policies
D. Structural Policies
STAFF APPRAISAL
BOXES
1. Impact and Response to High Energy Prices
2. Gaps in Household Data Statistics
3. Key Deliverables Under the Recovery and Resilience Plan for 2022–23
4. Mortgage Tax Relief in the European Union
FIGURES
1. Selected Real Sector Indicators
2. Selected Indicators
3. Selected Monetary and Financial Indicators
4. Selected Banking Indicators
5. Risk Weighted Assets
6. Maximum Implied Mortgage Length
7. Unemployment Rates: Young and Foreign-born, 2022Q3
TABLES
1. Selected Economic Indicators, 2020–28
2. General Government Statement of Operations, 2020–28
3. Balance of Payments, 2020–28
4. Financial Soundness Indicators, 2016–22
ANNEXES
I. Summary of the Sovereign Risk and Debt Sustainability Assessment
II External Sector Assessment
III Risk Assessment Matrix
IV. Climate Policy Advances and Challenges
V. 2022 FSAP: Key Recommendations
VI. Sweden’s Corporate Vulnerabilities: Focus on Commercial Real Estate
VII. Authorities’ Response to Past IMF Policy Recommendations
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.
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.
