COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Sweden, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 92 final   COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}  
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Summary of the main findings from the MIP in-depth review 

4. 

Reform priorities 

4.1.  Public finances and taxation 

4.2. 

Financial sector 

4.3. 

Labour market, education and social policies 

4.4. 

Investment 

4.5. 

Sectoral policies 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key macroeconomic, financial and social indicators 

Summary table on CSR assessment 

3.1.  MIP assessment matrix (*) - Sweden 2017 

B.1. 

The MIP Scoreboard for Sweden 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

Output gap, real GDP growth and its components 

Contributions to potential growth 

Unemployment rates of specific groups 

1 

4 

9 

12 

17 

197 

19 

33 

40 

46 

50 

53 

54 

59 

8 

10 

15 

53 

54 

545 

556 

567 

58 

4 

5 

6 

 
 
 
1.4. 

1.5. 

Asylum seekers by age, 2000-2016 

Net international investment position 

4.2.1.  Banking system assets relative to GDP (%) 

4.2.2.  Swedish banks CET 1 capital relative to risk-weighted and total assets (%) 

4.2.3.  Banking system return on equity (%), Q3 2016 

4.2.4.  Share of non-performing loans in total loan book (%), Q3 2016 

4.2.5.  Household interest payments as percentage of income 

4.2.6.  Real house price evolution (indexed, 2010=100) 

4.2.7.  Valuation gap estimates and recent house price growth: Sweden versus other EU 

countries 

4.2.8.  Housing starts, including net conversions, versus projected need 

4.2.9.  Building permits issued per unit of population v house price growth (2011-2015) 

4.2.10.  Rent Control Index (1) and Tenant-Landlord Relation Index (2) for Sweden v other EU 

countries 

4.2.11.  Household debt growth (indexed, 2005=100) 

4.2.12.  Share of households with different debt-to-income ratios, new loans (share of households 

in % of total) 

4.2.13.  Loans to households: loans for property acquisition and consumption loans in Sweden 

versus euro area average 

4.2.14.  Typical mortgage maturity, 2015 (years) 

4.2.15.  Breakdown of corporate debt by funding source 

4.2.16.  Drivers of year-on-year changes in corporate debt as % of GDP 

4.2.17.  Leverage indicators for non-financial corporations 

4.3.1. 

Labour market situation, 2001-2016 

4.3.2.  Employment by skill levels, 2000-2016 

4.3.3.  Breakdown of unemployment by skill level and country of birth, 2015 

4.3.4.  Employment rate of native-born and of non-EU-born by reason of migration, 2014 

4.3.5.  Share of low achievers in 2015 PISA 

4.3.6.  Proportion of low achievers in science by immigrant background in 2015 

4.4.1.  Current account balance 

4.4.2.  Gross fixed capital formation, comparison with EU average 

4.4.3.  Net lending/borrowing by sector 

4.4.4.  Cumulative export market share loss since 2005 for Sweden and selected peer countries 

4.4.5.  Competitiveness and dynamism in Sweden’s top-10 goods export destinations, 2011-2015 

LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in Sweden 

4.3.1.  Selected highlight: refugee integration 

4.4.1. 

Investment challenges and reforms in Sweden 

6 

7 

19 

19 

20 

20 

21 

22 

23 

24 

25 

26 

28 

29 

29 

30 

31 

31 

32 

33 

33 

34 

35 

37 

38 

40 

40 

41 

41 

42 

11 

36 

45 

 
 
 
 
EXECUTIVE SUMMARY 

This report assesses Sweden's economy in light of 
the  European  Commission's  Annual  Growth 
Survey  published  on  16  November  2016.  In  the 
survey  the  Commission  calls  on  EU  Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy  –  boosting  investment,  pursuing  structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should  put  the  focus  on 
enhancing  social  fairness  in  order  to  deliver  more 
the 
inclusive  growth.  At 
the 
Commission  published 
the  Alert  Mechanism 
Report (AMR) that initiated the sixth annual round 
of  the  macroeconomic  imbalance  procedure.  The 
in-depth  review,  which  the  2017  AMR  concluded 
should be undertaken for the Swedish economy, is 
presented in this report. 

same 

time, 

The Swedish economy is continuing to perform 
well.  Growth  was  3.3 %  in  2016  –  among  the 
highest in the EU. It is forecast to slow somewhat 
to the economy's potential growth rate, to 2.4 % in 
2017  and  2.1 % 
the 
in  2018, 
Commission 
forecast.  Solid 
2017  winter 
investment  growth  and  increasing  household  and 
government  consumption  are  expected  to  support 
growth in the coming years. 

line  with 

in 

the 

reducing 

Exports  have  been  weak,  while  imports  have 
increased, 
current  account 
surplus. As a result of sluggish trade performance, 
the  export-oriented  industrial  sectors  were  rather 
weak,  while  domestically-oriented  service  sectors 
grew  strongly.  As  import  growth  accelerated,  the 
current account surplus is set to have decreased to 
4.8 %  of  GDP  in  2016  compared  with  its  peak  of 
8.2 %  in  2008.  A  gradual  recovery  in  Sweden's 
main  trading  partners  and  a  relatively  weak 
Swedish krona is projected to improve the outlook 
for exports, in particular for investment goods. 

Investment  growth  surged  due  to  buoyant 
construction activity. After expanding at a rate of 
close to 7 % per year in 2015-2016, investment is 
expected  to  keep  increasing  at  a  solid  pace  of 
around  3 %  in  the  coming  years.  Partly  thanks  to 
reforms  to  building  regulations  and  the  planning 
process,  housing  investment  in  particular  has 
rebounded strongly since mid-2013 from relatively 
low levels, although it remains insufficient to meet 
pent-up  demand.  Public  investment  growth  is 
expected to accelerate in 2017, with infrastructure 

1 

renovation  and  construction  a  key  underlying 
driver.  

The  labour  market  is  performing  well.  In  2016 
Sweden  had  one  of  the  highest  employment  rates 
in  the  EU  at  81.2 %  (first  three  quarters),  and 
overall  unemployment  was  below  the  EU  average 
at 6.9 %. While employment growth has been high 
in recent years, the labour force has also increased, 
thus  slowing  the  decrease  in  unemployment.  A 
major  challenge  for  the  labour  market  is  the 
integration  of  people  with  a  migrant  background, 
including those with relatively weak education and 
skill levels. 

Fiscal  policies  remain  in  line  with  previous 
years. Despite a significant increase in expenditure 
related  to  migration  and  integration,  the  general 
government  budget  is  expected  to  remain  broadly 
balanced in the coming years. 

Inflation has started to resume and is expected 
to  gradually  reach  1.8 %  by  2018.  Sweden's 
central  bank  has  continued 
its  expansionary 
monetary  policy  to  support  the  gradual  rise  of 
inflation.  It  has  kept  repo  rates  at  negative  levels, 
which  has  resulted  in  very  low  mortgage  interest 
rates,  further  boosting  house  prices  and  private 
indebtedness. 

the 

2016 

improving 

in  housing  and 

Overall,  Sweden  has  made  limited  progress  in 
addressing 
country-specific 
recommendation.  As  regards  policies  relevant  to 
macroeconomic  imbalances,  the  authorities  have 
achieved  cross-party  agreement  on  enhancing  the 
macroprudential  authority's  mandate,  but  concrete 
proposals  are  still  to  be  published.  Accordingly, 
progress  on  this  aspect  is  currently  assessed  as 
limited. Some progress has been made on fostering 
investment 
the 
efficiency  of  the  housing  market.  In  particular  In 
particular,  the  government  put  forward  a  22-point 
housing  market  plan, 
to 
increase  construction,  but  generally  the  timeline 
and form of implementation remain uncertain. This 
plan  also  includes  a  reform  of  the  rules  on  the 
deferral  of  capital  gains 
for  housing 
transactions,  but  its  impact  is  likely  to  remain 
modest.  No  significant  policy  action  has  been 
taken to introduce more flexibility in setting rental 
prices.  Finally, 
the 
recommendation  that  have  not  been  met  by  any 
policy action, notably on reforming the favourable 

there  are  key  parts  of 

including  proposals 

tax 

 
 
treatment  of  mortgage  debt  and  home-
the 

tax 
ownership.  On 
recommendation, no progress has been made. 

aspects 

these 

of 

to  perform  well  are 

Regarding progress in reaching the national targets 
under  the  Europe  2020 strategy,  indicators  where 
Sweden  continues 
the 
employment  rate,  greenhouse  gas  emissions,  the 
share of renewable energy, the rate of early school 
leaving,  tertiary  education  attainment  and  poverty 
risks. Areas where progress was relatively weak in 
2016 are energy efficiency and R&D targets.  

findings  of 

The  main 
review 
contained  in  this  report,  and  the  related  policy 
challenges, are as follows: 

in-depth 

the 

  While  banks  are  profitable  and  well-
capitalised,  there  are  vulnerabilities  linked 
to 
their  growing  household  mortgage 
exposure.  The  regulatory  capital  adequacy 
ratios  are  high,  but  as  a  share  of  total 
(unweighted)  assets,  capital  cushions  have 
remained  at  a  relatively  low  level  in  recent 
In  addition,  household  mortgages 
years. 
constitute a substantial and growing component 
of bank assets. Accordingly, the risk of a rapid 
house 
an 
correction 
increasingly  significant  vulnerability.  Since 
Swedish  banking  groups  are  of  systemic 
importance  for  all  countries  in  the  Nordic-
Baltic  financial  market,  any  shock  to  the 
banking  sector  could  have  a  wider  impact  on 
neighbouring countries. 

represents 

price 

  Household  indebtedness  has  continued  to 
rise from already high levels. Household debt 
grew  by  7.1 %  in  2016,  approaching  86%  of 
GDP  and  about  180 %  of  disposable  income, 
driven  mainly  by  higher  mortgage  borrowing 
linked  to  continued  house  price  rises.  The 
is  becoming 
distribution  of  debt 
increasingly uneven, with a growing fraction of 
newly  mortgaged  households  borrowing  as 
much as 600 % of their disposable income. The 
relevant 
taken 
have 
authorities 
macroprudential  measures  – 
the 
introduction  of  a  new  mortgage  amortisation 
requirement in 2016 – but these appear to have 
had limited impact on mortgage lending growth 
so far.  

including 

levels 

some 

Executive summary 

levels, 

ownership 

fundamental 

and  mortgage 

  Even  though  house  prices  are  well  above 
their 
they  have 
continued  to  grow  rapidly  and  persistently. 
Key  drivers  include  generous  tax  treatment  of 
home 
debt, 
accommodative  credit  conditions  coupled with 
relatively low mortgage amortisation rates, and 
an  ongoing  supply  shortage.  This  shortage  is 
linked to structural inefficiencies in the housing 
market,  including  limited  competition  in  the 
construction  sector.  There  are  also  barriers  to 
efficient usage of the existing housing stock. In 
the rental market, the unique negotiation-based 
rent-setting  system  contributes  to  lock-in  and 
‘insider/outsider’  effects. 
the  owner-
occupancy market, relatively high capital gains 
taxes reduce homeowner mobility. The housing 
shortage can also hampers labour mobility and 
can contribute to intergenerational inequality. 

In 

action, 

  The  continued  increase  in  house  prices, 
household  debt  and  bank  exposure  to 
residential  mortgages  is  a  growing  risk  to 
macroeconomic  stability.  Despite  gradual 
existing  macroeconomic 
policy 
imbalances  deepened  further.  An  increasingly 
overvalued housing market coupled with rising 
indebtedness  entails  growing 
risks  of  a 
disorderly correction. This could culminate in a 
rapid  deleveraging  process,  with  an  adverse 
impact on the real economy and potentially the 
banking sector. 

  The  persistent  current  account  surplus  is 
driven  primarily  by  high  savings,  not 
underinvestment,  and  has  limited  outward 
spillover  effects.  Sweden's  investment  rate  is 
well  above  the  EU  average,  and  compares 
favourably to that of peer countries with similar 
current account surpluses. The surplus is linked 
to  an  even  higher  savings  rate,  driven  in 
particular  by  gradually  growing  household  net 
savings.  In  addition,  while  Sweden  is  an 
important trading partner for several countries, 
the  impact  of  its  demand  on  neighbouring  EU 
countries is relatively contained. As a result, its 
surplus does not give rise to significant external 
risks for other economies.  

Other key economic issues analysed in this report 
which  point 
facing 
Sweden's economy are as follows: 

to  particular  challenges 

2 

 
 
low 

risks 

terms  of 

  In  the  short  and  medium  term,  the  country 
faces 
fiscal 
in 
sustainability.  Government  debt  stood  at 
41.0 %  of  GDP  in  2016,  well  below  the  60 % 
of  GDP  Treaty  reference  value,  and 
is 
projected  to  decline  in  coming  years.  Past 
pension reforms are helping to contain pension 
expenditure.  Still,  in  the  medium-term  the 
projected public expenditure on long-term care 
is  set  to  increase  significantly  and  there  could 
be scope to improve efficiency. 

and 

terms  of  employment  and 

  The strength of the labour market continues 
to grow. Sweden is a top performer in the EU 
in 
long-term 
unemployment 
rates.  However,  challenges 
remain,  for  example  integrating  low-skilled 
people  and  non-EU  migrants  into  the  labour 
market 
substantial 
employment gap for non-EU-born women. The 
integration  challenge  is likely  to  remain  in  the 
coming  years  in  light  of  the  magnitude  and 
composition  of  the  recent  inflows  of  asylum 
seekers.  Several  efforts  have  been  made  to 
the 
improve 
employability  of  migrants,  and  more  measures 
are being considered. 

reducing 

human 

capital 

and 

the 

the 

  School  education  outcomes  have  somewhat 
improved  after  years  of  deteriorating 
performance.  Basic  skills  of  the  younger 
generation  have  improved,  reversing  previous 
negative  trends  according  to  the  PISA  2015 
survey  but  levels  are  only  around  the  EU 
average.  Moreover, 
the  performance  gap 
between  different  social  groups  has  widened. 
Despite  recent  measures,  the  education  system 
does not appear to promote quality for all. The 
integration  of  newly-arrived  migrant  pupils 
warrants close monitoring. 

  The  economy  benefits  from  a  broadly 
favourable  business  environment,  although 
issues  remain  in  a  few  specific  areas.  The 
country  performs  well  in  terms  of  efficient 
public  administration,  access  to  finance  for 
small  and  medium-sized  enterprises,  and 
innovation 
by 
businesses.  The  public  procurement  system  is 
and  well-functioning, 
generally 
although  in  specific  instances  it  is  not  fully 
in 
transparent.  Despite  general 

internationalisation 

efficient 

success 

and 

Executive summary 

promoting  digitisation  as  well  as  research  and 
innovation, 
to  a 
slowdown in recent years.  

indicators  point 

some 

  Some  barriers  to  investment  and  long-term 
growth  remain.  In  particular,  construction 
investment  is  held  back  by  several  interlinked 
housing  supply  bottlenecks.  Investment  by 
small and medium-sized enterprises is in some 
cases  constrained  by  insufficiently  transparent 
public  procurement  procedures.  Finally,  while 
the  cooperation  between  academia  and  large 
to  work  quite  well, 
businesses 
collaboration  with  small  and  medium-sized 
enterprises  is  not  at  the  same  level,  thus 
inhibiting  optimal  use  of  their  innovative 
their  R&D 
potential  and  weighing  on 
investments. 

seems 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Pent-up demand for housing combined with low 
interest rates is supporting housing investment. 
There was  a  significant  increase  in  the  number of 
new  dwellings  built,  pushing  housing  investment 
growth  into  double-digit  rates  in  2015  and  2016. 
However,  according  to  the  National  Board  of 
Housing,  Building  and  Planning  (Boverket),  this 
to  match 
new 
estimated  housing  needs  to  respond  to  a  growing 
population.  Thus,  housing  investment  is  set  to 
remain robust in 2017 and 2018, albeit growing at 
a slower pace as the construction sector is likely to 
face shortages of buildable land and skilled labour 
(see 4.2.2 and Box 4.4.1).  

insufficient 

remains 

supply 

The high influx of asylum seekers in 2015 led to 
more  spending  on  providing  public  services. 
This  reflected  spending  to  provide  shelter,  food 
and  basic  allowances  for  asylum  seekers  while 
increasing  the  responsibilities  and  administrative 
the  Swedish  Migration  Agency 
capacity  of 
(Migrationsverket).  Government 
consumption 
expenditure  therefore  surged  in  2015  and  2016. 
Additional  public  consumption  and  investment  is 
expected to support economic growth in the years 
to  come.  Local  authorities  will  play  a  key  role  in 
the  integration  of  refugees.  They  have  been 
granted extra funding, some of which is earmarked 
for  accommodating  refugees,  but  have  also 
received  a  general  grant 
the  central 
government. This grant is intended to be spent on 
staff,  welfare  services  and  infrastructure,  e.g. 
childcare facilities and hospitals. 

from 

Potential growth 

Although real GDP growth is set to slow down, 
potential  growth  has  improved  and  is  back  at 
pre-crisis  levels.  Following  the  2009  financial 
crisis and the subsequent euro area sovereign debt 
crisis, the economy’s potential output grew at less 
strong 
than  2 %  until  2014.  Since 
employment  growth  and 
factor 
rising 
productivity have lifted the potential growth rate to 
pre-crisis levels of 2 % to 3 %. 

then 
total 

GDP growth 

After  a  strong  performance  in  2015  and  2016, 
economic growth is expected to slow down. Real 
GDP growth expanded by 4.1 % in 2015 and 3.3 % 
in  2016,  according  to  the  European  Commission 
winter  2017  forecast.  A  combination  of  factors 
spurred  economic  activity,  in  particular  domestic 
demand:  an  expansionary  monetary  policy, 
additional  public  expenditure  to  cope  with  the 
influx  of  asylum  seekers  and  strong  household 
income.  For  2017  and  2018,  real  GDP  growth  is 
projected  to  decrease  to  around  2 %  with  most 
components of growth shifting into a lower gear as 
the economy is at its potential (Graph 1.1). 

Graph 1.1:  Output gap, real GDP growth and its 

components 

Source: European Commission 
* Forecasts for 2016-2018 based on a no-policy-change 
assumption 

incomes  on 

Private consumption is projected to support the 
economy in the coming years. It is set to slow but 
still  contribute  to  more  than  1 percentage  point 
(pp.)  of  GDP  growth  in  2017-2018.  Rising  real 
disposable 
the  back  of  strong 
employment  growth  and  increasing  wealth  are 
expected 
to  keep  consumption  growth  up. 
Household  savings  are  projected  to  remain  high 
(around 19 % of disposable income, albeit slightly 
declining),  due  to  structural  factors  such  as 
increasing 
life  expectancy  and  past  pension 
reforms (see 4.4.1). 

4 

-8-6-4-202468000204060810121416*18*%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growthOutput gap 
 
 
Graph 1.2:  Contributions to potential growth 

Source: European Commission 
*Forecasts for 2016-2018 based on a no-policy-change 
assumption 
TFP: total factor productivity 

Inflation and monetary policy 

tax 

Inflation  showed  signs  of  picking  up  in  early 
2016 and is projected to gradually reach 1.8 % 
by 2018. Increased import prices as a result of the 
in  2014-2015, 
Swedish  krona  depreciation 
recovering  energy  prices  and 
increases 
supported  the  pick-up.  However,  ‘core  inflation’, 
i.e.  the  underlying  long-term  inflation  excluding 
volatile  items  like  food  and  energy  prices,  was 
lower in 2016 compared with 2015. This reflected 
a  modest  increase  in  rent  prices  and  wages  as  an 
outcome  of  the  2016  negotiations.  In  2017  and 
2018,  the  harmonised  consumer  price  index  is 
expected  to  grow  at  1.7 %  and  1.8 %  respectively 
as high capacity utilisation rates and tighter labour 
market conditions are set to increase domestic cost 
pressures.  Since  exchange  rate  developments 
usually  affect  prices  with  some  time  lag,  the 
depreciation of the Swedish krona against the euro 
and  US  dollar  towards  the  second  half  of  2016 
could provide an additional impetus to inflation in 
years to come. 

central  bank 

Sweden’s 
(the  Riksbank) 
maintains  an  accommodative  monetary  policy 
stance to support a rise in inflation to its target 
level.  Between  January  2015  and  February  2016, 
the  Riksbank  gradually  cut  the  repo  rate  from 
0.0 % to -0.5 % in order to boost inflation from its 
very  low  level  of  0.2 %  in  2014  and  signalled  its 
readiness 
inflation 
expectations.  This  has  been  complemented  by 

to  cut  further 

to  anchor 

1. Economic situation and outlook 

unconventional monetary policy measures, such as 
asset  purchases.  The  Riksbank  has  purchased 
SEK 245 billion (EUR 25.9 billion) of government 
bonds over the last two years. In December 2016, 
the Riksbank decided to extend the asset purchase 
programme  until  mid-2017  and  announced  that 
slow increases of the repo rate will not begin until 
interest  rate 
early  2018.  The  resulting 
environment,  combined  with  other  structural 
factors lowering mortgage debt service costs and a 
further 
continued  housing  shortage,  supports 
household  debt  and  house  price 
increases. 
Ultimately,  these  increases  are  likely  to  make  the 
financial  system  and  broader  economy  more 
vulnerable 
to  external  shocks  (see 4.2).  For 
example,  an  abrupt  correction  of  house  prices 
could  dampen  business  confidence,  household 
consumption and construction investment. 

low 

Private indebtedness 

In  2016,  household debt growth  stood at  7.1 % 
year-on-year  in  nominal  terms,  continuing  to 
outpace economic growth. As a result, household 
debt  is  approaching  86%  of  GDP,  among  the 
highest  levels  in  the  EU  (see  4.2.3).  Relative  to 
incomes,  household  debt  stood  at  179 %  of 
disposable  income  in  mid-2016,  up  about  10  pp. 
over  the  past  two  years.  If  one  considers  only 
households  with  a  mortgage,  the  average  debt-to-
income  ratio  rises  to  343 %  (Sveriges  Riksbank, 
2016; Ölcer and van Santen, 2016). 

Labour market 

first 

three  quarters),  while 

The strength of the labour market continues to 
grow.  In  2016  Sweden  had  one  of  the  highest 
employment  rates  in  the  EU  (81.2 %  v  70.9 %  in 
the 
the  overall 
unemployment  rate  was  below  the  EU  average 
(6.9 %  v  8.5 %).  The  long-term  unemployment 
rate estimated at about 1.3 % was one of the lowest 
in 
further 
supported by increasing economic activity, notably 
in the construction and public service sectors. The 
unemployment rate is projected to fall from 6.9 % 
in  2016  to  6.5 %  in  2017  and  broadly  stabilise  as 
labour supply is increasing. 

the  EU.  Unemployment  declined 

However,  integration  remains  a  challenge  for 
people  born  outside  the  EU.  Although  their 
employment  rate  is  somewhat  above  the  EU 
average for the non-EU-born, their unemployment 

5 

012304060810121416*18*Rate of change y-o-y (%)Capital contributionTFP contributionLabour contributionPotential growthforecast 
 
rate stood at 19.2 % in 2015 (Graph 1.3), which is 
three  times  as  high  as  the  rate  for  native-born 
Swedes.  The  authorities  have  undertaken  sizeable 
efforts  to  integrate  the  large  inflows of  more  than 
300 000 asylum seekers since 2013. Around 40 % 
of these asylum seekers are minors, of which about 
half  are  unaccompanied  (1).  This  group 
is 
particularly  vulnerable  and  requires  additional 
protection  and  integration  assistance.  This  is  a 
change compared with previous inflows of asylum 
seekers,  which  were  smaller  (around  30 000  per 
year)  and  had  fewer  unaccompanied  minors 
(Graph  1.4).  Since  2000,  most  migrants  who 
arrived  have 
for 
humanitarian  and  family  reunion  reasons  and  are 
on  average  less  successful  in  finding  a  job  than 
migrants who come to work and study (see 4.3). 

their  home  countries 

left 

In the medium term, the economy could benefit 
from  successfully  integrating  migrants  into  the 
labour market. The gradual increase in the labour 
force  might 
the 
the 
unemployment  rate  in  the  short  term;  however, 
past  experience  indicates  that  over  time  people 
granted  asylum  usually  find  employment,  thus 
lifting potential growth. 

decrease 

slow 

in 

Graph 1.3: 

Unemployment rates of specific groups 

Source: European Commission 

(1)  An  ‘unaccompanied  minor’  means  a  person  under the  age 
of  18  who  has  come  to  Sweden  and  applied  for  asylum 
without his or her parents or other legal custodial parent. 

1. Economic situation and outlook 

Graph 1.4:  Asylum seekers by age, 2000-2016 

Source: European Commission computations from Swedish 
Migration Agency 

Social developments 

Income  inequalities  remain  low,  but  wealth 
inequalities are growing, driven in particular by 
housing  prices  and  the  tax  system.  Standard 
inequality  measures  with  a  focus  on  income 
distribution  show  that  Sweden  performs  well 
compared  to  the  EU  average.  In  2015,  only  four 
countries  had  more  equal  income  distributions (2). 
However, the persistent increase in property prices 
and the absence of an inheritance and gift tax have 
negatively  affected  wealth  distribution  (Lundberg 
et al, 2016; OECD, 2017). In addition, the current 
tax  treatment  of  owner-occupied  housing  with  a 
mortgage  is  regressive;  this  is  driven  by  a  low 
recurrent property tax that is generally not aligned 
full 
with  property  values,  combined  with 
deductibility  of  mortgage  interest  payments  (see 
Demand-side issues under 4.3.1). 

Competitiveness 

Sweden  has  improved  its  cost  competitiveness. 
While it has been losing export market shares for a 
long  period,  this  primarily  reflects  broader  trends 

(2)  Using  the  standard  S80/S20  measure, Sweden  had  a  score 
of 3.8 in 2015 (equal to the Netherlands). Only Finland, the 
Czech  Republic,  Slovakia  and  Slovenia  had  a  lower  ratio. 
S80/S20  is  the  ratio  of  total  income  received  by  the  20 % 
of the population with the highest income (top quintile) to 
that received by the 20 % of the population with the lowest 
income  (lowest  quintile).  See  also  table  C3  for  Gini 
coefficients. 

6 

0510152025070809101112131415TotalLow educationNon-EU bornSwedish born020.00040.00060.00080.000100.000120.000140.000160.000180.0000001020304050607080910111213141516Other childrenUnaccompanied minorsWorking ageTotal asylum seekers 
 
 
                                                           
 
                                                           
1. Economic situation and outlook 

the net international investment position (European 
Commission, 2016a, p. 13-14). 

Graph 1.5:  Net international investment position 

Source: European Commission 
*2016 is based on Q1-Q3 

Public finances 

The general government  balance  is expected to 
have  achieved  a  surplus  again  in  2016.  While 
economic  activity  was  somewhat  weaker,  strong 
tax payments on production and lower expenditure 
following from the regulation of the rebate on the 
EU  contribution  helped  to  off-set  the  higher 
spending  on  the  reception  and  integration  of 
refugees.  In  2017-2018,  the  general  government 
balance  is  expected  to  remain  broadly  stable 
between  -0.2 %  and  0.2 %  of  GDP  with  some 
additional  welfare  spending  but  still  helped  by  a 
robust  economy.  Public  debt  stood  at  a  relatively 
low level of around 41.0 % of GDP in 2016, below 
the  60 %  of  GDP  Treaty  reference  value  and  is 
projected to fall gradually in the coming years (see 
also 4.1). 

faced  by  many  export-focused 
industrialised 
economies,  and  driven  by  developing  economies’ 
growing contribution to world trade along with the 
sectoral  and  geographical  composition  of  exports 
(see 4.4.1). The depreciation of the Swedish krona 
in 2014-2015 and towards the second half of 2016 
translated into the depreciation of the real effective 
exchange rate. Since the exporting industry sets the 
benchmark  in  the  wage  bargaining  negotiations, 
cost competitiveness developments are expected to 
remain contained. Wages are projected to increase 
at a slightly higher pace than last year’s agreement 
of  a  modest  2.2 %  rate.  Deviation  of  domestic 
sectors from the wage benchmark could provide a 
further boost to household consumption. 

External position 

Services  exports  are  playing  a  key  role  in  the 
economy. Since 2006, the positive trade balance in 
goods  decreased,  from  6.9 %  to  2.7 %  of  GDP  in 
2015, while the one in services grew from 0.2 % to 
2.2 %  of  GDP.  Exports  of  services  only  account 
for  about  a  third  of  total  exports  but  have  grown 
faster  than  exports  of  goods  in  recent  years. 
Norway,  the  US,  the  UK  and  Germany  are  major 
recipients  of  Swedish  services  such  as  computer 
consultancy,  sales  of  other  services  between 
headquarters  and  subsidiaries,  and  compensation 
for 
rights.  Additionally, 
expenditure made by foreigners (travel expenditure 
from  tourists  but  also  e-commerce,  border  trade 
in 
and  consumption  from  foreign  nationals) 
Sweden  accounts  for  close  to  20 %  of  exports  of 
services.  Slower  growth  in  major  trading  partners 
weakened exports in 2016 but net exports are set to 
make a positive contribution to growth in 2017. As 
a  small  open  economy,  a  further  weakening  of 
world trade could weigh on Sweden's export sector 
and its overall economic activity. 

intellectual  property 

The  current  account  balance  is  in  surplus  and 
the  net  international  investment  position  has 
turned  positive.  From  a 
saving-investment 
perspective,  the  current  account  surplus  is  not  a 
reason  for  concern  since  it  is  driven  by  high 
savings and not underinvestment (see 4.4.1). As a 
consequence,  since  2015,  Sweden  has  had  a 
slightly  positive  net 
investment 
position, i.e. the accumulated foreign assets exceed 
its  liabilities  (Graph  1.5).  Valuation  effects  and 
measurement  errors  might  however  underestimate 

international 

7 

-150-100-500501001500001020304050607080910111213141516*% of GDPNet portfolio investment, equity and inv fund sharesNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet external debt (neg. sign)Net Int'l investment position (NIIP)Marketable debt 
 
1. Economic situation and outlook 

Table 1.1: 

Key macroeconomic, financial and social indicators 

(1) sum of portfolio debt instruments, other investment and reserve assets 
(2,3) domestic banking groups and stand-alone banks. 
(4) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: European Commission, ECB 

8 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)2.9-5.26.02.7-0.31.22.64.13.32.42.1Private consumption (y-o-y)2.50.43.91.90.81.92.12.72.32.62.4Public consumption (y-o-y)0.72.31.30.81.11.31.52.53.41.90.3Gross fixed capital formation (y-o-y)5.8-13.46.05.7-0.20.65.57.06.63.52.9Exports of goods and services (y-o-y)6.5-14.511.96.11.0-0.85.35.62.83.63.8Imports of goods and services (y-o-y) 6.6-14.112.87.30.5-0.16.35.53.93.73.5Output gap1.4-5.5-1.4-0.3-2.0-2.5-1.9-0.30.40.3-0.2Potential growth (y-o-y)2.41.21.61.51.51.72.02.42.62.52.6Contribution to GDP growth:Domestic demand (y-o-y)2.6-2.53.52.30.61.32.63.53.52.51.8Inventories (y-o-y)0.0-1.62.10.5-1.10.20.20.30.2-0.20.0Net exports (y-o-y)0.3-1.10.4-0.20.3-0.3-0.20.3-0.30.10.3Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.60.70.60.50.50.60.70.80.70.7Capital accumulation (y-o-y)0.80.40.50.60.60.60.60.70.80.90.9Total factor productivity (y-o-y)1.20.20.30.30.40.60.80.90.90.91.0Current account balance (% of GDP), balance of payments7.36.06.05.55.65.34.64.7...Trade balance (% of GDP), balance of payments6.65.14.85.15.25.04.44.9...Terms of trade of goods and services (y-o-y)-0.50.9-0.5-0.80.10.30.20.81.60.20.0Capital account balance (% of GDP)-0.2-0.1-0.1-0.2-0.2-0.2-0.1-0.2...Net international investment position (% of GDP)-11.1-7.2-5.6-8.0-14.6-12.51.23.3...Net marketable external debt (% of GDP) (1)-38.1-47.3-40.9-42.9-43.4-45.8-45.4-39.8...Gross marketable external debt (% of GDP) (1)121.5148.4137.2145.1143.6152.6161.6145.4...Export performance vs. advanced countries (% change over 5 years)6.0-8.8-5.8-4.4-9.9-9.2-2.3-6.87...Export market share, goods and services (y-o-y)-1.4-8.5-1.4 c-0.1-5.9-1.6-0.3-1.7 c...Net FDI flows (% of GDP)1.64.04.23.12.44.50.91.8...Savings rate of households (net saving as percentage of net disposable income)8.112.311.112.615.315.315.916.3...Private credit flow, consolidated (% of GDP)13.95.95.36.92.44.85.86.7...Private sector debt, consolidated (% of GDP)161.4201.5189.0190.8192.2192.1192.4187.5...of which household debt, consolidated (% of GDP)63.176.877.178.080.582.383.383.9...of which non-financial corporate debt, consolidated (% of GDP)98.3124.7111.9112.8111.7109.8109.1103.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)3.11.82.2-0.2-1.1-1.2-1.5-2.6-2.8-2.4-2.0Corporations, gross operating surplus (% of GDP)24.722.424.824.423.022.823.524.024.224.324.6Households, net lending (+) or net borrowing (-) (% of GDP)2.45.44.35.37.57.47.77.57.37.06.5Deflated house price index (y-o-y)7.40.76.40.80.74.78.212.0...Residential investment (% of GDP)3.83.33.63.93.43.54.04.5...GDP deflator (y-o-y)1.92.41.01.21.11.11.82.02.42.32.2Harmonised index of consumer prices (HICP, y-o-y)1.71.91.91.40.90.40.20.71.11.71.8Nominal compensation per employee (y-o-y)3.92.72.23.23.11.92.23.53.13.33.1Labour productivity (real, person employed, y-o-y)2.0-2.85.00.5-1.00.31.22.5...Unit labour costs (ULC, whole economy, y-o-y)1.95.7-2.62.64.11.71.00.91.72.32.2Real unit labour costs (y-o-y)0.03.2-3.61.43.00.6-0.7-1.1-0.60.0-0.1Real effective exchange rate (ULC, y-o-y)-0.4-6.94.87.23.03.8-4.0-5.10.40.50.4Real effective exchange rate (HICP, y-o-y)-1.0-7.26.54.1-0.81.7-4.5-5.20.8-1.7.Tax rate for a single person earning the average wage (%)29.625.424.724.824.925.124.424.7...Tax rate for a single person earning 50% of the average wage (%)25.2*20.619.719.920.020.219.619.9...Total Financial sector liabilities, non-consolidated (y-o-y)10.72.17.14.73.37.512.42.3...Tier 1 ratio (%) (2).10.510.510.811.211.319.221.1...Return on equity (%) (3).5.410.310.711.411.212.211.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (4)...0.60.50.51.41.2...Unemployment rate6.98.38.67.88.08.07.97.46.96.56.4Long-term unemployment rate (% of active population)1.01.11.61.51.51.41.41.5...Youth unemployment rate (% of active population in the same age group)20.825.024.822.823.723.622.920.418.9..Activity rate (15-64 year-olds)78.778.979.179.980.381.181.581.7...People at risk of poverty or social exclusion (% total population)15.315.915.016.115.616.416.916.0...Persons living in households with very low work intensity (% of total population aged below 60)6.96.46.06.95.77.16.45.8...General government balance (% of GDP)1.9-0.7-0.1-0.2-1.0-1.4-1.60.20.5-0.20.2Tax-to-GDP ratio (%)46.345.144.143.543.543.943.544.244.244.044.0Structural budget balance (% of GDP)..0.70.00.20.1-0.50.40.3-0.30.3General government gross debt (% of GDP)42.940.437.636.937.840.445.243.941.039.337.6forecast 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

with 

to  Sweden 

implementing 

the 
Progress 
recommendation  addressed 
in 
2016 (3)  has  to  be  seen  as  part  of  a  process 
which  started  with  the  introduction  of  the 
European  Semester  in  2011.  Sweden  has  been 
able to preserve a sound fiscal position since 2011 
ensuring  compliance  with 
the  medium-term 
budgetary  objective  and  keeping  debt  on  a 
declining  path  well  below  the  Treaty  threshold. 
Concerning  the  labour  market,  the  government 
took  action  and  achieved  some  progress 
in 
improving  the  employment  situation  of  young 
people, 
strengthen 
apprenticeships  and  other  types  of  work-based 
vocational  education.  However,  it  is  too  early  to 
assess  the  outcomes  for  non-EU-born  people, 
given  the  magnitude  of  the  recent  influx  of 
refugees,  and  the  usual  time  span  of  integration 
measures. 

with  measures 

to 

its 

2016 

addressing 

Overall,  Sweden  has  made  limited (4)  progress 
in 
country-specific 
recommendation (CSR). Some policy steps have 
been  taken  in  response  to  the  recommendation 
(which 
is  MIP-relevant,  see  Section  3),  but 
implementation has been uneven and key areas left 
unaddressed. The authorities intend to enhance the 
macroprudential authority's legal mandate in 2017, 
with full implementation likely to follow in 2018. 
Regarding the housing market, a 22-point plan has 
been put forward including a range of proposals to 
increase  residential  construction  and  improve  the 
efficiency  of  the  housing  sector.  However,  the 
timeline and precise form of implementation often 
remain  uncertain  No  significant  policy  action  has 
been  taken  to  introduce  more  flexibility  in  setting 
rental  prices.  No  progress  has  been  made  on 
interest  deductibility  and 
reforming  mortgage 
introducing  properly-sized 
recurrent  property 
taxes. 

(4)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
the 
country-specific  recommendation 
Overview table in the Annex. This overall assessment does 
not include an assessment of compliance with the Stability 
and Growth Pact. 

is  presented 

in 

to 

Since 2011 the country has each year received a 
recommendation  related 
its  high  and 
persistently  rising  household  debt  and  house 
prices.  The  authorities  have  taken  a  number  of 
policy  steps  to  help  rein  in  mortgage  debt  and 
house  price  growth,  and  the  associated  risk  to  the 
broader economy and the financial system. 

focus  has  so 

far  mainly  been  on 
The 
macroprudential  measures  and  steps  to  tackle 
housing  supply  bottlenecks.  Macroprudential 
measures  include  the  introduction  of  a  loan-to-
value  ceiling  of  85 %  for  mortgages  in  2010,  the 
gradual  raising  of  banks'  risk  weight  floors  for 
mortgages in 2013 and 2014, and the introduction 
of  a  formal  mortgage  amortisation  requirement  in 
June  2016  (see  4.2.3).  While  these  steps  have 
improved the resilience of the banking sector (see 
4.2.1),  they  have  not  been  sufficient  to  rein  in 
household  debt  growth  (see  4.2.3).  Additionally, 
the authorities have gradually introduced measures 
to  streamline  building  and  planning  regulations 
and  have  provided  some  direct  budgetary  support 
for municipalities to encourage more construction. 
This  has  resulted  in  a  significant  pick-up  in 
construction in recent years, albeit to a level that is 
still  insufficient  to  meet  anticipated  demand  (see 
4.2.2).  

(3)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 4. 

9 

 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on CSR assessment (5) 

Source:  European Commission 

(5)  This  table  does  not  include  an  assessment  of  compliance 

with the Stability and Growth Pact. 

10 

Sweden Overall assessment of progress  with 2016 CSRs: Limited CSR 1: Address the rise in household debt by adjusting fiscal incentives, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes. Ensure that the macro-prudential authority has the legal mandate to implement measures to safeguard financial stability in a timely manner. Foster investment in housing and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and by revising the design of the capital gains tax to facilitate more housing transactions. (MIP relevant) Limited progress  No progress on addressing the rise in household debt by adjusting fiscal incentives  Limited progress on enhanced legal mandate for the macroprudential authority  Some progress on fostering investment in housing and improving the efficiency of the housing market   
 
 
                                                           
 
 
 
2. Progress with country-specific recommendations 

11 

 Box 2.1: Contribution of the EU budget to structural change in SwedenThe total allocation of the European Structural and Investment Funds (ESI Funds) in Sweden amounts to EUR 3.6 billion under the current financial framework 2014-2020. This represents an equivalent of around 0.1 % of GDP annually (at 2014-2017) and 2 % of national public investment1. By 31 December 2016, an estimated EUR 1.5 billion, which represents about 42 % of the total allocation for ESI Funds, have already been allocated to concrete projects. Compared with 2007-2013 the use of financial instruments will increase by 76 %.  Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility  and  other  directly  managed  EU-funds  is  additional  to  the  ESI funds. By end 2016, Sweden has signed agreements for EUR 144.4 million for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to EUR 1 billion, which is expected to trigger nearly EUR 3.5 billion in total investments (as of end 2016). All necessary reforms and strategies as required by the ex-ante conditionalities2 to ensure a timely and efficient up-take of the funds have been met prior to programme adoption, although two ex-ante conditionalities were not entirely met. These concern the transposition of the energy efficiency directive (2010/31/EU) and statistical issues for the ESI Funds. However, Sweden has done the necessary to allow the Commission to conclude shortly that all ex-ante conditionalities are met. All relevant CSRs were taken into account when designing the 2014-2020 programmes. The ESI Funds play a role in strengthening employability and job creation, boosting a strong Research and Innovation environment in order to enhance the interaction between research and industry, increase firms' ability to bring their products to market and further improve innovation. The funds also support local and regional development. ESI Funds address, for example, the difficulties for many low educated young persons to match labour market requirements. Up till November 2016, more than 10 000 young people had been supported by measures financed by the Youth Employment Initiative, and 4 000 young people were in employment, education or training after the support had ended. In the area of research and innovation, ESI Funds support Sweden in implementing its smart specialisation strategies. In all eight regions over 5 600 enterprises are involved and will cooperate with research institutes in their areas of excellence.  https://cohesiondata.ec.europa.eu/countries/SE                                                              1 National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries 2 At the adoption of programmes, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and investment conditions for the majority of areas of public investments. For Members States that do not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments.  
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

The  2017  Alert  Mechanism  Report  called  for 
further in-depth analysis to monitor progress in the 
unwinding  of  the  imbalances  identified  in  the 
2016 MIP  cycle.  Because  in  spring  2016  Sweden 
was 
having  macroeconomic 
imbalances  in  the  form  of  high  household  debt 
associated with  high house prices,  a new  in-depth 
review  is  needed  to  assess  how  these  imbalances 
are evolving. 

identified 

as 

This report provides an in-depth review of how 
the  imbalances  identified  have  developed.  In 
particular,  analysis  relevant  to  the  review  can  be 
found in the following sections: the banking sector 
in  Section  4.2.1;  developments  and  drivers  of  the 
housing market in Section 4.2.2; and developments 
in  private  indebtedness,  mainly  households,  in 
Section  4.2.3.  In  addition,  in  Section  4.4.1  the 
report  confirms  last  year's  finding  that  external 
balance and competitiveness are not an imbalance. 

3.1. 

IMBALANCES AND THEIR GRAVITY 

In  particular,  household  debt 

Private  sector  debt  has  increased  further  to 
about  190 %  of  GDP,  among  the  highest  levels 
in  Europe.  Stocks  of  both  household  (88 %)  and 
(105 %)  debt  are 
non-financial  corporations 
significant. 
is 
historically  high,  primarily  due 
to  mortgage 
lending. Potential deleveraging needs are estimated 
at  more  than  20 %  of  GDP  for  households. 
Although households own significant assets, these 
are generally illiquid and their value is exposed to 
market  risks.  Moreover,  the  distribution  of  debt 
across  households 
increasingly 
uneven: the fraction of borrowers with large debt-
to-income  ratios 
increasing, 
particularly  among  younger  households  and  those 
buying properties in major cities. 

is  sizeable  and 

is  becoming 

Corporate  debt,  while  elevated,  is  matched  by 
the  high  value  of  equity.  Despite  the  significant 
stock of debt, financial risks remain limited due to 
healthy  financial  positions,  in  particular  a  low 
leverage  and  strong  profitability. 
degree  of 
Moreover,  external 
funding  exposure,  while 
increasing, remains limited: domestic loans, which 
have  proved  resilient  during  the  crisis,  constitute 

the  main 
corporations.  

funding  source 

for  non-financial 

that  house  prices  are  above 

The  Swedish  economy  has  a 
significant 
exposure to the housing market, which makes it 
vulnerable  to  shocks.  While  most  European 
countries  experienced  a  significant  adjustment  in 
real estate prices during the last decade, in Sweden 
house  prices  have  continued 
to  rise.  Strong 
fundamentals,  such  as  disposable  income  and 
population growth can explain part of the increase, 
but  several  indicators  such  as  price-to-income 
(affordability)  and  price-to-rent  (dividend)  ratios 
suggest 
their 
taxation  and 
fundamental  values.  Distortive 
structural  inefficiencies  in  the  housing  market 
contribute to this overvaluation. Overvalued house 
prices entail risks of a disorderly correction, which 
could  become  more  pronounced  if  interest  rates 
were to rise faster than expected. A sudden house 
price  correction  would  have  adverse  implications 
on  household  consumption,  growth,  employment 
and  ultimately  the  banking  sector,  with  mutually 
reinforcing  dynamics.  The  risks  linked  to  this 
scenario  have  prompted  the  European  Systemic 
Risk Board to issue a formal warning. 

The  banking  sector  is  solid,  but  it  is  only 
partially  shielded  against  an  abrupt  change  in 
house prices. So far banks' assets have performed 
well and the sector has high profitability compared 
to its peers. However, banks rely to a large extent 
on  international  wholesale  funding,  giving  rise  to 
some  degree  of  maturity  mismatch.  Risk  weights 
generated  by  their  internal  models  are  low  and 
might not cater for the risks entailed in the banks' 
strong exposure to household mortgages in case of 
a  sizeable  house  price  correction.  In  a  severe 
housing  market  slump,  this  vulnerability  would 
likely  have repercussions  for  the overall  economy 
and the financial system. Due to the importance of 
Swedish  banks  in  the  region,  the  Danish,  Finnish 
and Norwegian economies might also be affected. 

The persistent current account surplus does not 
reflect  significant  macro  stability  concerns  due 
to  its  drivers,  its  moderate  size  and  its  limited 
investment  being 
spillovers.  With  overall 
relatively  high  and  supporting  future  potential 
low 
growth, 

the  surplus  mainly  stems  from 

12 

 
 
3. Summary of the main findings from the MIP in-depth review 

household  consumption  which  reflects  private 
pension  savings  and  the  situation  on  the  housing 
market. While the surplus remains relatively stable 
at around 5 % of GDP, it increasingly reflects the 
activities  of  Swedish  multinationals  abroad,  with 
limited  ties  to  domestic  investment  and  savings 
decisions. The outward spillovers from the surplus 
via  the  trade  and  financial  channels  also  seem 
limited  at 
the  current  stage  (see  European 
Commission, 2016a, p.35-37). 

relative  to  GDP  is  down  by  about  20  percentage 
points since its peak in 2009. This has mostly been 
the result of 'passive' deleveraging, with net credit 
flows  to  firms  positive  but  outweighed  by  growth 
and  inflation.  Domestic  loans  remain  the  main 
funding  source  of  firms,  but  large  corporations 
increasingly  rely  on  the  bond  market  as  well. 
While this allows for funding alternatives, a higher 
share of bond market financing could expose firms 
more  to  volatility  and  stress  in  the  financial 
markets. 

3.2. 

EVOLUTION, PROSPECTS, AND POLICY 
RESPONSES 

While overall private debt is slowly decreasing, 
household  debt  remains  on  an  upward 
trajectory: household  debt growth stood  at  7.1 %  
year-on-year  in  nominal  terms  as  of  December 
2016, continuing to outpace economic and income 
growth. The increase in mortgage lending is driven 
by  persistent  house  price  rises  coupled  with 
structural  factors  favouring  (mortgage-financed) 
property investment, notably mortgage interest tax 
deductibility, variable rates and long maturities for 
mortgages. This development  makes the economy 
vulnerable to shocks: highly leveraged households 
may  need  to  rapidly  reduce  consumption  to  meet 
rising  mortgage  payments.  The  authorities  have 
gradually  taken  some  policy  action  aimed  at 
curbing household debt growth in recent years. In 
2016  they  introduced  a  mortgage  amortisation 
requirement.  In  addition,  the  government  has 
announced  plans  to  enhance  the  legal  mandate  of 
authority 
the 
macroprudential 
(Finansinspektionen).  This  would  allow 
the 
authority  to  respond  in  a  timely  manner  with  a 
wider  range  of  potential  measures  to  the  risks 
associated with growing household debt.  

So  far,  these  measures  appear  to  have  little 
discernible  impact  on  household  debt  growth. 
Sweden  has  one  of  the  highest  tax  incentives  for 
home  ownership  in  the  EU  due  to  relatively  low 
property  taxes  and  high  mortgage  interest  rate 
deductibility, while the design of capital gains tax 
limits  a  more  efficient  use  of  the  housing  stock. 
These  tax  incentives  contribute  to  the  problem  of 
persistent household debt growth.  

Corporations  have  continued  a  gradual  post-
crisis  deleveraging  process  in  2016,  albeit  from 
level.  Non-financial  corporation  debt 
a  high 

Swedish banking groups have a substantial and 
growing  exposure  to  household  mortgages,  but 
banks'  capital  buffers  appear  sufficient  to 
support  this.  The  short  term  risks  of  household 
debt service problems seem limited, given the low 
interest  expenditure.  At 
the 
stretched housing market valuations and high debt 
levels  compared  to  income  make  the  household 
sector  vulnerable  to  shocks.  However,  the  2016 
EU-wide  European  Banking  Authority  stress  tests 
showed that banks' capital buffers were more than 
sufficient  to  absorb  losses  under  such  an  adverse 
scenario.  

the  same 

time, 

House  prices  have  grown  almost  continuously 
in the last 20 years, and have been accelerating 
since 2012: real house price growth reached 12 % 
in 2015, among the highest in Europe. Contrary to 
most  European  countries,  Sweden  experienced  no 
major  correction  in  house prices  during  the  crisis, 
and shows no sign of a correction in the short term. 
House price increases have been particularly steep 
in  the  Stockholm  and  Gothenburg  areas.  This 
persistent  price  growth  is  partly  the  result  of  a 
structural  undersupply  of  houses:  housing 
construction has continued to increase, but remains 
insufficient  to  address  the  sharply  rising  housing 
demand.  

Policy  measures  implemented  so  far  have  not 
curbed house price increases. In particular, a new 
mortgage  amortisation  requirement  for  new  loans 
with  a  loan-to-value  ratio  above  50 %  came  into 
force  in  June  2016,  but  this  does  not  appear  to 
have had a significant impact on price growth yet. 
In  addition,  a  reform  of  the  capital  gains  tax 
deferral rules for housing transactions has recently 
been  adopted,  with  a  view  to  improving  housing 
market liquidity and owner-occupier mobility. The 
authorities  have  also  put  forward  a  22-point  plan 
land 
with  measures 

increase  developable 

to 

13 

 
3. Summary of the main findings from the MIP in-depth review 

availability,  reduce  construction  costs  and  shorten 
planning  process  lead  times,  as  well  as  some 
specific rental market reforms. 

macroprudential  framework,  the  functioning  of 
housing supply and of the rental market. 

However,  there  are  still  policy  gaps.  The 
availability  of  land,  complex  planning,  building 
regulations,  lack  of  municipalities'  incentives  to 
support  new  construction,  public  infrastructure 
design,  weak  competition  in  the  construction 
sector  and  the  high  level  of  rent  control  have  not 
yet been addressed. 

3.3.  OVERALL ASSESSMENT 

the 

vulnerability 

Sweden  faces  significant  sources  of  imbalances 
in the form of high private debt and overvalued 
and still rising house prices. The elevated private 
indebtedness, in particular of households, increases 
the 
to 
of 
macroeconomic  shocks.  Large  deleveraging  needs 
may  potentially  lead  to  a  harmful  correction  in 
consumption,  investment  and  credit  flows.  House 
prices  appear 
to  be  significantly  overvalued, 
entailing  risks  of  a  disorderly  correction.  A  large 
correction may have negative spill over effects on 
other  Nordic  countries 
the  financial 
system.  

economy 

through 

structural 

rises  coupled  with 

indebtedness.  Household  debt 

While  corporates  are  slowly  deleveraging, 
surging  house  prices  have  led  to  increased 
household 
is 
continuing  to  grow  rapidly  from  a  level  that  is 
historically  elevated,  driven  by  persistent  house 
factors 
price 
favouring 
property 
(mortgage-financed) 
investment.  The  current  drivers  of  house  price 
growth are projected to remain in place in the short 
and  medium  term  in  the  absence  of  a  policy 
intervention.  Overvalued  house  prices  entail  risks 
of a disorderly correction. The overall shortage of 
housing  supply  can  also  hamper  labour  mobility 
and  is  further  exacerbated  by  the  large  recent 
inflow of migrants in need of affordable housing. 

The  policy  measures  taken  to  address  these 
imbalances  have  so  far  been  insufficient.  The 
authorities  have  gradually  taken  some  policy 
action aimed at curbing household debt growth in 
recent  years,  but  these  policy  measures  appear  to 
have  had  little  discernible  impact  on  house  price 
and  indebtedness  growth.  Overall,  policy  gaps 
remain in the areas of housing-related taxation, the 

14 

 
 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP assessment matrix (*) - Sweden 2017 

(Continued on the next page) 

15 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Private debt  (see 4.2.3) Sweden continues to have one of the highest levels of private debt in the EU, at close to 190 % of GDP at the end of 2015. A large part of the debt is financed from abroad, as the net external debt stood at 46.3 % of GDP at end-2015. High private indebtedness increases the country's vulnerability to macroeconomic shocks, as subsequent deleveraging may lead to sharp corrections in consumption and investment.  Household debt continued to grow in 2015, increasing by 7.4 % in nominal terms over the year, significantly outpacing GDP growth. As a result, household debt stood at 176 % of disposable income and 84 % of GDP at end-2015. The Riksbank projects that household debt will be well over 190 % of disposable income by the end of this decade.  In June 2016, a formal mortgage amortisation requirement for new loans with a loan-to-value ratio above 50 % came into force.   In addition, the Swedish authorities have put forward plans to enhance the macroprudential authority's legal framework, so that the authority can respond in a more timely manner and use a wider range of measures to address the risks associated with growing household debt.  Households have good repayment ability and assets, but the distribution of debt and assets is uneven and a large part of household assets is exposed to liquidity and/or market risks.  Policy gaps remain regarding the incentives to take on mortgage debt. The full and unconditional tax deductibility of mortgage interest payments and the low ceiling on recurrent property taxation have not been reformed.   The Swedish macroprudential authority has put forward proposals for introducing debt-to-income caps, but currently lacks the legal mandate to proceed with implementation.   Corporate debt is above the EU average, but it is matched by the high value of corporate assets and significant equity cushions. It mainly reflects a large share of international companies. Exposure to external financing is high. Banks are well capitalised, non-performing loans remain among the lowest in the EU, and profitability is among the highest. These indicators somewhat mitigate, but do not fully offset, risks stemming from high private sector indebtedness. The Swedish banking sector serves a large share of the market in the Nordic-Baltic countries, thereby being the source of possible spillovers in the event of sudden deleveraging needs. (See 4.2.1). Corporate debt has remained broadly stable.     
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(*) The first column summarises "gravity" issues which aim at providing an order of magnitude of the level of imbalances. The 
second column reports findings concerning the "evolution and prospects" of imbalances. The third column reports recent and 
planned relevant measures. Findings are reported for each source of imbalance and adjustment issue. The final three 
paragraphs of the matrix summarise the overall challenges, in terms of their gravity, developments and prospects, policy 
response. 
Source: European Commission 

16 

Housing sector  (see 4.2.2) Swedish house prices appear to be significantly overvalued, as suggested by a more than 35% average deviation from long-term averages for price-to-rent, price-to-income ratios and expected prices based on a fundamental valuation model (as of end-2015).  This is due to a combination of structural bottlenecks to housing supply, especially in the main urban areas, combined with favourable tax treatment of home ownership and mortgage debt. Overvalued and still growing house prices combined with a large mortgage debt stock entail risks of a disorderly correction and adverse consequences for the real economy and the banking sector. House prices have grown almost continuously in the last 20 years. Real house price growth accelerated to 12% in 2015, the highest rate in the EU. House price increases have been particularly steep in the Stockholm area. Risks of a sudden correction could become more pronounced if interest rates were to rise faster than expected. Housing investment has rebounded sharply in recent years, albeit from very low levels. Despite the strong pick-up in construction, new housing supply continues to fall short of projected needs. The housing shortage is further exacerbated by the large recent inflow of migrants in need of affordable housing. In addition to the mortgage amortisation requirement came into force in June 2016, a reform of the capital gains tax deferral rules for housing transactions has recently been adopted, with a view to improving owner-occupier mobility.  The Swedish authorities put forward a 22-point plan including a range of proposals to increase developable land availability, reduce construction costs and shorten planning process lead times, as well as some specific rental market reforms. However, policy gaps remain, in particular regarding complex planning and building regulations, revision of municipalities' incentives to support new construction, weak competition in the construction sector and the high level of rent control. Conclusions from IDR analysis  Sweden is characterised by important sources of stock imbalances in the form of high household debt associated with high and overvalued house prices, which represents a risk as it exposes Sweden to potential adverse shocks and a possible disorderly correction with harmful implications for the real economy and the banking sector and possible spillovers to countries with a strong presence of Swedish banks.  Household indebtedness keeps growing and house prices are continuing to rise at an elevated pace. The current drivers of house price growth are likely to remain in place in the short- and medium term.  Some policy measures have been taken in recent years to address Sweden's rising household debt, especially in the area of macroprudential policy. However, these measures remain insufficient to address the growing imbalances. Overall, policy gaps remain in the area of housing-related taxation, the macroprudential framework, the functioning of housing supply and the rental market.   
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

Public finances are robust. Sweden is set to have 
achieved  a  surplus  in  2016,  in  spite  of  spending 
increases  related  to  migration.  The  debt-to-GDP 
ratio  is  expected  to  continue  to  fall  well  below 
40 % in 2018. 

Recent amendments to the fiscal framework are 
expected  to  further  strengthen  public  finances. 
They  aim  to  provide  the  necessary  margin  for 
automatic stabilisers to play their role in a context 
of  a  somewhat  weaker  economic  activity  in  the 
coming  years.  The  country  appears  to  face  no 
major  fiscal  sustainability  risks  in  the  medium 
long-term  risks 
term.  However,  some  minor 
remain,  mainly  linked  to  the  projected  impact  of 
age-related public spending.  

4.1.1.  FISCAL FRAMEWORK 

Building  on  its  strong  institutional  set-up  and 
extensive  track  record  of  fiscal  soundness,  the 
authorities  recently  announced  some  fiscal 
governance  reform.  After  more  than  a  year  of 
deliberation,  a  dedicated  parliamentary  committee 
(Surplus  Target  Committee)  presented  its  final 
report  in  September  2016  (SOU,  2016a) (6)  with 
the  agreement  of  seven  out  of  eight  represented 
political  parties.  Given 
the  broad  political 
consensus,  it  is  now  expected  that  the  reform 
proposals  will  be 
in  an  updated 
government  communication  on  the  fiscal  policy 
framework.  The  main  conceptual  pillars  of  the 
framework would essentially remain in place, with 
some numerical modifications and clarifications.  

included 

One  of  the  main  proposed  reforms  is  the 
lowering  of  the  1 %  of  GDP  surplus  target 
defined  over  the  cycle  (in  place  since  2007)  to 
0.33 %  of  GDP  from  2019  onwards.  This 
reduction  will  continue  to  allow  Sweden  to 
partially  accommodate  the  projected  increase  in 
the costs of the pensions system while maintaining 
economic 
adequate 

safety  margins 

for 

fluctuations (7).  The  authorities  explained  that  the 
rationale  behind  this  decision  lies  in  the  fact  that 
the  country's  fiscal  position  is  robust  enough.  In 
parallel, the mechanism for monitoring the revised 
thereby 
target  would  be  clarified, 
surplus 
addressing  shortcomings  identified,  inter  alia,  by 
the  European  Commission  and  adding  credibility 
to the new target. So far the fulfilment of the target 
has  been  measured  by  a  number  of  indicators 
(including  7-  and  10-year  averages)  without 
specifying the relative weights assigned to each of 
them.  It  is  now  proposed  to  use  the  structural 
balances in the current and the subsequent year to 
establish  whether  a  deviation  from  the  surplus 
target  had  taken  place.  If  in  these  two  years  the 
structural balance clearly deviated from the surplus 
target,  the  government  must  adopt  an  adjustment 
plan  with  a  specified  end  date  for  public  finances 
to return to the target.  

to  complement 

The  reform  proposes 
the 
reduction  of  the  surplus  target  with  additional 
amendments  to  the  framework.  These  include  a 
new  debt  anchor,  a  reinforcement  of  the  role  and 
the  independence  of  the  Fiscal  Policy  Council 
regular 
rådet), 
(Finanspolitiska 
comprehensive reviews:  

and 

  The  debt  anchor,  set  at  35 %  of  GDP  for  the 
general government debt aims to better link the 
conduct  of  fiscal  policy  to  the  objective  of 
long-term sustainability. Should the public debt 
ratio differ from the anchor by more than 5 pps, 
the  government  would  be  required  to  explain 
the  reasons  for  the  deviation  and  present 
corrective 
special  written 
steps 
communication to Parliament. 

in 

a 

  The Fiscal Policy Council will be reinforced by 
(i) assigning to it a more prominent role in the 
monitoring of the surplus target; (ii) making the 
the  Council's 
nomination  procedure  of 
(iii) 
and 
members  more 
regular 
mandating 

independent; 
the  Council  with 

the 

(6)  The  English  summary  of  the  report  is  available  at: 
http://www.government.se/globalassets/government/dokum
ent/finansdepartementet/pdf/publikationer-infomtrl-
rapporter/summary---a-review-of-the-surplus-target 

(7)  The  country's  medium-term  objective  will  not  be  directly 
affected by this change, as it remains at a structural deficit 
the  SGP 
of  1 %  of  potential  GDP  (in 
requirements). 

line  with 

17 

 
 
                                                           
                                                           
4.1. Public finances and taxation 

evaluation 
forecasts.  

of 

the 

official  macro-fiscal 

thermal effect of nuclear power plants and to lower 
the property tax on hydro power plants. 

4.1.3.  PUBLIC DEBT SUSTAINABILITY  

Sweden appears to face low fiscal sustainability 
risks  in  the  medium  to  long  term.  Government 
debt stood at 41.0 % of GDP in 2016, well below 
the  60 %  of  GDP  Treaty  reference  value,  and  is 
expected to decrease to 37.6 % of GDP by 2018. In 
the longer run, pension reforms implemented in the 
past are projected to contain pension expenditure. 

Public  expenditure  on  long-term  care  (LTC)  is 
projected to increase at the same rate as the EU 
average.  Demographic  changes  mean  LTC 
spending can be expected to increase significantly, 
from 3.6 % of GDP in 2013 (among the highest in 
the  EU)  to  5.1 %  of  GDP  in  2060  (European 
Commission,  2015b).  This  corresponds  to  a  41 % 
increase,  similar  to  the  EU  average.  The  share  of 
the  population  that  receives  LTC  benefits  is 
relatively  high  by  EU  standards,  whereas  the 
by 
underlying 
indicators (8)  is  broadly  in  line  with  the  EU 
average.  

suggested 

level 

need 

of 

The LTC  sector  is not fully efficient.  Resources 
are not always targeted at those that need care the 
most  and  can 
it. 
least  afford 
Additionally, the proportion of recipients receiving 
care in an institutional setting (rather than at home) 
and  the  role  of  in-kind  benefits  (rather  than  cash) 
to  support  LTC  recipients  are  relatively  high  and 
reduce the flexibility of the system.  

to  pay  for 

(8)  Such as the percentage of the population reporting a long-
standing illness or health problem and the percentage of the 
population reporting severe limitations in daily activities. 

  Regular 

reviews  of 

the  Swedish 

fiscal 
governance  framework  are  planned  every  8 
years,  and  focus  on  the  adequacy  of  the 
numerical  targets  in  the  light  of  economic  and 
demographic trends.  

4.1.2.  TAXATION DEVELOPMENTS 

Sweden’s  general  level  of  taxation  is  relatively 
high compared with other EU countries. The tax 
burden is 44.2 % of GDP compared with 40.0 % at 
EU  level.  Given  the  authorities’  intention  to 
the 
investments 
prioritise  public 
integration  and  reception  of  refugees,  climate 
transition  and  gender  equality  over  tax  cuts,  the 
level is expected to remain broadly unchanged. 

related 

to 

The  2017  budget  bill  has  introduced  limited 
changes to the tax regime. The country has one of 
the  highest  ratios  in  the  EU  of  taxes  relative  to 
GDP  on  production  and  imports  and  on  income 
and wealth. The new budget bill has only included 
some  limited  adjustments  to  the  lower  and  upper 
brackets of the national personal income tax. 

relatively  high 

level  of  household 
The 
indebtedness 
is  a  key  challenge  and  tax 
measures  could  play  a  role  in  mitigating  it.  A 
revision  of  taxation  related  to  housing,  such  as 
interest  deductions  and  recurrent  property  tax,  is 
not  envisaged.  The  lack  of  reforms  in  this  area 
risks  contributing 
in 
to  a 
household  debt  (see  Section  4.2).  While  recurrent 
property  taxes  are  considered  to  be  among  the 
most  growth-friendly  and  least  distortive  taxes, 
revising  the  generous  interest  deductions  could 
increase  tax  revenues  when  interest  rates  start 
rising from the currently very low level. 

increase 

further 

Tax  reforms  also  intend  to  further  increase 
employment  and  promote  a  greener  and  more 
sustainable  economy.  To  promote  job  creation 
and  entrepreneurship,  the  2017  budget  includes  a 
few  changes  to  the  tax  system,  namely  incentives 
for  the  self-employed  to  hire  new  staff  and  the 
introduction  of  a  value  added  tax  exemption  for 
small  enterprises.  To  make  the  economy  greener, 
the budget includes some proposals in the field of 
energy taxation: to gradually phase out the tax on 

18 

 
 
 
                                                           
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR (*) (9) 

Overview 

In  recent  decades  the  Swedish  banking  sector 
has grown significantly and now dominates the 
Nordic-Baltic  financial  markets.  Its  assets  are 
three  times  as  large  as  Sweden’s  GDP,  while  its 
equity  has  remained  broadly  stable  relative  to 
assets (Graph 4.2.1). 

Graph 4.2.1:  Banking system assets relative to GDP (%) 

September  2016,  while  the  average  leverage  ratio 
of the four main Swedish banks was 4.4 %. 

Graph 4.2.2:  Swedish banks CET 1 capital relative to risk-
weighted and total assets (%) 

Source: Riksbank 

Source: Riksbank 

Bank  capital  adequacy  ratios  —  measured 
relative  to  risk-weighted  assets  —  have  also 
increased  over  time.  The  average  Common 
Equity  Tier  1  (CET 1)  ratio  was  at  19.2 %  at  end 
September  2016,  among  the  highest  in  the  EU 
(Graph 4.2.2). 

However,  this  capital  ratio  strengthening  is 
mainly  due  to  the  progressive  lowering  of 
banks’  risk-weighted  assets  density.  Partly  due 
to  the  removal  of  Basel I  risk  weight  floors  from 
exposure  calculations (10), 
risk 
weighting of bank assets has fallen in recent years, 
mechanically leading to a rise in capital adequacy 
ratios.  Conversely,  capital  adequacy  measures  in 
relation  to  total  (non-risk-weighted)  assets  have 
remained  essentially  stable  over  time  (Graph 
4.2.2).  On  average,  total  CET 1  capital  accounted 
for  about  3.8 %  of  banks’  balance  sheets  at  end 

the  average 

(9)  An  asterisk  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
Section 3 for an overall summary of main findings). 

(10)  This  was  done  in  the  context  of  the  Capital  Requirements 
Directive IV in 2014 (European Commission, 2015a). 

Improving  capital  ratios  are  also  linked  to  the 
introduction  of  special  capital  buffers  by  the 
macroprudential  authority.  Sweden  is  the  only 
EU  country  that  has  a  non-zero  countercyclical 
capital  buffer  (CCB)  rate.  The  CCB  was  already 
activated at 1 % in 2014, and has been increased to 
1.5 %  (applicable  from  27 June  2016)  and  further 
to  2 %  (from  19 March  2017).  Its  aim  is  to  avoid 
the  build-up  of  financial  imbalances  given  the 
present  phase  of  its  macroeconomic  and  financial 
cycle. The requirement on CET 1 for large banks is 
also higher than in other EU countries. It amounts 
least  12 %  (versus  a  7 %  minimum 
to  at 
the 
requirement  for  all  EU  banks)  due 
largest  banks  as 
the 
identification  of 
‘systemically 
(SII), 
important 
reflecting their structural systemic risks (11). 

institutions’ 

four 

to 

Bank  profitability  is  among  the  highest  in 
Europe.  According  to  the  European  Banking 
Authority  (EBA),  the  sector’s  return  on  equity  as 
of  September  2016  was  13 %  on  average 
(Graph 4.2.3),  more  than  double  the  5.4 %  EU 
these  positive  results  are 
average.  However, 

(11)  For  each  SII,  an  SII  buffer  and  a  systemic  risk  buffer 
(SRB)  are  set.  Since  only  the  highest  buffer  applies,  the 
applicable buffer for all four banks is the SRB, which has 
been set at 3 %. In addition, a Pillar 2 add-on requirement 
of  2 %  has  been  introduced  by  the  Financial  Supervisory 
Authority (FSA) (Finansinspektionen). 

19 

050100150200250300350400758085909500051015%Total assets / GDP051015202508Q109Q110Q111Q112Q113Q114Q115Q116Q1%CET1 capital / risk-weighted assetsCET1 capital / total assets 
 
 
                                                           
 
                                                           
4.2. Financial sector 

largely dependent  on  the  low  risk-weighted assets 
density  of  banks  and,  consequently,  on  their  low 
equity  base  relative  to  their  total  balance  sheet 
size. 

Graph 4.2.3:  Banking system return on equity (%), Q3 2016 

Graph 4.2.4:  Share of non-performing loans in total loan 

book (%), Q3 2016 

Source: European Banking Authority 

the  EBA, 

the  banking  sector,  also 
other  EU 
to 

Good  asset  quality  has  so  far  been  a  major 
in 
strength  of 
countries 
comparison  with 
(Graph 4.2.4).  According 
in 
the  average  non-performing 
September  2016 
loanratio  was  around  1.0 %,  one  of  the  lowest  in 
the  EU  and  well  below  the  EU  average  of  5.4 %. 
High payment capacity and discipline of borrowers 
contribute  to  this  low  level.  In  addition,  the  very 
efficient public framework for debt collection also 
plays a substantial role. The average coverage ratio 
of non-performing loans is 28.6 %, lower than the 
EU average of 43.9 %. 

Source: European Banking Authority 

Key risks and stress test results 

increasingly  stretched  compared 

The  exposure  of  Swedish  banking  groups  to 
household mortgages has grown substantially in 
recent  years.  This  increase  happened  against  a 
background  of  rising  mortgage  demand  driven  by 
falling interest rates and steep house price inflation 
(see  4.2.3).  While  household  debt  levels  are 
to 
becoming 
incomes,  expenditure  on  interest by  households  is 
at historical lows (Graph 4.2.5). This suggests that 
there  is  limited  immediate  risk  of  debt  service 
problems.  Nevertheless,  the  combination  of  ever 
higher  housing  market  valuations  (Graph  4.2.7) 
and  high  debt  levels  makes  the  household  sector 
vulnerable  to  shocks  (see  ‘Risks  and  policy 
response’ under 4.2.3). In a severe housing market 
slump,  it  is  likely  that  this  vulnerability  would 
have  repercussions  for  the  overall  economy  and 
the  financial  system.  Due  to  the  importance  of 
Swedish  banks  in  the  region,  the  Danish,  Finnish 
and Norwegian economies might also be affected. 

20 

-15-10-50510152025HUROBGCZLVSKSEEEHRMTPLLTSIDKBEIENLATFIFRESLUEUCYGBDEITPTGR%05101520253035404550GRCYPTITSIIEBGHUROHRPLESATEUMTSKLTFRLVBEDKNLDECZGBFIEELUSE% 
 
 
4.2. Financial sector 

capital 

requirements,  pointing 

flagged  the  importance  of  introducing  a  leverage 
ratio  requirement  as  a  complement  to  the  risk-
weighted 
to 
shortcomings in the latter that could lead to banks 
holding  insufficient  capital.  For  the  same  reason, 
the  Riksbank  has  also  suggested  that  there  are 
grounds  to  consider  a  further  tightening  of  the 
requirements 
existing 
(Sveriges Riksbank, 2016). 

risk-weighted 

capital 

Macroprudential policy steps 

a 

has 

above 

range 

(100 %) 

requirements 

(Finansinspektionen) 

of 
implemented 
Sweden  has 
macroprudential  measures  to  rein  in  the  risks 
associated  with  growing  mortgage  debt  and 
house  prices.  As  mentioned 
(see 
‘Overview’),  the  Financial  Supervisory  Authority 
(FSA) 
gradually 
introduced  a  number  of  special  capital  buffers  for 
banks.  In  addition,  since  2007  the  FSA  applies 
risk 
stricter 
weighting  on  exposures  secured  by  mortgages  on 
commercial  real  estate,  and  in  September  2014  it 
introduced a risk weight floor increase from 15 % 
to  25 %  on  residential  mortgages  for  banks 
applying 
rating-based  approach. 
Furthermore,  it  also  introduced  a  number  of 
specific  macroprudential  measures  to  curb  the 
trend of rising house prices coupled with growing 
household 
the  new 
amortisation requirement for residential mortgages 
(see ‘Risks and policy response’ under 4.2.3).  

indebtedness, 

such  as 

internal 

the 

the 

for 

related 

impact, 

concerns 

(Sveriges 

Riksbank, 

As these macroprudential measures have shown 
little 
to 
macroeconomic  and  financial  stability  have 
been  raised.  Mortgage  debt  has  continued  to 
income  growth,  and  property  prices 
outpace 
continue to climb from already elevated levels. For 
this  reason,  several  Swedish  and  international 
institutions 
2016; 
Finansinspektionen,  2016a;  IMF,  2016;  European 
Commission,  2016a)  have  flagged  the  increasing 
macroeconomic  and  financial  stability  risks.  In 
addition,  the  European  Systemic  Risk  Board 
(ESRB)  —  which  in  2016  conducted  an  EU-wide 
forward-looking  assessment  of  the  residential  real 
estate  sector  in  EU  countries  —  issued  a  formal 
warning  to  Sweden  (as  well  as  to  seven  other 
Member States) on the existence of vulnerabilities 
in  the  residential  real  estate  sector.  This  warning 
was made public on 28 November 2016. 

Graph 4.2.5:  Household interest payments as percentage of 

income 

Source: Riksbank 

international 

reliance  on 

A  housing  market  downturn  could  result  in 
rising  funding  costs  for  Swedish  banks,  given 
their 
financial 
markets. The loan-to-deposit ratio stood at 213 % 
that  domestic 
in  September  2016,  showing 
deposits  fund  less  than  half  of  the  banks’  loan 
portfolio.  To  cover  this  funding  gap,  banks  issue 
debt  securities,  which  are  largely  purchased  by 
foreign  investors.  Therefore,  if  foreign  investors’ 
perception  of  risks  in  the  banking  sector  were  to 
deteriorate,  this  could  result  in  a  sudden  rise  in 
bank funding costs, thus amplifying the impact of 
any domestic house market fall. 

The 2016 EU-wide EBA stress test suggests that 
the  four  major  Swedish  banks  are  at  little  risk 
of  a  capital  shortfall.  Their  capital  buffers  were 
found  to  be  more  than  sufficient  to  absorb  losses 
under the adverse scenario. The decline in the fully 
loaded  CET 1  (i.e.,  net  of  transitional  effects) 
ratios in this scenario ranged from 187 basis points 
(bps)  for  Swedbank  to  270  bps  for  Svenska 
Handelsbanken  (around  234  bps  on  average), 
bringing  them  across  the  sample  to  an  average 
CET 1 ratio of 16.6 % at the end of 2018, which is 
much higher than the 9.2 % average for the entire 
sample of EU banks. 

Nonetheless,  due  to  the 
low  risk  weights 
generated  by  Swedish  banks’  internal  models, 
some  concerns  remain  about  the  vulnerability 
of the banking sector. The Riksbank has recently 

21 

02468101272757881848790939699020508111417%Interest ratioForecast 
 
Following  changes  in  the  legal  structure  of  the 
Nordea group, the FSA’s responsibilities for the 
Nordic region have become substantially larger, 
stressing  the  importance  of  a  flexible  and 
effective  macroprudential  mandate  for  the 
FSA (12).  On  1 January  2017  the  Nordea  group, 
which  is  active  across  all  Nordic  and  Baltic 
countries,  turned  most  of  its  subsidiaries  into 
branches. Before this legal change the subsidiaries 
in Finland, Denmark and Norway were supervised 
by  the  respective  national  competent  authorities 
(the  ECB  in  Finland).  In  compliance  with  the 
Capital  Requirements  Directive  IV  (CRD  IV), 
which  assigns the  supervision of foreign branches 
to  the  home  competent  authority,  the  FSA  is  now 
responsible  for  supervising  these  former  foreign 
subsidiaries.  As  almost  two-thirds  of  Nordea’s 
lending  takes  place outside  Sweden,  this  allocates 
a sizeable additional responsibility to the FSA and 
also  has  resource  implications.  To  deal  with  the 
new  situation,  the  Nordic  financial  supervision 
the  ECB  have  established 
authorities  and 
arrangements (13) 
framework 
concerning 
information sharing, supervisory responsibility and 
cooperation,  macroprudential  policy,  depositor 
protection and recovery and resolution planning. In 
the  ongoing  review  of  the  FSA’s  mandate  (see 
‘Risks and policy response’ under 4.2.3), it would 
be  desirable  to  take  proper  account  of  its  wider 
responsibility  for  the  financial  system  in  the 
Nordic region. 

(12)  Currently Swedish laws do not provide the FSA with swift 
procedures  to  use  macroprudential  tools  not  explicitly 
considered  in  CRR/CRD  IV  such  as:  mortgage  maturity 
restrictions,  maximum  loan-to-income,  debt-to-income  or 
debt-service-to-income and other similar measures. 

(13)  Memorandum 

of 

Understanding 

between 
Finansinspektionen  (Sweden),  Finanstilsynet  (Norway), 
Finanstilsynet  (Denmark),  Finanssivalvonta  (Finland)  and 
the  ECB  on  prudential  supervision  of  significant  branches 
in Sweden, Norway, Denmark and Finland of 2 December 
2016;  Memorandum  of  Understanding  between 
the 
Finnish, Norwegian and Swedish Ministries of Finance and 
the  Danish  Ministry  of  Business  on  cooperation  regarding 
significant  branches  of  cross-border  banking  groups  of 
9 December  2016;  Memorandum  of  Understanding  on 
cooperation 
cross-border 
establishments  between  the  central  banks  of  Denmark, 
Estonia,  Finland,  Iceland,  Latvia,  Lithuania,  Norway  and 
Sweden of 15 December 2016. 

banks  with 

regarding 

4.2. Financial sector 

4.2.2.  HOUSING MARKET (*) 

Housing market developments 

Sweden  has  experienced  rapid  and  persistent 
house price growth since the mid-1990s. This is 
in  part  driven  by  global  economic  trends,  notably 
falling  interest  rates  and  generally  favourable 
credit conditions. Nevertheless, the country stands 
out as one of the very few European countries that 
have experienced strong house price inflation both 
before  and  after  the  financial  crisis,  without  any 
significant corrections (Graph 4.2.6). In 2015, real 
house prices rose by 12 % year-on-year (13.1 % in 
nominal terms) — among the highest growth rates 
in the EU. Over the course of 2016, price inflation 
cooled somewhat compared to 2015, but remained 
well  above  income  growth:  it  stood  at 8.6%  year-
on-year  (in  nominal  terms)  as  of  December 
2016 (14). 

Graph 4.2.6:  Real house price evolution (indexed, 

2010=100) 

Source: European Commission 

becoming 

valuations 

While  this  rapid  house  price  growth  is  partly 
driven by strong fundamentals, indicators point 
to 
increasingly 
overstretched.  Population  and  income  growth 
levels  have  been  well  above  the  EU  average  over 
the past decade and there has been a trend towards 
urbanisation, 
increasing 
some 
fundamental 
justification  for  relatively  strong 
house price rises. Nevertheless, there appears to be 

suggesting 

(14)  2016  price  growth  estimate  based  on  NASDAQ  OMX 

Valueguard-KTH housing market index. 

22 

607080901001101201301401500506070809101112131415HPI (2010 = 100)SwedenEU averageDenmarkFinlandNetherlandsUnited Kingdom 
                                                           
 
                                                           
4.2. Financial sector 

reinforcing  dynamic  of  rising  house  prices  and 
rapid indebtedness growth is a major vulnerability 
for Sweden, and triggered a formal warning by the 
European Systemic Risk Board (see 4.2.1). 

from 

returns 

tax  system, 

The tax system favours owner-occupied housing 
over  other 
investments,  particularly  when 
financed  by  mortgage  debt.  Under  the  dual 
income 
financial 
investments  are  normally  taxed  at  a  flat  capital 
income rate of 30 %. However, imputed rents (the 
effective  return  to  a  homeowner  on  his  housing 
investment)  are  not  subject  to  taxation.  This  is  to 
some  extent  compensated  by  taxation  of  property 
ownership.  Because  this  annual  property  tax  is 
subject to a low ceiling(15), the outcome is a highly 
treatment  of  owner-occupied 
favourable 
housing compared to other investments, and a low 
overall  tax  take  from  property  by  international 
standards  (European  Commission,  2016a,  p. 30). 
is 
Additionally, 
generally  deductible  at  the  30 %  capital  income 
rate(16), providing an effective subsidy for funding 
a  property  purchase  using  mortgage  debt.  From  a 
household’s perspective, this further favours (debt-
financed)  home  ownership  both  over  other 
investment  opportunities  (which  typically  cannot 
easily  be  used  as  collateral  for  loans)  and  over 
rental housing. 

interest  paid  on  mortgages 

tax 

Reforming  the  favourable  tax  treatment  of 
home ownership and mortgages could help curb 
house  price  and  household  debt  growth,  while 
simultaneously  promoting  employment  and 
consumption. A gradual phasing out of mortgage 
interest  tax  relief  and/or  introduction  of  properly-
sized  recurrent  property  taxes  would  create  fiscal 
room to reduce taxes on labour income, among the 
most distortive for growth (European Commission, 
2014).  Additionally,  such  reforms  would,  by 
design, reduce demand for housing and mortgages. 
Simulations  using  the  European  Commission’s 

(15)  The  nominal  tax  rate  of  the  local  property  fee  (kommunal 
fastighetsavgift)  is  0.75 %  of  assessed  value  for  most 
houses and 0.3 % for apartments, but the tax is capped at a 
relatively  low  level  (as  of  2016,  SEK 7 412  or  EUR 783 
and  SEK 1 268  or  EUR 134  per  year  for  houses  and 
apartments  respectively).  In  practice, 
therefore,  most 
owners pay a flat  fee that does not scale up with property 
value or imputed rent level. 

(16)  If  mortgage  interest  exceeds  available  capital  income 
(taxed  at  a  flat  rate  of  30 %),  the  excess  is  applied  as  a 
credit against the labour income tax liability, at a credit rate 
of  30 %  for  losses  up  to  SEK 100 000  (EUR 10 561)  and 
21 % above this amount. 

a significant and growing disconnect between price 
levels  and  fundamentals  (European  Commission, 
2016a).  As  of  end-2015,  a  combination  of 
valuation indicators suggests that house prices are 
overvalued  by  about  35 %  —  among  the  highest 
levels  in  the  EU  (Graph  4.2.7).  While  such 
valuation  estimates  should  be  interpreted  with 
care, they do highlight the potential vulnerabilities 
linked  to  the  housing  market.  They  are  also 
consistent  with  the  observation  that  house  price 
growth  has  been  boosted  by  a  number  of  well-
known structural issues distorting demand, supply 
and allocative efficiency in the housing market. 

Graph 4.2.7:  Valuation gap estimates and recent house 

price growth: Sweden versus other EU 
countries 

(1) Valuation gap estimate is based on an average of 
price/income, price/rent and fundamental model-based 
valuation indicators. 
Source: European Commission, Bank of International 
Settlements 

Demand-side issues 

in 

The impact of falling mortgage rates on housing 
demand  has  been  amplified  by  several  specific 
structural  features  of  the  Swedish  mortgage 
market.  Monetary  policy  in  Sweden  has  become 
recent  years 
increasingly  accommodative 
against  a  backdrop  of  muted  global  growth  and 
inflation (see Section 1). While a continued fall in 
interest  rates  inevitably  acts  as  a  natural  tailwind 
for  the  property  market,  long  contract  maturities, 
repayment) 
(i.e. 
low 
requirements  and  a  high  share  of  variable-rate 
mortgages  (see  4.2.3  for  details)  have  augmented 
this  effect.  As  a  result,  debt  service  costs  relative 
to incomes have fallen to post-crisis lows even as 
house  prices  and  debt  levels  have  continued  to 
climb  (Finansinspektionen,  2016b).  This  mutually 

amortisation 

capital 

23 

BEDEIEELESFRITCYLUMTNLATPTSISKFIBGCZDKEELVLTHUPLROSEUKHR-10-505101520-30-20-10010203040House price y-o-y real growth, 2016Q1 (%)Estimated valuation gap, 2015 (%)Correcting from overvaluedlevelsOvervaluedand still growingRecovering from undervalued Undervalued and falling 
 
                                                           
4.2. Financial sector 

Graph 4.2.8:  Housing starts, including net conversions, 

versus projected need 

Source: Statistics Sweden (historical data); Boverket 
(estimates for 2016, 2017 and projected need) 

has 

building 

While 
increased 
activity 
significantly  in  recent  years,  relative  to  the 
rapid  house  price  growth  the  construction 
supply response remains rather weak. In spite of 
the rapid growth in house prices (and high absolute 
price levels) by international standards, residential 
investment  as  a  share  of  GDP  remains  somewhat 
below  the  EU  average.  Direct  measures  of  the 
supply response to house price rises also show that 
Sweden  has  significantly  underperformed  peer 
countries  in  this  respect  (Graph  4.2.9).  This  is 
further confirmed by supply elasticity analysis for 
different regions within Sweden (IMF, 2015). 

boost 

long-term 

employment 

QUEST  model  indicate  that  a  complete  phasing 
out of mortgage interest tax deductibility, with the 
tax  savings  used  to  reduce  the  labour  tax  wedge, 
and 
could 
consumption  levels  by  0.2-0.3 %,  while  reducing 
household  debt  growth  by  about  1.2 %  of  GDP 
(Burgert  et  al.,  2016).  Similar  effects  could  be 
achieved  by  raising  recurrent  property  taxes  to 
enable  a  comparable  tax  shift  away  from  labour 
income.  Importantly,  the  simulations  suggest  that 
these  policy  options  would  not  cause  a  ‘hard 
landing’ in house prices. 

to 

reducing 

reforming 

contribute 

Moreover, 
recurrent  property 
taxation  and  mortgage  interest  deductibility 
could 
inequality. 
Analysis  by  the  Swedish  Fiscal  Policy  Council 
(Finanspolitiska  rådet)  has  demonstrated  that  the 
impact  of  such  tax  reforms  would  be  broadly 
progressive,  as  households  that  currently  benefit 
the  most  from  the  favourable  tax  treatment  of 
home ownership and mortgage debt tend to be the 
higher-income  ones  (Finanspolitiska  rådet,  2016). 
Simulations  conducted  by  the  Joint  Research 
Centre  of  the  European  Commission  using  the 
EUROMOD  microsimulations  model  have  further 
confirmed the progressive impact of mortgage tax 
relief reforms. 

Supply-side issues 

is  a 

A key driver of Sweden’s persistent house price 
structural  undersupply  of 
inflation 
dwellings.  New  construction  has  picked  up 
strongly  in  recent  years  (albeit  from  low  levels) 
and is projected to grow further in 2017. However, 
it  remains  well  below  new  construction  needs 
is 
(Graph 
geographically  fairly  widespread,  it  tends  to  be 
especially severe in the major urban centres. There 
is  a  particular  shortage  of  rental  apartments  in 
larger  cities;  this,  in  turn,  pushes  households  who 
might otherwise wish to rent into home ownership, 
thus exacerbating the shortage (and upwards price 
pressure) in the owner-occupied market as well. 

4.2.8).  While 

shortage 

the 

24 

010.00020.00030.00040.00050.00060.00070.00080.000Net conversionNew constructionProjected need 
 
 
4.2. Financial sector 

is 

three 

developers for such major public housing projects 
seems  already  limited  at  the  tendering  stage:  in 
almost  45 %  of  municipal  procurements, 
the 
number  of  companies  is  limited  to  three  or  less, 
and for a sizeable minority (about 10 %) only one 
developer 
largest 
tendering.  The 
construction  companies  also  show  notably  higher 
operating margins than the sector average, which is 
primarily  driven  by  their  project  development 
activities.  These  observations  are  consistent  with 
prior analysis pointing to weak competition in the 
Swedish  construction  sector,  mainly  owing  to 
barriers  to  entry  for  larger-scale  development 
projects against small and foreign firms (European 
Commission,  2015a  and  2016a;  Emanuelsson, 
2015). 

highlighted 

Vertical integration of project development and 
construction  can  hamper  competition.  The 
Authority 
Competition 
Swedish 
that 
has 
(Konkurrensverket) 
construction  companies  without  their  own  project 
development  activities  may  depend  on  larger, 
through 
vertically 
integrated  competitors,  e.g. 
2015). 
subcontracting 
Moreover, partly as a result of the hard-to-navigate 
planning 
established 
system,  well-connected 
companies  with  land  resources  and  large  project 
portfolios  can  control  housing  supply  and  keep 
prices high (SOU, 2015). 

(Konkurrensverket, 

Municipalities  can  play  a  role  in  enhancing 
competition  among  developers  and  more 
generally  in  speeding  up  the  building  process, 
but  appear  to  neglect  using  some  of  their 
relevant  powers.  Land  allocation  and  sales  by 
municipalities  are  a  key  enabling  factor  for 
construction  activity.  However,  an  inquiry  by  the 
Swedish Competition Authority found that several 
municipalities seem to lack sufficient resources for 
land use and planning, and in particular, that they 
generally do not fully use their powers to demand 
that  housing  is  actually  built  (Konkurrensverket, 
2015).  Municipalities 
the 
negative  impact  on  competition  resulting  from 
established  developers’  control  of  land  resources 
by  making 
land  sales  conditional  on  actual 
building.  Since  rapidly  expanding  construction  is 
not always in the interest of the municipalities (for 
infrastructure 
example 
investments)  appropriate  state  support  may  be 
required. 

counteract 

required 

could 

due 

to 

Graph 4.2.9:  Building permits issued per unit of population v 
house price growth (2011-2015) 

Source: European Mortgage Federation, European 
Commission 

Structural bottlenecks for new construction are 
constraining  housing  supply.  There  is  lack  of 
developable land, partly driven by a large share of 
buildable  land  owned  by  municipalities,  who  can 
have  financial  incentives  for  making  it  available 
for  construction  in  a  piecemeal  fashion  over  time 
rather  than  when  it  is  needed  most  (European 
Commission,  2015a).  Zoning  and  building 
relatively  cumbersome  and 
regulations  are 
complex,  and  standards  vary  between  different 
municipalities,  creating  a  fragmented  market  that 
reduces  efficiency  and  raises  uncertainty  for 
construction  companies  (European  Commission, 
2016a). In addition, the timeline to obtain planning 
permission  can  be  considerably  longer  than  in 
other  countries  (Emanuelsson,  2015),  raising 
financial  risks  for  construction  projects  and 
causing  delays  in  new  supply  coming  online. 
Finally, the construction sector is characterised by 
rigidities that have weighed on productivity growth 
and  have  limited  competition  among  developers, 
making  construction  costs  in  Sweden  among  the 
highest in the OECD. 

Market concentration in the construction sector 
remains  high,  pointing  to  relatively  weak 
competition.  Among  the  50  largest  construction 
companies,  the  three  leading  ones  account  for 
almost 60 % of turnover (Sveriges Byggindustrier, 
2016).  In  2009-2013,  these  three  companies  also 
won  40 %  of  all  municipal  housing  procurement 
contracts (SOU, 2015, p. 173). Competition among 

25 

ELPTESIEITNLDKDESEBEFIFRATLU0100200300400500600700800900-9%-7%-5%-3%-1%1%3%5%7%Average building permits per 100,000 inhabitants per year (2011-2015)Annual house price growth (2010 Q4 -2015 Q4) 
 
4.2. Financial sector 

conversion  of  rental  units  into  owner-occupied 
homes, thus further aggravating the rental housing 
shortage (European Commission, 2015a). This has 
been  particularly  problematic  in  urban  areas:  for 
example,  in  the  Stockholm  region,  for  every  new 
rental unit built, three were converted into owner-
occupied  homes  over 
the  1990s  and  2000s 
(Emanuelsson, 2015). 

Graph 4.2.10: Rent Control Index (1) and Tenant-Landlord 

Relation Index (2) for Sweden v other EU 
countries 

(1) The Rent Control Index captures the degree to which 
rents are determined by market versus non-market 
mechanisms. It is mainly based on the level of flexibility in 
setting rental levels for new contracts and increasing rents 
for existing contracts. A higher index level indicates a more 
controlled, less market-oriented rent-setting system. 
(2) The Tenant-Landlord Relation Index measures the 
balance of legal rights and obligations between tenant and 
landlord. A higher index level indicates stronger legal 
protection for tenants. This index is based on aspects such as 
typical rental contract duration, security deposit 
requirements, legal mechanisms available for tenant 
evictions, eviction notification requirements and timeframe, 
and procedural formalism of tenant-landlord disputes. 
Source: Cuerpo et al. (2014) 

In addition to the direct welfare loss associated 
with  suboptimal  use  of  the  rental  stock,  there 
are  negative  knock-on  effects  on 
labour 
mobility  and  social  equality.  The  lock-in  and 
insider/outsider  effects  in  the  rental  market  can 

mechanism  to  allow  rents  to  adjust  flexibly  over  the  full 
investment  horizon,  e.g.  to  reflect  growing  demand  over 
time.  (An  inquiry  was  initiated  in  November  2016  to 
review  certain  aspects  of  the  presumptionshyra  system. 
The outcome will be published by the summer of 2017, but 
full  market  adjustment  of  rents  during 
the  15-year 
‘presumption period’ is outside its scope.) 

Barriers 
housing stock 

to  efficient  usage  of 

the  existing 

divergence 

between  market 

Sweden’s 
tightly  regulated  rental  market 
creates  lock-in  and  ‘insider/outsider’  effects. 
The rental market has some of the strongest tenant 
protection  rules  and  the  highest  degree  of  rent 
control (17)  in  the  EU  (Graph  4.2.10).  There  is  a 
and 
growing 
negotiated  rents,  particularly 
in  major  cities, 
creating large demand/supply imbalances and long 
waiting  lists  to  obtain  rental  accommodation  (e.g. 
on average over 8 years in Stockholm). As a result, 
sitting tenants have a strong financial incentive not 
to move, even if their rental accommodation is no 
longer  fully  suited  to  their  needs (18).  Residential 
mobility  statistics  show  that  tenants  renting  at 
below-market  prices  tend  to  move  at  roughly  half 
the  rate  of  the  minority  renting  at  full  market 
prices 
2015c). 
Conversely,  new  entrants  —  such  as  students, 
young  households  and  recent  immigrants  —  have 
great  difficulty  in  obtaining  access  to  the  rental 
market, thus creating an insider/outsider effect. 

Commission, 

(European 

The disconnect between negotiated rental prices 
and  market  rents  has  hindered  rental  housing 
supply,  particularly  in  major  cities.  Below-
market rent levels combined with high land prices 
the 
incentives 
create 
construction  of  owner-occupancy  housing  over 
rental  units (19).  They  also 
the 

incentivise 

financial 

favour 

to 

(17)  Unlike  in  many  other countries,  ‘rent  controls’ in  Sweden 
do  not  stem  from  direct  regulation,  but  are  the  result  of  a 
unique  rent-setting  system  whereby  most  rent  levels  are 
negotiated  between 
the  Swedish  Union  of  Tenants 
(Hyresgästföreningen)  and  housing  companies  using  a 
collective  bargaining  approach.  These  negotiations  are  in 
turn  based  on  a  ‘utility  value’  (bruksvärde),  intended  to 
reflect  the  objective  quality  of  accommodation.  The 
location  of  a  property  —  typically  a  key  driver  of  market 
rents  —  does  not  always  carry  a  weight  that  corresponds 
reasonably  well  to  the  actual  preferences  of  tenants  and 
is 
tenants  when 
potential 
implemented in the rent negotiations. 

the  utility  value  system 

(18)  There is an exchange system that allows tenants wishing to 
move to swap apartments by mutual agreement. However, 
this  only  mitigates  lock-in  effects  to  a  limited  extent 
(because  it  requires  direct  matching  between  tenants 
moving  in  opposite  directions),  and  it  does  nothing  to 
prevent  insider/outsider  effects  as  only  existing  tenants 
with a direct tenancy qualify. 

(19)  This  is  somewhat  mitigated  by  the  possibility to  negotiate 
higher  initial  rents  for  newly-built  apartments  within  the 
normal  ‘utility  value’  (bruksvärde)  system  or  to  use  a 
special  system  of  ‘presumption  rents’  (presumtionshyra), 
which  exempts  the  property  from  the  utility  value  system 
for  15  years.  However,  even  in  these  cases  there  is  no 

26 

ELATDKIELUUKITFRDEFIBEESPTNLSE-0,3-0,2-0,100,10,20,30,4-0,2-0,100,10,20,3Tenant-landlord relation index Rent control index  
                                                           
 
                                                                                   
4.2. Financial sector 

inflation  slowed  significantly 

the  precise  effect  of  the  amortisation  rule (20),  it 
seems that in most areas there was a brief levelling 
off in house price growth around the time the rule 
was  introduced  (particularly  in  Stockholm,  where 
flat prices actually fell somewhat over the summer 
months). However, the market generally recovered 
swiftly in the autumn. For 2016 as a whole, house 
in  some 
price 
locations and segments — for instance, Stockholm 
flat  prices  rose  by  about  5 %  over  2016,  versus 
18 %  in  2015 (21)  —  but  in  other  cities  such  as 
Malmö,  price  growth 
accelerated 
compared to 2015. Overall, the housing market did 
cool down somewhat in 2016, but price growth is 
still  well  above  income  growth  and  remains  high 
by international standards. 

actually 

Sweden  has  gradually  implemented  a  range  of 
measures to raise new housing supply in recent 
years.  Policy  action  has  mainly  been  focused  on 
streamlining the planning and appeals processes to 
make  lead  times  shorter  and  more  predictable,  on 
simplifying  building  and  zoning  regulations  and 
more  generally  on  reducing  red  tape  for  new 
construction  (European  Commission,  2015a  and 
2016a;  Emanuelsson,  2015).  Additionally,  there 
has  been  some  modest  budgetary  support  for  new 
construction,  either  in  the  form  of  investment 
subsidies for specific types of rental housing (e.g. 
for  students  or 
the  elderly)  or  of  general 
construction  bonuses  to  encourage  municipalities 
to promote more building activity. 

In June 2016, the authorities put forward a 22-
point  plan  aimed  at  tackling  a  number  of 
supply  bottlenecks  and  improving  the  overall 
efficiency  of  the  housing  sector.  This  plan 
emerged after cross-party talks about a more wide-
reaching  reform  to  address  both  demand-side 
taxation) 
issues 
supply 
and 
inefficiencies 
comprehensive 
ended  without 
agreement.  Instead,  the  22-point  plan  contains  a 

(including 

(20)  Complicating factors in determining the impact of the new 
amortisation  rule  include  the  lack  of  a  clearly  delineated 
point in time when it started influencing lending behaviour 
(in practice,  many banks already started gradually phasing 
in  the  new  requirement  well  before  it  formally  came  into 
force  in  June  2016)  and  the  presence  of  a  number  of 
confounding factors that may also have weighed on house 
price  growth  around  the  relevant  period  (e.g.  the  usual 
housing  market  slowdown  over  the  summer,  the  pause  in 
interest  rate  declines  since  early  2016,  and  simply  high 
valuation levels). 

(21)  These  figures  are  based  on  NASDAQ  OMX  Valueguard-

KTH housing market indices. 

prevent workers from moving to locations with the 
best  job  opportunities.  Furthermore,  tight  rental 
regulations  combined  with  a  severe  shortage  of 
affordable rental housing can exacerbate inequality 
and  social  problems.  They  particularly  affect 
lower-income  households  which  cannot  afford  to 
buy their own home, and contribute to a relatively 
high  degree  of  overcrowding  among  socially 
vulnerable  groups,  including  non-EU  migrants 
(OECD, 2017). 

the  past 

two  decades  mean 

Capital gains taxes on property sales can make 
moving  costly  for  homeowners,  thus  creating 
lock-in  effects  in  the  owner-occupier  market. 
Sweden  applies  a  22 %  capital  gains  tax  on 
property  sales,  even 
in  situations  where  a 
homeowner  is  selling  to  buy  another  home  of 
similar  value  elsewhere  (so 
that  no  actual 
economic  gain  is  realised).  The  steep  house  price 
rises  over 
that 
households who have owned their home for a long 
time  can  face  prohibitively  high  moving  costs.  In 
practice,  this  tends  to  particularly  affect  elderly 
households 
large  family  dwellings 
looking to relocate to a smaller apartment, often in 
a  convenient  city-centre  location.  This  issue  is 
somewhat mitigated by the ability to defer (part of) 
the  capital  gains  tax  liability,  but  not  fully  (see 
Policy  developments).  Reforming  capital  gains 
taxation to eliminate this lock-in effect could help 
free  up  underused  family  dwellings  and  improve 
overall liquidity in the owner-occupier market. 

living 

in 

Policy developments 

Demand-side  policy  action 
in  the  housing 
market  has  focused  on  curbing  mortgage 
lending  via  macroprudential  measures.  Since 
2010,  Sweden  has  gradually  introduced  a  number 
of  measures  aimed  at  containing  mortgage  debt 
growth  (and  thus  housing  demand).  Steps  taken 
limits,  adjusting 
loan-to-value 
include  setting 
banks’  risk  weight  floors,  and  most  recently  in 
June 2016, a formal amortisation rule that requires 
most  new  mortgages  to  be  paid  down  by  a 
minimum of 1 % per year (see 4.2.3 for details on 
the  new  amortisation  requirement  and  other 
macroprudential measures). 

The  new  mortgage  amortisation  requirement 
appears  to  have  had  limited  impact  on  house 
price growth so far. While it is difficult to gauge 

27 

 
                                                           
4.2. Financial sector 

(Graph  4.2.11).  While  in  most  economies  with 
relatively  high  household  debt  levels  (such  as  the 
Netherlands,  Denmark  and  the  UK),  debt  growth 
tapered out after the financial crisis as households 
started a gradual deleveraging process, in Sweden 
there  was  no  significant  slowdown.  In  2016, 
household  debt  grew  by  7.1 % (23),  approaching 
86% of GDP. 

Graph 4.2.11: Household debt growth (indexed, 2005=100) 

Source: European Commission 

in  2014  and  325 % 

levels  across 
The  distribution  of  debt 
households  is  becoming  increasingly  uneven.  
Among mortgaged households, those who took on 
their  mortgage  more  recently  tend  to  have  higher 
debt  levels:  the  debt-to-income  ratio  for  new 
borrowers  was  estimated  at  406 %  in  2015,  up 
in  2011 
from  387 % 
(Finansinspektionen,  2016b).  Furthermore, 
the 
fraction  of  borrowers  with  very  high  debt-to-
income  ratios  has  been  steadily  growing:  about 
17 %  had  debt-to-income  ratios  above  600 %  in 
2015,  up  from  14.8 %  in  2014  and  about  10 %  in 
2011  (Graph  4.2.12).  Younger  and  lower-income 
households tend to be particularly highly indebted 
(Ölcer 
and  van  Santen,  2016;  European 
Commission, 2016a). 

(23)  Year-on-year growth as of December 2016. 

collection  of  more  limited,  incremental  proposals 
which  have  broad  support  across  political  parties 
and key stakeholder organisations. The objective is 
to  increase  the  amount  of  land  available  for 
development;  to  reduce  construction  costs  by 
further  streamlining  building  regulations  and 
shortening  planning  process  lead  times;  and  to 
address  a  number  of  specific  inefficiencies  in  the 
rental  market  (22).  Since  most  of  the  underlying 
reforms  involve  broad  review  and  stakeholder 
consultation  processes,  it  will  take  some  time 
before  these  proposals  are  finalised  and  there  is 
some  uncertainty  on  how  they  will  ultimately  be 
implemented.  As  a  result,  it  is  difficult  to  assess 
their impact at this juncture. 

As  part  of  the  22-point  plan,  the  deferral  rules 
for capital gains taxes on property transactions 
have  been  adjusted,  but  this  is  likely  only  to 
have  a  modest 
impact  on  owner-occupier 
mobility.  Specifically,  for  property  sales  between 
June 2016 and June 2020, the full capital gains tax 
liability will be deferrable if a homeowner sells up 
to  purchase  a  similarly-valued  home  (whereas 
before,  the  deferrable  amount  was  subject  to  a 
ceiling).  This  reform  is  intended  to  address  the 
lock-in  effects  in  the  owner-occupier  market 
resulting  from  relatively  high  capital  gains  taxes. 
Some  improvement  in  mobility  in  the  owner-
occupancy  market  can  indeed  be  expected  as  a 
result  of  this  measure.  However,  its  impact  will 
likely fall short of a more comprehensive reform of 
transaction  costs  that  tackles  the  actual  wealth 
reduction  represented  by  the  capital  gains  tax 
liability,  and  not  just  its  immediate  cash  flow 
effect. 

4.2.3.  PRIVATE INDEBTEDNESS (*) 

Household debt developments 

Household  debt  has  continued  to  grow  rapidly 
from a level that is already historically elevated. 
It  has  been on  a  persistent  upward  trajectory  over 
the past decade, outpacing the EU average and key 
peer  countries,  with  only  Finland  experiencing 
debt  growth  at  a  level  approaching  Sweden’s 

(22)  The  full  plan  is  available  at:  http://www.regeringen.se/ 
globalassets/regeringen/dokument/finansdepartementet/ 
pdf/2016/pm/sammanfattning-av-regeringens-forslag-22-
steg-for-fler-bostader. 

28 

801001201401601802000506070809101112131415Index, 2005=100SwedenDenmarkFinlandNetherlandsUnited KingdomEU 28 
                                                           
 
                                                           
4.2. Financial sector 

Graph 4.2.12: Share of households with different debt-to-

income ratios, new loans (share of households 
in % of total) 

reducing  debt  service  costs  in  an  environment 
of falling interest rates. 

Graph 4.2.13: Loans to households: loans for property 

acquisition and consumption loans in Sweden 
versus euro area average 

Source: Finansinspektionen 

Drivers for household debt growth 

Source: ECB, European Commission 

lending.  The 

Household  debt  growth  is  primarily  due  to 
in 
rising  mortgage 
household  debt  is almost entirely due  to  loans  for 
property  acquisition.  Consumption  loans  form  a 
relatively  small  share  of  total  lending  that  is 
roughly the same size (relative to GDP) as in other 
European economies (Graph 4.2.13). 

increase 

  Swedish  mortgage  contracts  have  historically 
been characterised by long maturities compared 
to other EU countries (Graph 4.2.14), generally 
accompanied  by  low  amortisation  (i.e.  capital 
further 
repayment) 
amplifies  the  relative  impact  of  lower  interest 
rates on monthly mortgage payments (24). 

requirements. 

This 

Mortgage lending growth is driven by persistent 
house price rises coupled with structural factors 
property 
(mortgage-financed) 
favouring 
investment.  Rapid  house  price  rises  (see  4.2.1) 
and  mortgage  debt  growth  tend  to  be  mutually 
reinforcing:  higher  house  prices  enable  larger 
mortgage  loans  by  increasing  the  value  of  the 
underlying  collateral,  and  growing  mortgage  debt 
levels  raise  the  total  investment  amount  flowing 
into  a  limited  supply  of  houses,  thus  putting 
upwards  pressure  on  prices.  In  Sweden,  this 
dynamic  is  further  reinforced  by  steadily  falling 
mortgage  rates  and  structural  factors  that  act  to 
lower debt service costs: 

  Favourable  tax  treatment  of  owner-occupied 
housing and mortgages (see 4.2.2 for details). 

(24)  As  a  stylised  illustration,  compare  a  situation  where  the 
interest  rate  on  a  EUR  100 000  variable-rate  mortgage 
drops  from  2 %  to  1 %,  assuming  amortisation  over  20 
years  (so  at  5 %  per  year)  versus  no  amortisation.  In  the 
former case, total payments per year drop from EUR 7 000 
(EUR  5 000  capital  repayment  +  EUR  2 000  interest)  to 
EUR  6 000  (EUR  5 000  capital  repayment  +  EUR  1 000 
interest)  —  a  reduction  of  about  15 %.  In  the  latter  case, 
payments  per  year  drop  by  50 %,  from  EUR  2 000 
to   EUR 1 000.  So  the  lower  the  amortisation  rate,  the 
larger the relative cash flow impact of interest rate changes. 

  Mortgages are mostly variable-rate: about 70 % 
of new and 64 % of all outstanding mortgages 
are 
rates 
short-term 
(European  Mortgage  Federation,  2016),  thus 

interest 

linked 

to 

29 

0510152025303505101520253035%%20112012201320142015010203040506070010203040506070809101112131415% of GDPLoans for house purchase, SwedenLoans for consumption, SwedenLoans for house purchase, EALoans for consumption, EA 
 
 
                                                           
4.2. Financial sector 

Graph 4.2.14: Typical mortgage maturity, 2015 (years) 

large  share of the  remainder is exposed  to market 
risks.  In  addition,  financial  wealth  is  unevenly 
distributed;  while  limited  hard  data  are  available 
on this, it is likely that key segments of mortgage 
borrowers  —  notably  newer  borrowers  and 
younger households — will tend to have relatively 
modest  non-housing  assets  relative  to  their  debt 
level. (25) 

Empirical  evidence 
from  other  countries 
confirms that high household debt levels tend to 
foreshadow  deeper  economic  downturns  and 
weaker  recoveries  following  a  housing  market 
slump (Crowe et al., 2011). Even in the absence of 
any acute threat of large-scale house price falls, it 
may 
the 
macroeconomic  stability  risks  associated  with 
Sweden’s house price / indebtedness dynamics. 

therefore  be 

to  address 

important 

years, 

mainly 

relying 

The  authorities  have  gradually  taken  some 
policy action to curb household debt growth in 
recent 
on 
macroprudential  measures.  These  include  the 
introduction  of  a  loan-to-value  (LTV)  ceiling  of 
85 %  for  mortgages  in  2010  and  the  gradual 
raising of banks’ risk weight floors for mortgages 
in  2013  and  2014.  More  recently,  the  authorities 
proceeded  with  the  implementation  of  a  long-
awaited  mortgage  amortisation  requirement:  since 
June 2016, most new mortgages must be amortised 
by a minimum of 2 % per year until the LTV drops 
below 70 %, and by 1 % afterwards until the LTV 
drops below 50 %. While this is an important step 
forward, 
leaves  Swedish  amortisation 
requirements  significantly  softer  than  in  other  EU 
countries,  where  full  repayment  of  the  loan  over 
time is the norm for owner-occupier mortgages. 

it  still 

Despite these policy measures house prices and 
indebtedness  continued  to  grow.  As  mentioned 
earlier  (see  4.2.1  and  4.2.2)  there  has  been  no 
significant  slowdown  in  household  debt  or  house 
price growth in recent years. 

Source: European Systemic Risk Board (ESRB) report on 
residential real estate and financial stability in the EU (2015) 

Risks and policy response 

Steadily  increasing  household  leverage  coupled 
with  rapidly  rising  property  prices  makes  the 
Swedish  economy  vulnerable  to  shocks.  If  there 
was  a  significant  rise  in  mortgage  risk  premiums 
— perhaps triggered by a house price correction, a 
wider economic slowdown or higher funding costs 
for  banks  as  market  perceptions  about  their 
riskiness  worsen  —  highly-leveraged  households 
may  need  to  rapidly  reduce  consumption  to  meet 
rising  mortgage  payments.  This  would  reduce 
demand and raise uncertainty, potentially weighing 
on  growth  and  employment  and  thus  further 
decreasing  households’  ability  to  service  their 
mortgages.  The  latter  could  potentially  lead  to 
further increases in mortgage risk premiums and a 
broader  disorderly  deleveraging  process.  In  this 
scenario, non-housing assets owned by households 
—  notably  equity  investments,  which  account  for 
about  a  third  of  total  household  wealth  —  would 
on 
also 
consumption via wealth effects. 

further  weighing 

probably 

fall, 

More  generally,  Swedish  households’  relatively 
large  financial  wealth  —  estimated  at  about 
three  times  their  liabilities  —  would  likely 
provide only limited cushioning in a significant 
housing  market  slump.  Close  to  50 %  of  non-
housing  assets  owned  by  households  are  invested 
in  pension  fund  or  life  insurance  instruments  and 
can  thus  only  be  accessed  upon  retirement,  and  a 

Reform  of  the  tax  incentives  combined  with 
further  macroprudential  measures  could  help 
curb  household  debt  growth.  As  discussed  in 
4.2.2,  raising  recurrent  property  taxes  or  phasing 
out  mortgage  interest  deductibility  could  help 
contain  the  house  price  /  mortgage  debt  dynamic, 

(25)  See  the  2016  Country  Report  for  Sweden  for  a  more 
extended discussion (European Commission, 2016a, p. 20). 

30 

051015202530354045FRBEFIITESUKIEPTNLDKDESETypical mortgage maturity  (years) (2015) 
 
                                                           
4.2. Financial sector 

Graph 4.2.15: Breakdown of corporate debt by funding 

source 

while  also  positively  impacting  long-term  output 
and employment growth. In addition, there may be 
scope  for  further  macroprudential  measures.  This 
could  potentially  include  further  steps  to  align 
mortgage amortisation rates with those common in 
other  EU  countries  and/or  a  form  of  debt-to-
income  limits  for  new  borrowers.  The  Swedish 
macroprudential  authority  (FSA)  has  suggested 
that  the  latter  in  particular  may  be  an  appropriate 
policy option (Finansinspektionen, 2016a). 

for 

legal 

current 

framework 

The 
the 
macroprudential  authority  (FSA)  does  not 
appear  sufficiently  robust  to  appropriately 
address  the  risks  associated  with  growing 
household  debt,  as  illustrated  by  the  significant 
delays  incurred  with  the  introduction  of  the  new 
amortisation  requirement.  The  FSA  originally 
proposed this measure in late 2014, but it became 
the  subject  of  legal  challenges  concerning  the 
FSA’s  ability  to  impose  mandatory  amortisation 
rates,  and  ultimately  could  only  be  implemented 
via  a  legislative  initiative  by  the  government  (see 
European  Commission,  2016a,  p. 22  for  further 
background).  In  response  to  this,  the  authorities 
have  recently  announced  that  they  have  advanced 
plans  to  revise  the  FSA’s  legal  mandate,  with  a 
view  to  ensuring  that  it  can  introduce  potential 
macroprudential measures that may be required in 
future in a timely manner and using a wider range 
of  tools.  The  precise  form  of  the  new  legal 
framework,  which  is  expected  to  be  made  public 
later in 2017, will be of key importance to ensure 
that this reform is successful. 

Source: Statistics Sweden 

Graph 4.2.16: Drivers of year-on-year changes in corporate 

debt as % of GDP 

Corporate debt developments 

Swedish non-financial corporations continued a 
gradual  post-crisis  deleveraging  process 
in 
2016. Consolidated corporate debt fell to 104.6 % 
of  GDP  at  the  end  of  2015  (Graph 4.2.15).  On  a 
non-consolidated  basis  (including  financing  flows 
between  domestic  companies),  corporate  debt  fell 
to  144 %  of  GDP  as  of  Q1-2016,  down  about 
10 pps  year-on-year.  Since  its  peak  in  2009,  the 
corporate  debt-to-GDP  ratio  has  come  down  by 
about  20 pps  in  aggregate.  This  has  mostly  been 
the result of ‘passive’ deleveraging, with net credit 
flows to Swedish firms positive but outweighed by 
growth  and  inflation  (Graph  4.2.16).  Still,  the 
corporate debt level remains high compared to the 
euro  area  average  of  about  77 %  of  GDP  (on  a 
consolidated basis) at the end of 2015. 

(*) ‘Other changes’ mainly reflects valuation effects 
Source: European Commission 

Domestic loans remain the main funding source 
for  the  corporate  sector,  with  international 
bond markets gradually seeing increased use as 
an  alternative  financing  option.  Graph  4.2.15 
shows  that  domestic  lending  (mostly  from  banks) 
to firms has remained broadly stable at about 60 % 
of GDP since the financial crisis. However, larger 
corporations have increasingly come to rely on the 
bond market as an additional funding source, with 
its  contribution  growing  from  11 %  of  GDP  pre-
crisis to about 18 % as of mid-2015. Lending from 

31 

02040608010012014016004Q207Q210Q213Q216Q2% of GDPDebt between domestic firmsLoans from abroad (incl. inter-company loans)Debt securitiesDomestic loansCorporate debt, consolidated-15-10-505101520253003040506070809101112131415y-o-y changeCredit flowReal growthInflationOther changes (*)D/GDP, change 
 
 
 
4.2. Financial sector 

abroad  contracted  from  a  peak  of  about  48 %  of 
GDP in 2009 to 28 % of GDP as of Q2-2015, but 
this  change  is  essentially  fully  accounted  for  by 
intra-group loans from foreign branches, which fell 
sharply  after  corporate 
in  2013 
(European  Commission,  2016a,  p.  23).  These 
foreign intra-group loans were replaced by a larger 
lending 
funding  contribution 
between firms and by the trend towards more bond 
market funding. 

from  domestic 

tax  reforms 

While  overall  corporate  debt  levels  remain 
high,  firms  generally  seem  to  have  a  healthy 
financial position with limited risks of financial 
distress.  Sweden’s  corporate-debt-to-GDP  ratio  is 
well above the euro area average. However, other 
leverage indicators demonstrate that financial risks 
are  limited.  In  particular,  corporates  have  a 
significant  equity  cushion,  as  indicated by a  debt-
to-equity  ratio  that  is  already  at  a  quite  low  level 
(43 % as of end-2016, compared to about 60 % on 
average for EU countries) and that continues to fall 
(Graph  4.2.17).  In  addition,  gross  corporate 
savings  are  at  a  relatively  healthy  15 %  of  GDP 
the 
(12 %  EU  average),  underscoring 
corporate sector is sufficiently profitable to be able 
to reduce its debt level quickly if needed. 

that 

Graph 4.2.17: Leverage indicators for non-financial 

corporations 

Source: Statistics Sweden 

32 

02040608010012014000010203040506070809101112131415Debt to equity, GDP and assets (%)Debt/GDP, cons.Debt/financ. assets, cons.Gross savings/GDPDebt/equity 
 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET AND SOCIAL POLICIES  

schooling, and is expected to help 70 000 adults to 
upgrade their skills. 

one 

The  labour  market  is  performing  well.  Sweden 
had one of the highest employment rates in the EU 
(81.2 %  in  the  first  three  quarters  of  2016,  while 
recording 
long-term 
the 
unemployment rates. Unemployment fell to 6.9 % 
in  2016,  below  the  EU  average.  Similarly,  youth 
unemployment  decreased  (Graph  4.3.1)  and  the 
rate  of  people  not  in  education,  employment  or 
training (NEETs) is lower than the EU average. 

lowest 

of 

Graph 4.3.1:  Labour market situation, 2001-2016 

Source: European Commission, Eurostat, Labour Force 
Survey 
* Activity rate and long- term unemployment rate for 2016 
are based on Q1-Q3.  
**NEET refers to people aged 15-24 being ‘not in 
employment, education or training’.  

overall 

positive 

Despite 
developments, 
challenges  persist  for  low-skilled  people.  While 
the  employment  rate  of  high  and  medium-skilled 
people  has  been  broadly  stable,  that  of  the  low-
skilled  has  been  declining  (Graph  4.3.2).  In 
parallel,  their  unemployment  rate  (19.5 %  in  the 
first  three  quarters  of  2016)  has  increased  and  is 
significantly higher than the EU average (16.3 %). 

To improve outcomes for the low-skilled, access 
to adult education and vocational education and 
training  (VET)  is  being  improved.  A  right  for 
adults over 20 who had already left the (ordinary) 
education  system  came 
in  2017, 
their  previous 
them 
allowing 
studies 
secondary 
and 
qualification. This is a significant extension of the 
to  complete  compulsory 
previous  entitlement 

to  complement 
obtain 

into  force 

upper 

an 

Graph 4.3.2:  Employment by skill levels, 2000-2016 

Source: European Commission, Labour Force Survey. Note: 
age group 20-64 

‘national’ 

The  government 
is  also  strengthening  the 
attractiveness  of  vocational  upper  secondary 
education.  Once  approved  by  Parliament,  all 
programmes (26), 
corresponding 
including VET programmes, are expected to grant 
eligibility  to  tertiary  education,  as  was  the  case 
before  the  2010  Education  Act.  This  may  make 
VET programmes more attractive in particular for 
those  still  in  education  (but  also  for  the  above-
mentioned  adults):  until  2009,  at  upper  secondary 
level  there  were  as  many  students  attending 
vocational  programmes  as  academic  programmes.  
Despite a slight upward trend in certain areas such 
as the retail and hotel sector where apprenticeship 
programmes appear successful, the increase in the 
number  of  apprenticeships  in  upper  secondary 
school  remains  limited.  Overall,  in  autumn  2015 
the  number  of  apprentices  was  8 400,  up  from 
6 000 in autumn 2013 (Skolverket, 2016a). 

An  inquiry  into  the  numerous  wage  subsidy 
schemes  has  been  launched.  Some  of  these 
schemes are not targeted at individuals with lower 
productivity,  and  the  whole  system  suffers  from 
limited 
employers.  Therefore,  
streamlining  and  better  administration  might  be 

take-up 

by 

(26)  Excluding  ‘introductory  programmes’  designed  to  provide 
additional  tailored  support  for  a  small  number  of  students 
having difficulties in school. 

33 

808182838485868705101520253001020304050607080910111213141516*%%Activity rate 20-64 (rhs)Unemployment rate (lhs)Youth unemployment rate (lhs)Long-term unemployment rate (lhs)NEET rate (lhs)**506070809000Q102Q104Q106Q108Q110Q112Q114Q116Q1% of population in respective skill groupHigh skilledMedium skilledLow skilled 
 
 
 
                                                           
necessary  (OECD,  2016a;  Almega,  2016).  The 
outcome  of  the  investigation  is  expected  by 
31 August 2017. 

low-skilled  population 

The 
includes  many 
refugees, and their integration remains a major 
social  and  labour  market  challenge  (Graph 
4.3.3).  The  share  of  non-EU-born  residents  in 
Sweden (11.1 %  in  2015)  is among  the  highest  in 
the  EU.  It  has  doubled  since  2000  due  to  an 
increase  of  500 000  people.  The  non-EU-born 
residents  have  a  lower  activity  rate,  which  at 
78.1 %  for  the  age  class  20-64,  is  9.9 pps.  below 
the  activity  rate  of  native-born  residents.  Those 
available  for  work  had  an  unemployment  rate  of 
19.2 % in 2015, three times  as high as for native-
born  residents.  A  gap  also  exists  for  young 
foreign-born people, who are more likely not to be 
in  education,  employment  or  training  (9.8 %  v 
6.2 %  for  native-born),  and  even  more  so  for 
women. 

to 

the 

flow  adds 

The  magnitude  and  composition  of  the  recent 
migration 
integration 
challenge.  Before  2013  roughly  30 000  asylum 
seekers arrived in Sweden each year, mostly from 
Iraq,  Somalia,  Serbia  and  Afghanistan.  However, 
the magnitude and composition of the arrivals have 
changed in 2013-2015, with about 300 000 asylum 
requests made. Close to half of these requests were 
made  between  July  and  December  2015.  Around 
40 % of asylum seekers are children of school age, 
and  almost  half  of  them  are  unaccompanied 
minors.  In  2015,  50 %  of  non-EU-born  people 
residing  in  Sweden  were  refugees  or  their  family 
members  and  30 %  were  other  family  migrants 
(coming  to  join  family  members  who  are  not 
refugees). These  two groups have on  average  low 
qualifications (see 4.3.2) and weaker labour market 
outcomes  than  migrants  who  come  for  work  or 
study (Graph 4.3.4).  

4.3. Labour market, education and social policies 

Graph 4.3.3:  Breakdown of unemployment by skill level 

and country of birth, 2015 

Source: European Commission, extraction based on Labour 
Force Survey 
Note: Age group 20-64 

to 

Migrants,  and  in  particular  asylum  seekers, 
face  various  barriers 
labour  market 
participation  and  social  inclusion  when  they 
arrive in Sweden. These include limited language 
proficiency (see 4.3.2), difficult access to adequate 
housing (see 4.2.2), lack of a personal network and 
contacts,  limited  institutional  knowledge  of  the 
labour  market  and  social  systems,  or  the  absence 
of appropriate validation or recognition procedures 
for  skills  and  education  acquired  abroad.  Even 
when transferable, these skills may not correspond 
to  the  needs  on  the  Swedish  labour  market  (skills 
mismatches),  hence  the  importance  of  (re)training 
or  upskilling  policies.  Moreover,  migrant  women 
from  countries  with  low  female  employment  tend 
to show larger gaps in labour market participation.  

in 

literacy 

Although employment rates are increasing with 
time spent in Sweden, children of non-EU-born 
parents  still  face  barriers.  Even  accounting  for 
individual  characteristics  (age, 
differences 
gender,  education  and 
their 
likelihood  of  being  employed  remains  13.3 pps. 
lower than native-born residents without a migrant 
background 
indicates 
discriminative  hiring  practices  as  evidenced  by 
field experiments and other recent studies (see the 
review  in  OECD,  2016a).  Direct  discrimination 
remains nevertheless difficult to prove (Council of 
Europe, 2012). 

(OECD,  2014a).  This 

level), 

34 

0%10%20%30%40%50%60%70%80%90%100%1.Low2.Medium3.HighNative-bornOther EU-28 bornNon-EU-28 born 
 
4.3. Labour market, education and social policies 

enable 

to  simplify 

which  aim 
the  Programme  and 
streamline  it  with  other  labour  market  activation 
measures.  This  would 
the  Public 
Employment Service (Arbetsförmedlingen) to refer 
a  newly-arrived  migrant  to  any  programme  or 
measure,  not  limited  in  time  and  content  to  the 
Introduction  Programme.  This  broadened  scope 
would  in  turn  allow  more  individualised  and 
longer-term  strategies, based on  early  competence 
mapping and assessment. 

language 

In the same vein, given the increased awareness 
that  ‘one  size  does  not  fit  all’,  additional 
flexibility  is  offered  in  education  and  training 
pathways. The possibility to combine Swedish for 
Immigrants 
training  with  vocational 
education or studies and work on a part-time basis 
has  been  strengthened.  More  generally,  many  of 
the  government’s  recent  initiatives,  e.g.  trainee 
jobs 
(European 
Commission,  2016a,  p. 44-45),  have  the  potential 
to  reach  more  beneficiaries  by 
into 
consideration  both  local  conditions  as  well  as  the 
individual’s  needs.  This  is  expected  to  help  curb 
skills mismatches among refugees.  

education 

contracts 

taking 

and 

‘Fast  Track’  initiatives  have  been  started  to 
help  the  newly-arrived  to  enter  the  labour 
market  faster.  These  are  targeted  at  sectors  with 
labour  shortages  and  established  in  cooperation 
with  the  social  partners  (see  Box  4.3.1).  Some 
professions such as healthcare and teaching proved 
others 
successful 
to 
(Arbetsförmedlingen,  2016)  as 
less 
teething  problems,  for  example  regarding  the 
coordination  with  relevant  stakeholders  (such  as 
social partners and municipalities). 

than 
they  had 

be  more 

Sweden is also strengthening early intervention 
measures  for  asylum  seekers  who  are  waiting 
for  a  residence  permit.  Immediate  language 
training  is  provided  mainly  by  civil  society 
organisations.  After  a  pilot  phase,  the  public 
employment  service  is  going  to  offer  a  tool  for 
self-assessment  based  on  mapping  of  skills  and 
experiences.  

is 

significant, 

in  Sweden 

While  the  employment  gap  affecting  the  non-
EU-born 
their 
employment  rate  is  still  better  than  the  EU 
average.  In  spite  of  a  challenging  immigration 
profile,  with  a  low  share  of  labour  migration  and 
not  many  immigrants  speaking  Swedish  when 
entering the country, the employment rate of non-
EU-born is 63.7 %, 3.4 pps. above the EU average. 
However,  it  is  20.3 pps.  below  the  employment 
rate of native-born Swedes (Graph 4.3.4). The gap 
is  particularly  high  for  non-EU-born  women 
(23.3 pps.). All in all, the magnitude and profile of 
immigration  resulted  in  a  marked  increase  in  the 
share  of 
all 
foreign-born  people 
unemployed from 24 % to 42 % between 2005 and 
2015. 

among 

Graph 4.3.4:  Employment rate of native-born and of non-

EU-born by reason of migration, 2014 

Source: European Commission, Eurostat Labour Force 
Survey, 2014 ad hoc module on migrants. Note: Age group 
15-64. 

The  Introduction  Programme  for  new  refugees 
and  their  families  has  been  enhanced,  yet 
challenges  remain.  Since  2010,  this  Programme 
has  provided  refugees  and  their  families  with 
intensive support. It covers a period of 24 months 
and  includes  language,  education  and  training 
time, 
measures.  Results  have 
nevertheless  in  2016  only  32.6 %  of  participants 
were  in  work  or  education  90  days  after  having 
completed 
are 
underrepresented among the participants and those 
who  participate  have  worse  outcomes  than  men 
(21 %  v  39 %).  The  government  has  proposed  a 
regulatory  reform  (as  of  2018)  to  enhance  results 

programme.  Women 

improved  over 

the 

35 

8361746860646153584045505560657075808590MaleFemale TotalEmployment reasonsFamily reasonsRefugeeNative 
 
4.3. Labour market, education and social policies 

comprehensive 
Despite  ongoing  work,  a 
approach  and  governance  on  how  to  recognise 
the  qualifications  of  migrants  are  still  missing. 
The  Swedish  Council  for  Higher  Education  has 
been  tasked  with  coordinating  a  pilot  project  to 
establish a structure for support to the recognition 
of  prior 
learning  and  cooperation  between 
universities.  Due  to  a  lack  of  common  standards, 
many  municipalities  are  carrying  out  their  own 
validation  as  part  of  their  adult  education  and 
training  set-up.  Vocational  and  informal  skills  are 
also validated at sectoral and branch level.  

The new residency law may have mixed effects 
on  labour  market  integration.  This  measure, 
granting 13 months of temporary residency permits 
to  people  with  subsidiary  protection (27)  and  3 

(27)  Subsidiary protection is given to a third-country national or 
a  stateless  person  who  does  not  qualify  as  a  refugee 
according  to  the  Geneva  Convention,  but  in  respect  of 

the 

renewal  of 

years for recognised refugees, incentivises the take 
up  of  employment,  and  overall  may  reduce  the 
number  of  jobless  migrants.  On  the  other  hand, 
making 
residency  permits 
conditional on immediate self-sufficiency may act 
as a disincentive to upgrade education and develop 
sustainable  labour  market  integration  strategies. 
Therefore,  the  law  does  not  appear  fully  in  line 
with 
investment  and  broader 
inclusion  approach  embedded  in  longer  term 
measures  such  as  the  two  year  Introduction 
Programme or the ‘Fast track’ initiatives. 

long-term 

the 

whom  there  are  substantial  grounds  for  believing  that,  if 
they were returned to their country of origin or, in the case 
of  a  stateless  person,  their  country  of  former  habitual 
residence,  they  would  face  a  real  risk  of  suffering  serious 
harm.  As  the  labour  market  challenges  faced  by  the 
subsidiary  protected  and  refugees  are  similar,  when  the 
challenges regarding ‘refugees’ are mentioned, usually this 
is also valid for ‘subsidiary protected’. However there is a 
difference in the legal definition which is of relevance here. 

36 

 Box 4.3.1: Selected highlight: refugee integrationIn response to recent migration inflows, Sweden has taken considerable action to continuously improve its practices in the integration of refugees. The ‘Fast Track’ initiative is a particularly promising example of how to help newly-arrived immigrants, including refugees, enter the labour market faster and use their skills. Social partners and the public employment service (Arbetsförmedlingen) have set up a streamlined integration package that allows newly-arrived immigrants to quickly take up occupations in several sectors with labour shortages. The package is available for newly-arrived immigrants who have been or are taking part in the Introduction Programme (see main text), or who have received a residence permit in the last 3 years. A participant gets the introduction benefit or an activity grant. The Fast Track initiative combines elements of skill assessment with customised bridging programmes that include vocational language training. On completing the scheme, participants receive an occupational certificate or credential. In December 2016, more than 2 800 people had started 20 professions across 13 sectors (Arbetsförmedlingen, 2016). A particularly interesting example is the ‘Fast Track’ for newly-arrived teachers. Six Swedish universities have jointly developed a fast-track training course for newly-arrived teachers and preschool teachers. The course is targeted at refugees and asylum seekers who hold a school or preschool teaching qualification from another country. The programme combines ‘supplementary teacher education’ at one of the universities, given partly in Arabic and partly in English, studies in Swedish and a 26-week internship at a school or pre-school. The aim is to employ these people in schools within 1 year, against the current average of 4 years. The initiative is well targeted given an already widening teacher shortage: over 70 000 children of school age arrived in Sweden in 2015, while an important number of newly-arrived adults have a background in teaching1. In 2016, 420 newly-arrived teachers benefited from the programme and in 2017 a further 720 places will be available.2                                                            1 In the autumn of 2015, when work on a fast-track initiative for teachers was launched, there were close to 1 900 newly arrived adults who had a teacher qualification from their home country. Of these, there were 501 teachers in upper secondary, 1 075 in primary or/and lower secondary schools, and 247 preschool teachers. 2 http://www.regeringen.se/pressmeddelanden/2016/02/nytt-snabbspar-for-larare-och-forskollarare/    https://www.lararforbundet.se/artiklar/fast-track-opportunity-for-newly-arrived-teachers-5746935c-ff1d-4611-913b-7cc9336ff593   
                                                           
                                                                                   
 
 
 
 
 
4.3. Labour market, education and social policies 

Social policy 

4.3.2.  EDUCATION 

Lower  labour  market  integration  of  the  non-
EU-born  results  in  lower  incomes,  but  severe 
material  deprivation  is  not  widespread.  Non-
EU-born people are much more at risk of poverty 
or  social  exclusion  than  the  native-born  (38.4 % 
versus 13.7 % in 2015). This gap, which is among 
the  highest  in  Europe,  is  linked  to  their  difficult 
labour market situation. Nevertheless, the share of 
non-EU-born 
severe  material 
deprivation (2.8 %) is one of the lowest in the EU.  

affected 

by 

Women  born  abroad  will  be  particularly 
exposed  to  poverty  in  old  age.  Inactivity  or  on 
average  fewer  contributions  mean  these  women  
may have lower pensions or may not even qualify 
for  a  (full)  guarantee  pension,  and  could  have  to 
resort  to  old  age  income  support.  More  generally, 
women  aged  65  and  older  stand  out  as  a  group 
with  a  high  risk  of  relative  poverty  (European 
Commission, 2016a, p. 48). 

The  2016  budget  attempted  to  address  poverty 
among  the  elderly.  It  made  taxation  rules  more 
equal  between  employment  and  non-employment 
related incomes. Taxes are lowered for those with 
only  basic  benefits  to  reduce  the  difference  in 
taxation  resulting  from  the  tax  credit  deductions 
introduced  for  employment-related  income  over 
the last decade (jobbskatteavdraget).  

In  parallel,  other  initiatives  aim  at  tackling 
further  gender  gaps.  Parental  leave  entitlements 
are  generous  with  up  to  480  days  until  the  child 
turns  12  (384  days  must  be  used  before  the  child 
turns  4).  In  order  to  encourage  earlier  labour 
market entry of migrant women and in turn higher 
pensions,  the  parental  leave  inquiry  has  proposed 
to  limit  (as  of  1 July  2017)  the  days  of  parental 
benefit  entitlement  for  children  entering  into 
Sweden  after  the  age  of  one.  A  project  ‘Gender 
Equal  Pensions’  within  the  special  committee  of 
the  six  political  parties  that  agreed  the  pension 
reform  is  developing  recommendations  to  address 
gender differences in pensions. 

Challenges 

School  education  outcomes  in  terms  of  basic 
skills  proficiency  have  improved  after  years  of 
deteriorating  performance.  The  2015 OECD 
Programme  for  International  Student  Assessment 
(PISA)  found 
that  student  performance  had 
improved significantly in mathematics and reading 
compared  to  2012,  and  had  remained  broadly 
stable 
low 
in  science.  The  proportion  of 
achievers (28) is now close to the EU average in all 
three  core  subjects  but  still  higher  than  in  other 
neighbouring 
(Graph  4.3.5).  The 
negative trend in performance was also reversed in 
the 2015 Trends in International Mathematics and 
Science  Study,  another  international  survey  of  8th 
grade students (aged 13-14). 

countries 

Graph 4.3.5:  Share of low achievers in 2015 PISA 

Source: OECD 

Inequalities in educational outcomes are rising. 
The  gap  has  increased  both  between  the  highest 
and  lowest-performing  students  and  between  the 
socio-economically advantaged and disadvantaged 
ones. Students in independent schools score higher 
than students in municipal schools. However, after 
accounting  for 
the  socioeconomic  profile  of 
students  and  schools,  the  result  is  the  reverse  
(OECD, 2016b; European Commission, 2016b).  

The performance gap between foreign-born and 
native-born  students  remains  high.  In  PISA 

(28)  PISA defines ‘low achievers’ as those 15-year-old students 
who  in  basic  skills  score  below  the  baseline  level  of 
proficiency  that  is  required  to  participate  fully  in  modern 
society 

37 

0510152025SEEUDEDKFIScienceReadingMaths 
 
                                                           
4.3. Labour market, education and social policies 

jumps  to  72 %  for  those  arriving  in  the  last  four 
years of compulsory schooling (aged 12-15), while 
the  average  among  native-born  students  is  below 
10 % (Skolverket, 2015a; Skolverket, 2016c). The 
‘introductory programmes’ were initially designed 
to  provide  additional  tailored  support  for  a  small 
number  of  students  having  difficulties  in  school. 
However,  in  practice,  in  particular  the  'Individual 
Alternative'  programme  seems  not  to  succeed  in 
equipping  students  with  the  right  knowledge  and 
skills by the time they leave the education system. 
Steering,  structure  and  guidelines  are  lacking  on 
how  to  organise  these  programmes  and  links 
between national and introductory programmes are 
underdeveloped  (SOU,  2016b).  Currently,  over 
half  of  all  ‘Individual  Alternative’  students  are 
foreign-born,  often  trapped  in  courses  alongside 
weakly  motivated  native-born  students  (OECD, 
2016a). 

The  large  number  of  asylum  seekers  who 
arrived  in  2015  has  brought  new  challenges. 
According  to  the  Swedish  Migration  Board,  40 % 
of asylum seekers in 2015 were children of school 
to  3 %  of  Sweden’s  youth 
age,  equivalent 
population.  Approximately  half  of  all  newly-
arrived children are aged 13 or above and many of 
them  have  a  poor  educational  background.  These 
students  often  end  up  in  disadvantaged  schools, 
largely  as  a  result  of  residential  segregation  but 
also  exacerbated  by  policies  enabling  school 
choice 
limits 
(Edmark  et  al.,  2014).  This 
interaction  between  foreign-born  and  native-born 
students  and  may  contribute  to  slower  language 
acquisition  and  limited  network  formation  for 
long-term integration (OECD, 2016a). 

Recruiting  and  retaining  talented  professionals 
in  the  teaching  profession  remains  a  challenge. 
Teachers are leaving the profession (SOU, 2016c) 
and  the  teaching  workforce  is  ageing:  44 %  of 
teachers  in  upper  secondary  and  38 %  of  teachers 
in  primary  and  lower  secondary  education  are  50 
or  older.  This  is  among  the  highest  figures  of  all 
OECD  countries  (OECD,  2016c).  About  60 000 
new full-time  teachers would need to be recruited 
by 2019 to meet the demand (Skolverket, 2015b). 
The sharp increase in the number of newly-arrived 
students  would  require  the  immediate  recruitment 
of  3 200  full-time  teachers  at  upper  secondary 
level,  according  to  estimates  by  the  Ministry  of 
Education 
and 
retention  continue  to  be  hindered  by  the  low 

and  Research.  Recruitment 

among 

native-born 

2015, one in two foreign-born students performed 
below  the  baseline  level  in  science  (Graph  4.3.6). 
Although  the  second  generation (i.e.  native-born 
with foreign-born parents) has a smaller proportion 
of low achievers (33.3 %), the gap in performance 
is  still  large  compared  to  the  proportion  of  low 
achievers 
students 
(16.7 %) (29).  Although  the  overall  early  school 
leaving  rate  is  relatively  low  compared  to  the  EU 
average (7 % v 11 % in 2015), there is a significant 
difference  between  native-born 
(5.9 %)  and 
foreign-born (13.9 %) students. Since 2006, school 
outcomes  have  steadily  deteriorated  among  those 
born abroad. This is probably due to two factors: a 
higher  proportion  of  students  have  arrived  at  an 
older age and those who immigrated after the age 
of  seven  have  increasingly  come  from  countries 
with a weaker school system (Skolverket, 2016b). 
These  poor  educational  outcomes  later  translate 
into  a  weaker  labour  market  performance  (see 
4.3.1).  

Graph 4.3.6:  Proportion of low achievers in science by 

immigrant background in 2015 

Source: OECD 

The  transition  between  compulsory  and  upper 
secondary  schooling  is  also  a  hurdle  for  many 
foreign-born  students.  Upon  reaching  the  end  of 
compulsory  schooling  after  grade  9  (age  16),  one 
in  two  students  who  migrated  after  the  age  of 
seven  do  not  qualify  for  an  upper  secondary 
‘national  programme’  and  are  directed  to  one  of 
the  five  ‘introductory  programmes’.  The  figure 

(29)  After accounting for the socioeconomic profile of students, 
students  with  a  migrant  background  are  still  around  2.5 
times more likely to be low achievers than their native-born 
peers. 

38 

0%10%20%30%40%50%60%DEDKSEEU avgITNon-immigrantsFirst-generation immigrantsSecond-generation immigrants 
 
                                                           
4.3. Labour market, education and social policies 

perceived status of teachers and wages below both 
the  OECD  and  EU-OECD  averages  later  in  the 
career  (10 %  and  20 %  respectively)  (OECD, 
2014b and 2016c).  

on  minimum  requirements  is  scarce.  Furthermore, 
mechanisms  are  lacking  that  could  scale  up 
effective  interventions  and  harmonise  integration 
support tools. 

Policy response 

improving  school 
Recent  measures  aim  at 
outcomes  and  students’  basic  skills.  The 
government is prioritising ‘early intervention’, i.e. 
the  first  years  of  schooling,  and  continues  to 
allocate  a  government  grant  (SEK  2.3  billion  or 
EUR 0.2 billion  per  school  year  in  the  2017 
budget) for the preschool class and grades 1-3 (age 
7-9). Education providers and schools can use the 
grant  to  reduce  class  sizes  and  employ  more 
primary  or  special  needs  teachers.  Under  the 
‘reading-writing-arithmetic guarantee’ due to enter 
into  force  in  2018,  all  students  should  have 
achieved  a  baseline  level  in  reading,  writing  and 
mathematics  on  finishing  grade  3.  To  make  the 
‘guarantee’ work, a mandatory mapping of pupils' 
competences  already  in  the  preschool  class  and 
further  diagnostic  tests  in  grades  1  and  3,  are 
proposed,  together  with  the  right  to  support  in 
mathematical,  reading  and  writing  development 
(SOU,  2016d).  The  measure  can  potentially  be 
both effective and cost-efficient in the long run, if 
the  school 
implemented  systematically  across 
system.  

to 

started 

Integrating  the  newly-arrived  in  the  school 
system  is  a  priority.  All  children  arriving  in 
Sweden  are  offered  access  to  education  within  a 
month  after  their  arrival.  Although  reception  in 
schools  is  still  largely  left  to  the  discretion  of  the 
local  municipality  and  the  school  head,  central 
set 
government  guidelines  have 
standards.  On  1  January  2016,  a  regulation  came 
into  force,  making  skills  mapping  the  basis  for 
placing  students  in  a  grade  and  for  planning  their 
instruction.  In  their  first  year  of  compulsory 
school,  newly-arrived  students  may  be  offered 
introductory  classes  to  provide  them  with  support 
prior 
to  entering  mainstream  education.  As 
introductory  classes  cannot  last  longer  than  two 
years  and  students  are  placed  in  a  regular  class 
alongside the introductory class, the system should 
ensure a phased transition. Overall, local autonomy 
enables schools to adapt to local conditions when it 
comes  to  integration.  Nevertheless,  autonomy  is 
only  partially 
supported  by  monitoring  of 
outcomes, and the provision of national guidelines 

is 

increasing 

The  government 
financial 
incentives  to  raise  the  attractiveness  of  the 
teaching  profession.  The  government  has 
earmarked  SEK 3 billion  (EUR 0.3 billion)  per 
year  to  increase  teacher  salaries.  As  from  the 
2016/2017 academic year, around 60 000 qualified 
teachers  (i.e.  approximately  30 %  of  all  teachers) 
will  benefit  from  an  average  salary  increase  of 
SEK 3 000  (EUR 317)  per  month.  The  career 
in  2013,  also 
launched 
development  reform, 
provides  a 
to  career 
raise 
salary 
advancement  steps  for  one  in  six  teachers,  i.e. 
SEK 5 000  (EUR 528)  per  month  for  ‘first-class 
teachers’ (30)  and  SEK 10 000  (EUR 1056)  per 
month  for  ‘senior  lecturers’ (31).  Although  all 
increases in salaries are welcome, it remains to be 
seen  how  these  two  measures  can  function  /  be 
implemented simultaneously.  

linked 

it 

in 

requires 

The government continues to support teachers’ 
continuous  professional  development  and  aims 
at  addressing  the  growing  teacher  shortage. 
Three  in  four  teachers  teaching  mathematics  in 
compulsory  and  upper  secondary  schools  (over 
35 000 
the 
teachers)  have  participated 
programme  ‘Boost  for  Mathematics’  since  its 
launch in 2012. Built on collaborative teaching, the 
programme has offered new tools and methods for 
teachers  and  shaped  their  teaching  based  on 
students'  different  needs  (Skolverket,  2016d). 
Although 
the 
programme may have contributed to reversing the 
previous  negative  trend  in  students'  mathematics 
performance.  The  government  is  also  proposing 
more alternative routes into the teaching profession 
and  is  supporting  the  training  of  newly-arrived 
adults  as  teachers  and  mother  tongue  tutors  (see 
Box  4.3.1).  The  government  will  also  finance 
around 3 600 new study places in higher education 
in teacher and preschool teacher education, with a 
focus  on  teachers  for  Swedish  as  a  second 
language.  These  measures  may  help  offset  the 
decline in the status of teacher education relative to 
other career choices. 

further  analysis, 

(30)  Teachers who stand out in their teaching practice. 
(31)  Teachers with a licentiate degree. 

39 

 
                                                           
4.4. INVESTMENT 

4.4.1.  EXTERNAL COMPETITIVENESS 

Current account 

The  current  account  surplus  has  remained 
stable at around 4.7 % of GDP, after gradually 
declining  from  its  peak  of  8.2 %  around  the 
2008  financial  crisis.  The  trade  surplus  from 
goods  exports  has  been  on  a  gradually  declining 
trend  over  the  past  decade,  but  since  2010  a 
growing  contribution  from  services  trade  has 
roughly  compensated  for  this  (Graph  4.4.1).  As  a 
result, Sweden has continued to record a relatively 
large current account surplus, as has been the case 
for over two decades.  

Graph 4.4.1:  Current account balance 

Source: European Commission 

However,  this  headline  current  account  level 
may  somewhat  overstate  the  real  economic 
impact of the surplus. An increasing share of the 
surplus  (over  2  pps. 
in  2015)  stems  from 
merchanting  services  and  retained  earnings  on 
direct  investment.  This  reflects  the  activity  of 
Swedish  multinationals  abroad,  with  a  limited 
relationship  to  domestic  investment  and  savings 
decisions.  Furthermore,  statistical  problems  in 
accurately  measuring  merchanting  contribute  to 
the  inconsistencies  between  the  current  account 
and 
(European 
Commission, 2016a). Thus, it is not clear whether 
the  surplus  still  reflects  a  strong  net  lending 
position. 

financial 

account 

balance 

trade  and 

surplus  via 

The  outward  spillovers  from  the  current 
account 
financial 
channels  seem  limited.  Sweden’s  imports  and 
aggregate demand are growing faster than the EU 
average,  and  financial  spillovers  to  the  Baltic 
(European 
region  have  been 
Commission,  2016a).  While  Sweden 
is  an 
important  trading  partner  for  several  EU  Member 
States,  the  impact  of  its  demand  on  neighbouring 
EU  partners  is  relatively  contained.  Overall,  the 
surplus  therefore  does  not  give  rise  to  significant 
external risks for other economies. 

rather  modest 

In  addition,  the  underlying  driver  of  the 
persistent  current  account  surplus  is  primarily 
high  savings,  not  underinvestment.  Sweden  is 
increasingly  outperforming  the  EU  average  in 
terms  of  total  investment  level  (as  measured  by 
gross  fixed  capital  formation)  and  has  gradually 
been  catching  up  in  construction  investment,  an 
area where it has historically lagged (Graph 4.4.2). 
Moreover,  its  investment  rate  is  significantly 
higher  than  that  of  peer  countries  with  similar 
current  account  surpluses  and  historically  low 
housing  and  infrastructure  investment  (such  as 
Germany, 
and  Denmark). 
However,  Sweden’s  relatively  high  investment 
level  is  exceeded  by  its  savings  rate,  which  has 
remained stable at close to 30 % since 2010.   

the  Netherlands 

Graph 4.4.2:  Gross fixed capital formation, comparison with 

EU average 

Source: European Commission 

The  household  sector  in  particular  has  large 
and  gradually  growing  net  savings.  In  2015, 

40 

-4-202468101299'000102'03040506070809101112131415% of GDPCapital account (KA)Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA)05101520253000010203040506070809101112131415% of GDP Sweden - total GFCFEU27 avg. - total GFCFSweden - construction GFCFEU27 avg. - construction GFCF 
 
 
 
households’  contribution  to  net  savings  amounted 
to about 7.5 % of GDP (Graph 4.4.3), reflecting a 
saving  rate  of  about  18 %  of  disposable  income. 
This  is  mainly  driven  by  high  private  pension 
savings,  partly  resulting  from  pension  reforms  in 
the 
defined-
contributions  scheme  that  keeps  public  pensions 
constant as a percentage of GDP. This transferred 
more  of  the  burden  of  ageing-related  costs  onto 
future pensioners, thus encouraging a shift towards 
higher household savings.  

1990s  which 

introduced 

a 

The strong household savings rate is also linked 
to  households’  high  stock  of  outstanding 
mortgage  debt.  This  requires  sufficient  savings 
either  to  gradually  repay  the  debt,  or  to  build  a 
sufficient  amount  of  income-generating  financial 
assets  to  continue  servicing  the  debt  during 
retirement.  In  practice,  households  have  mainly 
done  the  latter,  as  limited  mortgage  amortisation 
requirements  and  a  tax  bias  favouring  high  debt 
levels discourage debt repayment (see 4.2.3). 

Graph 4.4.3:  Net lending/borrowing by sector 

4.4. Investment 

contribution to the overall export market share has 
not been sufficient to offset the losses from goods, 
which  still  represent  about  two-thirds  of  all 
exports. 

This  secular  decline  in  export  market  share  is 
trade  patterns 
linked 
to  changing  global 
industrialised 
affecting  many  mature, 
economies. The cumulative loss in Sweden’s share 
of world exports over the past 10 years amounts to 
about 23 %. This is broadly in line with traditional 
peer countries with a similar focus on high-value-
added  exports  like  Denmark  and  the  Netherlands 
(Graph  4.4.4),  whereas  Finland  experienced  a 
much  steeper  decline  in  market  share.  Germany’s 
performance  has  been  somewhat  better  since  the 
start of this decade, as the country benefited from a 
larger share of exports to generally faster-growing 
Asian  markets.  The  underlying  reason  for  the 
broader  trend  towards  lower  market  shares  for 
mature  economies  is  the  increasing  volume  of 
trade  resulting  from  the  integration  of  emerging 
economies  into  global  supply  chains,  which  has 
resulted  in  world  trade  growth  outpacing  export 
countries 
industrialised 
growth 
(European Commission, 2016a, p. 16).  

for  many 

Graph 4.4.4:  Cumulative export market share loss since 

2005 for Sweden and selected peer countries 

Source: European Commission 

Export performance 

Sweden’s share of world exports has been on a 
steadily  downward  trend  since  the  early 2000s, 
driven  by  a  continued  fall  in  goods  exports 
market  share.  With  the  exception  of  2008/2009, 
in  sectors  such  as 
services  exports  (mainly 
information 
and 
communication 
technology, 
business services) have remained strong, especially 
in  the  post-crisis  period.  However,  their  positive 

Source: European Commission 

Sweden’s  loss  of  export  market  share  has  been 
exacerbated  by  a  sluggish  demand  recovery  in 
its key trading partners and by its specialisation 
in  investment  goods.  Its  geographical  export 
focus  includes  several  trade  destinations  (such  as 

41 

-6-4-2024681000010203040506070809101112131415% of GDPHouseholdsGeneral governmentFinancial corporationsNon-financial corporationsTotal economy-40-35-30-25-20-15-10-500506070809101112131415SwedenGermanyDenmarkNetherlandsFinland 
 
 
4.4. Investment 

many 

affecting 

The  declining  export  market  share  does  not 
suggest  any  underlying  fall  in  competitiveness. 
As  explained  before,  it  primarily  reflects  broader 
export-focused 
trends 
industrialised  economies.  This  conclusion 
is 
further supported by cost competitiveness metrics: 
the real effective exchange rate has depreciated by 
about  8 %  over  the  3  years  ending  2015  (mainly 
reflecting  the  weakening  of  the  Swedish  krona), 
and unit labour costs have evolved broadly in line 
with that of the euro area in recent years. Sweden 
also 
non-cost 
including  via  an  attractive 
competitiveness, 
business environment and a generally strong R&D 
and 
(European 
Commission,  2016a,  p.  17).  There  is  therefore  no 
indication  that  the  falling  export  market  share 
represents deeper competitiveness problems. 

performance 

does  well 

innovation 

terms 

of 

in 

4.4.2.  INVESTMENT SITUATION 

Investment in dwellings 

in 

dwellings 

investment 

is 
Although 
accelerating, it remains insufficient to tackle the 
housing  shortage.  Graph  4.4.2  shows 
that 
construction 
investment  has  been  gradually 
growing  from  a  low  starting  point,  and  is  now 
roughly  in  line  with  the  EU  average  (although 
investment specifically in dwellings construction is 
still  somewhat  below).  As  discussed  in  4.2.2, 
Sweden  faces  a  structural  housing  shortage, 
especially 
the  main  urban  areas.  Some 
vulnerable  demographic  groups,  such  as  people 
from  a  migrant  background, 
face  particular 
difficulties  in  finding  affordable  housing.  The 
housing  shortage  is  the  result  of  a  long  period  of 
underinvestment  in  new  construction (32),  driven 
by  a  combination  of  bottlenecks  (see  Supply-side 
issues under 4.2.2).  

in 

Investment in infrastructure 

a 

good 

Despite 
performance, 
investment 
unfavourably  by 

Sweden’s 

overall  macroeconomic 
infrastructure 
rather 
standards. 

international 

compares 

situation 

(32)  The  National  Board  of  Housing,  Building  and  Planning 
(Boverket)  estimates  that  710 000  new  dwellings  are 
needed  in  the  coming  10  years,  which  will  require  a 
significant further pick-up in building activity. 

Denmark,  Finland  and  the  Netherlands)  which 
experienced  deteriorating  market  dynamism, 
resulting in lower import growth in those countries 
(Graph  4.4.5).  In  terms  of  sectoral  profile,  the 
country  is specialised  in  areas  such  as  machinery, 
chemicals, 
transport 
equipment  (in  addition  to  basic  forest  products 
such  as  wood  and  paper).  Most  of  these  products 
are capital goods, which suffered from particularly 
weak demand in the aftermath of the crisis. 

pharmaceuticals 

and 

Graph 4.4.5:  Competitiveness and dynamism in Sweden’s 
top-10 goods export destinations, 2011-2015 

Note: Size of bubbles indicates weight of destination in 
Sweden’s total goods exports. Market ‘dynamism’ is a proxy 
for demand growth in each export destination: it measures 
growth of total imports into a given country relative to 
global world imports growth. Market ‘competitiveness’  in 
this context is a proxy for Sweden’s export performance to a 
given destination compared to competing exporters: it 
measures growth in Sweden’s exports to a given country 
relative to that country’s total imports growth. 
Source: UN COMTRADE database, European Commission 

The government has implemented a new export 
strategy to address the shrinking export market 
share.  The  government  aims  to  increase  exports 
and  foreign  investments  (European  Commission, 
2016a, p. 18). Public authorities, organisations and 
regional  actors  work  together  in  order  to  (i) 
exchange  experiences  on  different  promotion 
activities,  (ii)  identify  products  and  services  that 
can  be  promoted  internationally,  and  (iii)  stay  in 
dialogue  with  the  business  sector.  In  addition,  the 
Agency  for  Economic  and  Regional  Growth 
(Tillväxtverket)  coordinates  the  establishment  of 
six  regional  export  centres.  Information  on  export 
markets and practical advice has been added to the 
one-stop shop website for businesses. 

42 

NorwayGermanyUSAUKDenmarkFinlandNetherlandsBelgiumFranceChina-15-10-5051015-10-50510Market Dynamism (pp)Competitiveness (pp) 
 
                                                           
4.4. Investment 

measures  to  ensure  that  challenges  are  identified 
and dealt with early on. 

and 

barriers 

the  e-business  portal (33) 

Sweden  generally  performs  well  in  addressing 
regulatory 
administrative 
burdens,  although  a  few  specific  challenges 
remain.  SMEs  appreciate  the  stability  of  the 
regulatory  environment  (European  Commission, 
2016c).  Recently,  the  timeline  to  start  a  new 
business  has  been  shortened  (from  10  days  to  5 
days).  In  addition,  the  time  to  transfer  property 
between  two  local  companies  has  been  halved  to 
is 
14  days,  and 
continuously  expanding  its  services  and  acts  as  a 
one-stop-shop  for  business  reporting.  The  good 
quality  of  public  services  is  also  reflected  in  the 
Effectiveness 
World  Bank’'s  Government 
indicator (34), where Sweden has one of the highest 
scores  among  EU  Member  States.  In  contrast, 
businesses  perceive  a  lack  of  qualified  workforce 
as  a  crucial  barrier  to  doing  business  (World 
Economic  Forum,  2016,  p.  330)  and  to  growth 
(Företagarna,  2016).  Finally,  national  rules  and 
procedures for companies to directly transfer their 
registered  offices  into  and  out  of  Sweden  are 
missing. 

With respect to its insolvency processes, Sweden 
broadly  ranks  in  line  with  the  EU  average, 
albeit with a few specific weaknesses. According 
to the World Bank’s Resolving Insolvency ranking 
(World  Bank,  2016),  the  recovery  rate  in  case  of 
an  insolvency  is  rather  low  (77.9  cents  on  the 
dollar, 12th  in the  EU)  and  insolvencies  are  time-
consuming (2 years, 15th in the EU).  

Sweden is one of the top performers in Europe 
as  regards  access  to  finance  for  SMEs  and  the 
authorities  continue  to  ensure  an  attractive 
financing  environment  for  companies.  In  2016, 
financing conditions have further improved: SMEs 
registered  an  increased  willingness  by  banks  to 
provide  credit  according  to  a  recent  European 
Commission  survey (35)  and  significantly  fewer 
SMEs  reported  rejected  loan  applications  than  in 

(33)  The 

e-business 

portal 

is 

available 

on 

http://www.verksamt.se  

(34)  The 

is 

of 

set 

full 

indicators 

available 
http://info.worldbank.org/governance/wgi/index.aspx 
(35)  The  full  results  of  the  2016  Survey  on  the  Access  to 
Finance of Enterprises (SAFE) conducted by the European 
Commission  jointly  with  the  European  Central  Bank  are 
available 
http://ec.europa.eu/growth/access-to-
finance/data-surveys. 

at: 

at: 

in 

with 

ranks 

Among EU Member States, the quality of Swedish 
the  Global 
8th 
infrastructure 
Competitiveness 
railroad 
Report, 
infrastructure  (15th)  presenting  the  lowest  score 
(World  Economic  Forum,  2016).  The  railway 
system could benefit from increased investment in 
maintenance and development in large parts of the 
in  cross-border 
including 
railway  network, 
connections. An inquiry regarding the organisation 
of  the  railway  system  from  December  2015 
highlighted the needs for a comprehensive strategy 
for  the  utilisation  of  the  railway  system,  in 
particular in view of proposed investments in high-
speed  railway.  In  addition  to  its  direct  impact, 
infrastructure 
to 
improve  access 
to  new  areas  and  open  up 
opportunities  for  new  residential  development, 
thus alleviating the current housing shortage.  

investment  could  also  serve 

a 

of 

has 

level 

about 

sizeable 

recognised 

government 

increase  of 

these 
The 
in  recent 
infrastructure-related  challenges 
budget  proposals  and  in  specific  investment 
plans for high-speed railways. While the current 
budget 
SEK 9 billion 
(EUR 0.9 billion)  per  year  remains  in  place  for 
2016-2018, 
about 
SEK 6 billion (EUR 0.6 billion) has been proposed 
for  2019  and  2020,  with  particular  focus  on 
maintaining  infrastructure.  The  importance  of  the 
transport  system  is  reflected  in  the  National 
Transport  Plan,  in  which  investment  in  the  whole 
transport  system  for  2018-2029  is  planned  to 
increase  by  20 %  compared  to  the  previous 
planning period 2014-2025 (from SEK 515 billion 
to  SEK 622.5 billion  or 
or  EUR 54.4 billion 
the  2016 
EUR 65.8 billion).  Furthermore, 
in 
infrastructure  bill, 
its 
support for high-speed railways between the three 
major  metropolitan  regions.  The  government  is 
seeking  broad  political 
these 
investments as the project would have a long-term 
impact on the public investment budget. 

the  government  stated 

support 

for 

4.4.3.  BUSINESS ENVIRONMENT 

Companies  benefit  from  a  high-quality  and 
competitive  business  environment.  In  several 
areas  the  country  stands  out,  including  public 
administration,  access  to  finance,  innovation  and 
internationalisation  by  businesses.  The  authorities 
monitor  progress  and  regularly  evaluate  policy 

43 

 
                                                           
4.4. Investment 

administration  (e.g.  higher  number  of  direct 
awards). 

2015.  Fewer  SMEs  had  difficulties  in  accessing 
public  financial  support  schemes.  In  terms  of 
venture  capital  and  equity  available  to  young  and 
growing  firms,  Sweden  scores  well  above  the  EU 
average.  Furthermore,  an  inquiry  launched  by  the 
government  recommended  that  public  financial 
instruments  could  better  suit  SMEs’  needs  if 
existing  funds  targeted  towards  SMEs  were  to 
merge, a specially designated fund to support pilot 
projects and SME seed funding was created, and a 
national development company that can serve as a 
fund-of-funds  for  growing  the  venture  capital 
market  was  established  (European  Commission, 
2016c).  SMEs  have  also  benefited  from  financial 
support  by  the  European  Investment  Fund,  which 
has  concluded  agreements  with  a  number  of 
important intermediaries, such as Norrlandsfonden, 
ALMI  Företagspartner,  Svensk  Exportkredit  and 
Tillväxtverket,  including  the  Swedish  Venture 
Initiative (36), amounting to EUR 235 million. 

The  public  procurement  system  is  generally 
efficient and well-functioning, apart from some 
specific deficiencies. The share of contract award 
notices  with  information  on  the  contract  price  is 
very  low  (only  27 %  compared  to  96 %  in  the 
European  Economic  Area),  which  makes 
it 
impossible 
to  establish  unjustified  contract 
modification, or whether prices paid correspond to 
market prices. While e-procurement — generally a 
transparency  enhancing  measure  —  is  well  above 
the  EU  average,  public  procurement  procedures 
nevertheless  remain  insufficiently  transparent  in 
some 
instances.  This  may  be  particularly 
disadvantageous  for  foreign  firms  and  SMEs, 
whose  participation  levels  are  indeed  low  by 
international 
cross-border 
procurement  (1.5 %)  is  lower  than  the  European 
Economic  Area  average  (1.8 %)  and  SMEs'  share 
of  the  total  value  of  public  contracts  awarded 
(19 %) is also well below average (29 %). Finally, 
the  public 
a  broader  problem  remains 
procurement strategy is heavily geared towards the 
needs  of  the  central  administration,  with  serious 
local 
weaknesses  remaining  at 

standards: 

level  of 

direct 

that 

the 

(36)  The  Swedish  Venture  Initiative  combines  the  European 
Structural and Investment Funds (ESIF) resources with the 
European  Fund  for  Strategic  Investments  (EFSI).  In 
addition to the SME initiatives, the EFSI (via the European 
Investment  Bank)  has  guaranteed 
in 
in  Värmland,  broadband 
Långmarken  windmill  park 
networks 
than 
EUR 215 million. 

and  media  digitisation  of  more 

investments 

44 

 
                                                           
4.4. Investment 

45 

 Box 4.4.1: Investment challenges and reforms in SwedenMacroeconomic perspective Total investment as a percentage of GDP has been above the EU average over the last decade. Even certain sub-categories such as investment in construction historically below the EU average have started to grow. Housing construction in particular has picked up strongly and was a key driver of investment growth. Investment in machinery, equipment and R&D also picked up in 2015 and 2016. Investment is expected to grow at a lower but still robust pace with capacity constraints starting to become binding in some sectors. Public investment, notably in housing, healthcare and education infrastructure, is set to accelerate in 2017. Assessment of barriers to investment and ongoing reforms   Barriers to investment in Sweden are generally low (European Commission, 2015d). Some reforms have been adopted in public procurement (see 4.4.3), research and innovation (see 4.5.1) and construction investment. However, there is still scope for further measures, particularly on tackling barriers for construction (see 4.2.2). Main barriers to investment and priority actions underway 1. Investment from SMEs could benefit from more transparent public procurement procedures. The share of contracts awarded to SMEs is very low. A Public Procurement Strategy, adopted in June 2016, aims at fostering competition, stimulating innovation and developing new products and services. 2. While cooperation between academia and large corporations seems to work rather well, cooperation with SMEs could be enhanced. The new Research Bill ‘Collaborating for knowledge’ calls for increased collaboration of this kind. In addition, the recently launched Swedish Venture Initiative supports access to equity capital for early-stage high-growth enterprises, often SMEs in R&D-intensive sectors. 3. Construction investment is held back by a number of interlinked structural barriers. Sweden has gradually implemented a range of policy steps to tackle these bottlenecks (e.g. streamlining planning processes), coupled with some budgetary support. In June 2016, the authorities put forward a 22-point plan with further measures (see 4.2.2). Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation EnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
4.5. SECTORAL POLICIES 

4.5.1.  RESEARCH, DEVELOPMENT AND 

INNOVATION 

Sweden  is  one  of  the  world’s  most  innovative 
economies. The country benefits from an excellent 
science  base,  highly  qualified  human  resources  as 
well as from the presence of  many internationally 
competitive  firms  both  in  the  manufacturing  and 
services sectors. Nevertheless, a slight decline has 
been  registered  in  recent  years  in  both  innovation 
performance  (European  Innovation  Scoreboard 
index:  from  0.722  in  2013  to  0.704  in  2015 (37)) 
and  in  business  R&D  intensity  (from  2.59 %  in 
2008 to 2.27 % in 2015).  

For  a  small,  open,  knowledge-based  economy 
like Sweden, it is important to remain attractive 
for domestic and foreign business investment in 
research  and 
innovation.  So  far  Sweden's 
innovation  model  has  mainly  relied  on  a  limited 
number  of  multinational  enterprises  and  has  not 
fully  exploited  the  potential  of  innovative  SMEs 
and start-ups. The economy’s competitiveness and 
innovation capacity is somewhat constrained some 
insufficient  framework  conditions  for  SMEs,  by  a 
lack of collaboration between SMEs and academia 
and  faces  the  risk  of  an  insufficient  supply  of 
highly-skilled human resources.  

In  terms  of 
innovation-friendly  framework 
conditions  for  SMEs,  there  remains  scope  to 
further  improve  the  flexibility  of  product  and 
services  markets.  Sweden’s  performance  in  the 
barriers  to  entrepreneurship  and  the  barriers  to 
trade and investment sub-indicators of the OECD’s 
product  market  regulation  indicator (38)  (PMR)  is 
not outstanding, probably due to the complexity of 
its regulatory procedures. Overall, the country only 
ranks 19th at EU level on the PMR: improvements 
in  this  area  may  further  reduce  the  obstacles  that 
innovative  SMEs  encounter  when  starting  and 
developing their activities.  

The  existing  open  living  labs  culture  and 
research  and  innovation  (R&I)  foundations 
system  are  essential  to  promote  collaboration 
between  universities  and  SMEs.  Initiatives  such 

(37)  https://ec.europa.eu/growth/industry/innovation/facts-

figures/scoreboards_en  

(38)  http://www.oecd.org/eco/growth/ 

indicatorsofproductmarketregulationhomepage.htm 

as the five Innovation Partnership Programmes (39) 
are welcome as they target systemic and challenge-
driven  innovation  based  on  strong  socio-political 
consensus  with  long-term  goals.  They  are  usually 
driven  by  industry  actors  but  also  involve  key 
players  of  the  R&I  system.  Their  aim  is  to  create 
innovative solutions to strengthen competitiveness 
and  leverage  local-national  lead  markets  to  global 
markets.  

There  is  a  risk  that  the  economy’s  innovation 
performance  will  be  hampered  by  an 
insufficient  supply  of  highly-skilled  human 
capital, in particular in science and engineering. 
The  number  of  new  graduates  in  science  and 
engineering per thousand 25-34 year-olds declined 
from  16.8  in  2012  to  15.5  in  2014,  positioning 
Sweden below the EU average (17.6). In addition, 
despite  the  fact  many  enterprises  invest  in  ICT 
training for their employees, there is a shortage of 
employees with specialist skills in this area. This is 
in  part  linked  to  gradually  declining  educational 
performance: in terms of new tertiary graduates in 
computing  per  thousand  25-34  year-olds,  Sweden 
only  ranks  16th  in  the  EU.  If  these  trends  are  not 
reversed,  Sweden  may  suffer  from  a  shortage  of 
highly-skilled  human 
science, 
technology  and  engineering  in  the  future.  This 
the  productivity  and 
could  negatively  affect 
innovation  performance  of  the  country,  ultimately 
becoming a barrier to R&D investments. 

resources 

in 

further 

improve 

innovation 
‘Smart 
in  2016  aims 

The government has launched several initiatives 
and 
to 
industry’ 
competitiveness.  The  new 
initiative 
to  boost 
launched 
competitiveness and innovation performance in the 
years  to  come.  In  addition,  the  new  Research  Bill 
2017-2020,  which  was  submitted  to  Parliament  in 
November 2016, is going to support both basic and 
applied  research  as  well  as  human  resources 
development  through  an  additional  budget  of 
around SEK 2.8 billion (EUR 0.3 billion) in 2017-
2020.  A  big  share  of  this  budget  will  go  to 
universities  (SEK 1.3 billion  or  EUR 0.14 billion) 

(39)  The  specific  partnership  programmes  included  in  this 
initiative  are  (i)  next  generation's  travel  and  transport,  (ii) 
smart cities,  (iii) circular and bio-based economy, (iv) life 
sciences  and  (v)    connected  industry  and  new  materials. 
Further 
on: 
are 
http://www.government.se/articles/2016/07/innovation-
partnership-programmes--mobilising-new-ways-to-meet-
societal-challenges/    

available 

details 

46 

 
 
                                                           
                                                           
4.5. Sectoral policies 

Although Sweden is expected to overachieve its 
greenhouse gas target for 2020, the government 
intends to do more in this period. In July 2016 it 
announced  that  it  will  buy  and  cancel  up  to  7 
million  tonnes  of  allowances  per  year  in  the  EU 
ETS  from  2018  and  onwards.  It  also  intends  to 
cancel  any  annual  surplus  of  its  annual  emission 
allocations  in  2013-2020  for  sectors  outside  the 
EU  ETS.  The  government  has  also  increased  the 
amount  allocated  for 
investment 
programme 
total  of  SEK 3.5 billion 
(EUR 0.37 billion) in 2015-2020, and is leading an 
initiative  called  Fossil  Free  Sweden  to  stimulate 
industry  and  other  stakeholders  to  phase  out  the 
use of fossil fuels.  

its  climate 

to 

a 

Sweden’s  energy  policies  also  contribute 
significantly  to  improving  resource  efficiency 
and emission reductions. The country has a well-
developed  waste  policy  promoting  recycling  and 
re-use,  and reached  a recycling rate for  municipal 
waste close to 100 % in 2013. 

Energy 

A long-term energy strategy is being established 
based  on  the  recommendations  from  a  cross-
party  Energy  Commission.  The  political 
agreement reached in June 2016 (supported by the 
government  and  three  opposition  parties)  includes 
the  objective  to  rely  completely  on  renewable 
energy  for  electricity  in  2040,  while  at  the  same 
time underlining that this should not be understood 
as  a  ban  on  nuclear  energy  beyond  that  date, 
reflecting 
In 
November  2016,  a  2030  target  for  a  50 % 
improvement of energy intensity compared to 2005 
this  agreement.  The  Energy 
was  added 
Commission’s  final  report  was  submitted  to  the 
government on 9 January 2017. The government is 
expected  to  submit  a  proposition  to  Parliament  in 
2017 based on this report.  

hard-reached 

compromise. 

to 

a 

The  agreement  does  not  explicitly  cover  all 
priorities  of 
the  Energy  Union  strategy. 
Nevertheless,  it  is  a  substantial  step  forward  that 
could  be  used  as  a  basis  for  establishing  the 
integrated national energy and climate plan, which 
will be an essential element  of the Governance of 

improve 

to 
researchers’  careers  and  boost 
excellence in research, make universities engage in 
more  external  collaboration  to  tackle  societal 
challenges, and promote gender balance. 

4.5.2.  ENERGY, RESOURCES AND CLIMATE  

Climate policy 

The  All  Party  Committee  on  Environmental 
Objectives  has  developed  a  framework  for  a 
long-term  climate  policy.  In  June  2016  the 
Committee  presented  a  comprehensive  report 
proposing  a  number  of  long-term  targets  and 
indicators  for  making  the  country  carbon-neutral 
by 2045. The proposed targets include a reduction 
of total greenhouse gas (GHG) emissions by 85 % 
by  2045  compared  to  1990,  as  well  as  a  63 % 
reduction  target  by  2030  and  a  75 %  reduction 
target  by  2040  compared  to  1990  for  sectors 
outside  the  EU  Emissions  Trading  System  (ETS). 
The  Committee  also  suggested  specific  objectives 
for the transport sector. Its proposals are supported 
by  a  majority  of  parties  in  parliament.  The 
government  is  now  expected  to  present  a  climate 
bill to parliament. 

Further  emissions  reductions  in  the  transport 
sector are promoted through tax measures and 
low-carbon 
pilot  programmes.  These 
emission  vehicles  and 
like  e.g. 
biofuels, which have become an important element 
in energy supply. By 2030 Sweden aims to reduce 
GHG  emissions  from  domestic  transport  by  70 % 
compared to 2010 levels.  

technologies 

target 

Sweden  is  expected  to  meet  its  EU  2020  GHG 
emissions  target  (covering  sectors  outside  the 
ETS)  by  a  wide  margin  (see  Annex  A). 
Nevertheless,  CO2  emissions  from  transport  — 
accounting  for  33 %  of  its  total  GHG  emissions 
and  more  than  50 %  of  non-ETS  emissions  — 
remain a particular policy challenge. 

Its  current  national  climate  and  energy  targets 
for  2020 
its  EU 
sometimes  go  beyond 
obligations.  These  include  a  40 %  reduction  in 
total GHG emissions by 2020, compared to a 1990 
baseline;  at  least  50 %  share  of  renewable  energy 
in  final  energy  consumption;  10 %  renewable 
energy 
transport  sector;  and  20 % 
improvement in energy efficiency. 

the 

in 

47 

 
4.5. Sectoral policies 

through 

the  Energy  Union (40).  Concerning  electricity, 
investment in new generation capacity is primarily 
incentivised 
the  Swedish-Norwegian 
certificate  system  for  renewable  energy.  The 
Energy  Commission  agreed  in  June  2016  to 
remove  the  special  production  levy  (‘effektskatt’) 
on  nuclear  energy  by  2019  to  improve  the 
profitability of nuclear generation. 

The energy system is characterised by very low 
use  of  fossil  fuels  and  a  high  share  of 
renewables  in  all  sectors  apart  from  transport, 
which remains predominantly dependent on oil 
products.  At  about  54 % (41), 
the  share  of 
renewable  energy  in  final  energy  consumption  is 
among  the  highest  in  the  EU  and  already  exceeds 
the  2020  target  of  49 %.  On  energy  efficiency, 
Sweden has set comparably ambitious 2020 targets 
for  both  primary  and  final  energy  consumption. 
While  energy  consumption  is  decreasing,  the 
country is some distance off reaching the target for 
primary energy in particular.  

(except 

interconnection  capacity 

Nuclear  energy 
together  with  renewables 
(notably  hydropower)  accounts  for  some  98 % 
of  gross  electricity  generation.  The  electricity 
transmission  system  is  well  interconnected  with 
the  other  Nordic  countries 
Iceland) 
although connections with Finland could be further 
improved.  The 
for 
electricity  of  25 % (42)  will  improve  further  once 
the  NordBalt  interconnector  between  Sweden  and 
Lithuania  becomes  fully  operational.  The  use  of 
natural  gas  is  limited  to  less  than  2 %  of  gross 
inland  consumption  and  gas  security  is  for  this 
reason  not  a  major  concern  despite  a 
total 
dependence  on  imports  from  Denmark.  The  PCI 
project Gothenburg LNG Terminal will also in due 
time provide a second entry point for supply to the 
gas grid. 

The  electricity  market  is  fully  deregulated  and 
is  characterised  by  a  high  level  of  competition 
on the retail market and a relatively low market 
concentration  among generators.  The  wholesale 
market is an integrated part of the Nord Pol market 
is  significant  cooperation  between 
and 

there 

(40)  See  European  Commission  proposal  for  a  Regulation  on 
the  Governance  of  the  Energy  Union,  adopted  on  30 
November 2016; 2016/0375 (COD). 

(41)  Preliminary figure for 2015, European Commission (2017). 
(42)  This  figure  is  defined  as  the  ratio  between  cross-border 
transmission capacity and installed generation capacity. 

transmission  system  operators  in  the  region.  The 
wholesale  price  for  electricity  has  increased  over 
the  last  18  months  from  a  very  low  level,  partly 
driven  by  the  increasing  global  price  for  energy 
commodities  such  as  oil  and  coal.  It  continues  to 
be  sensitive  to  the  hydrological  situation  in 
Scandinavia 
(impacting  hydro  power).  The 
electricity  price  paid  by  industrial  consumers  is 
among 
(European 
in 
Commission,  2016d),  which  contributes  to  one  of 
the  lowest  real  unit  energy  costs  (as  per  cent  of 
value  added)  in  the  EU.  Conversely,  gas  prices 
paid  by  industrial  customers  are  higher  than  EU 
and OECD averages. 

the  EU 

lowest 

the 

Environmental taxation 

Sweden  was  one  of  the  first  countries  to  use 
green  taxation  and  its  use  has  been  successful. 
While  environment-related  taxes  as  a  share  of 
GDP  have  not  increased  since  2001,  this  reflects 
the behavioural impact of these taxes, including an 
increased  substitution  towards  biofuels  in  the 
transport  sector  and  a  phase-out  of  fossil  fuels  in 
domestic heating. The relative advantage for diesel 
vehicles has also eroded revenues from the higher-
taxed petrol fuel as the vehicle stock has changed.  

In  recent  years,  there  has  been  a  focus  on 
increasing  contributions 
from  carbon  and 
energy taxes. Various reduced rates of the carbon 
tax  on  heating  fuels  in  the  non-ETS  sectors  have 
been  progressively  reduced  and  will  be  fully 
phased-out  in  2018.  The  energy  and  carbon  taxes 
on fossil fuels have been adjusted annually in line 
with the consumer price index since the 1990s, and 
for  taxes  on  petrol  and  diesel  this  has  now  been 
complemented  by  introducing  a  schematic  link  to 
GDP  growth  from  2017 (43).The  share  of  taxes 
related to transport remains fairly modest, as is the 
case  for  environmental  taxes  more  generally. 
However, the tax rate on diesel, petrol and heating 
oil remain among the highest in the EU. 

4.5.3.  TRANSPORT SECTOR 

railway 

The 
continued 
attention  and  investment,  in  particular  for 
removing 
network  maintenance  and 

requires 

system 

for 

(43)  Specifically,  these  taxes  will  be  increased  annually  by  an 

additional 2 pps. to reflect average GDP growth. 

48 

 
                                                           
                                                           
4.5. Sectoral policies 

the 
the  sector 

railway  sector 
is 

bottlenecks  to  cross-border  traffic.  The  overall 
is  broadly 
situation  of 
satisfactory: 
liberalised,  many 
technical  innovations  (e.g.  open  data  access)  are 
embraced, volumes are increasing and the railway 
system 
is  environmentally  friendly.  However, 
there are also persistent weak points, especially as 
rail 
regards 
infrastructure.  Delays  are  a  constant  feature,  in 
particular  in  severe  weather  conditions.  There  has 
been 
in  cross-border 
investment 
connections. More generally, the growth of traffic 
volume  has  outpaced  investment  during  the  last 
decade,  and  this  has  opened  up  investment  needs 
(see also 4.4.2).  

the  quality  and 

robustness  of 

insufficient 

location,  all 
Given  Sweden’s  geographical 
transport  modes  are  important  to  support 
future  export  performance,  and  potential 
capacity bottlenecks need careful consideration. 
In  this  context,  maritime  transport  remains  an 
important  complementary  transport  mode  as  an 
essential  part of  short  sea  shipping  within  the  EU 
intermodal  chain.  Following  the  government’s 
action plan of 2015  for  improved  competitiveness 
of the shipping industry, the authorities introduced 
a tonnage tax system (44) from January 2017. The 
effects of this measure are expected to materialise 
over  the  coming  years,  and  could  be  assessed 
based  on  the  possible  increase  in  the  fleet, 
potential  ‘returning’  tonnage  under  the  Swedish 
flag  and  jobs  created  for  seafarers  and  within  the 
maritime cluster as a whole. 

(44)  Decision  on  18.08.2016  not  to  raise  objections  (published 
in  the  Official  Journal  of  the  European  Union  on 
16.09.2016) 

49 

 
 
                                                           
ANNEX A 

Overview Table 

Commitments 

2016 Country specific recommendations (CSRs) 

Summary assessment (45) 

limiting 

taxes.  Ensure 

CSR  1:  Address  the  rise  in  household  debt  by 
in  particular  by 
incentives, 
adjusting  fiscal 
gradually 
tax  deductibility  of 
the 
mortgage  interest  payments  or  by  increasing 
recurrent  property 
the 
macroprudential  authority  has  the  legal  mandate 
to  implement  measures  to  safeguard  financial 
stability in a timely manner. Foster investment in 
housing  and  improve  the  efficiency  of  the 
housing  market,  including  by  introducing  more 
flexibility in setting rental prices and by revising 
the  design  of  the  capital  gains  tax  to  facilitate 
more housing transactions. 

that 

incentives, 

Address  the  rise  in  household  debt  by  adjusting 
fiscal 
in  particular  by  gradually 
limiting the tax deductibility of mortgage interest 
payments  or  by  increasing  recurrent  property 
taxes. 

Ensure  that  the  macro-prudential  authority  has 
the  legal  mandate  to  implement  measures  to 
safeguard financial stability in a timely manner. 

Sweden has made limited progress in addressing 
CSR 1 (this overall assessment of CSR 1 does not 
include  an  assessment  of  compliance  with  the 
Stability and Growth Pact):  

No  progress  in  adjusting  fiscal  incentives,  i.e. 
changing  the  mortgage  interest  deductibility  rules 
or property taxation.  

achieved 

Limited progress on enhancing the legal mandate 
of  the  macroprudential  authority.  The  authorities 
have 
on 
cross-party 
strengthening 
the  macroprudential  authority’s 
mandate.  However,  concrete  proposals  are  still  to 
be published later in 2017, so it remains uncertain 
framework  will 
what 

agreement 

the  new 

legal 

form 

(45)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures  to address the CSR. Below a number of 
non-exhaustive typical situations  that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent;    
and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or  
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

50 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
Foster  investment  in  housing  and  improve  the 
efficiency  of  the  housing  market,  including  by 
introducing  more  flexibility  in  setting  rental 
prices  and  by  revising  the  design  of  the  capital 
gains tax to facilitate more housing transactions. 

A. Overview Table 

ultimately take (see 4.2.2). 

further 

streamline 

investment 

Some  progress  on  fostering 
in 
housing  and  improving  the  efficiency  of  the 
housing market. The authorities have put forward 
a  22-point  plan  to  increase  land  available  for 
development, 
building 
regulations and shorten planning lead times, and to 
address a number of other specific inefficiencies in 
the  housing  market  (see  4.2.3).  However,  the 
timeline and precise implementation form of most 
proposed  measures  remain  uncertain.  In  addition, 
no  significant  policy  action  has  been  taken  to 
introduce  more  flexibility  in  setting  rental  prices. 
A  temporary  reform  of  the  deferral  rules  for 
capital  gains  taxes  on  property  transaction  was 
introduced,  but  this  will  probably  have  limited 
effect (as also discussed in 4.2.3). 

Europe 2020 (national targets and progress) 

Employment  rate  target  set  in  the  2014  NRP: 
well over 80 %. 

Employment rate (%) in 2016 (Q3): 80.5 % (2015, 
80.4 %;  2014,  80.0 %;  2013,  79.8 %;  2012, 
79.4 %) 

The  EU-wide  target  was  met  already  before  the 
crisis  in  2007-2008  (80.4 %  in  2008),  before  a 
drop  in  the  indicator  due  to  the  2008-2009  crisis. 
Since  then  progress  has  picked  up  and  Swedish 
labour  market  performance  remains  solid  with  a 
continuously  improving  trend,  and  a  level  now 
back  to  pre-crisis  record  highs.  Sweden  has  had 
the  highest  employment  rate  in  the  European 
Union for several years in a row. 

R&D target: 4 % of GDP 

3.26% (2015) 

No progress towards the target. While public R&D 
intensity  has  grown  by  1.3 %  per  year  over  the 
2008-2015  period,  business  expenditure  on  R&D 
as  a  percentage  of  GDP  decreased  by  1.9 %  per 
year  over  the  same  period,  resulting  in  a  slight 
decline in total R&D intensity. Sweden will reach 
its  national  target  for  2020  only  if  the  trend  in 
business expenditure can be reversed. 

National greenhouse gas (GHG) emissions target:  

-17 %  in  2020  compared  to  2005  (in  non-ETS 
sectors) 

According to the latest projections and taking into 
account  existing  measures,  the  target  is  expected 
to  be  achieved  by  a  wide  margin:  -28 %  in  2020 
compared  to  2005.  Non-ETS  emissions  fell  by 
23% between 2005 and 2014. 

51 

 
 
A. Overview Table 

2020  Renewable  energy  target:  49 %  of  final 
energy consumption 

At  about  54 %  (preliminary  figure  for  2015(46)), 
Sweden has already exceeded its 2020 target. 

is 
Sweden’s  2020  energy  efficiency 
43.4 Mtoe 
energy 
expressed 
consumption    and  30.3 Mtoe  expressed  in  final 
energy consumption 

primary 

target 

in 

Early school leaving target: below 7 %  

Tertiary education target: 45-50 %  

Sweden  reduced  its  primary  energy  consumption 
by  5 %  from  46.24  Mtoe  in  2014  to  43.7 Mtoe in 
2015.  Final energy consumption increased by 2 % 
from 31.19 Mtoe in 2014 to 31.76 Mtoe in 2015.  

More  efforts  are  needed  to  meet  the  indicative 
national 2020 targets. 

Early leavers from education and training (share of 
the  population  aged  18-24  with  at  most  lower 
secondary  education  and  not  in  further  education 
or  training)  in  2015:  7 %  (2014,  6.7 %;  2013, 
7.1 %; 2012, 7.5 %). 

The  rate  has  remained  close  to  the  below  7 % 
target.  

attainment 

educational 

of 
Tertiary 
population  30-34  having  successfully  completed 
tertiary education) in 2015: 50.2 % (2014, 49.9 %; 
2013, 48.3 %; 2012, 47.9 %). 

(share 

The target of 45-50 % has been achieved.  

Target  on  the  reduction  of  population  at  risk  of 
poverty or social exclusion in number of persons:  

Reducing  to  well  under  14  %  the  number  of 
people  aged  20-64  who  are  not  in  the  labour 
long-term 
force  (except  full-time  students), 
unemployed or on long-term sick leave. 

The corresponding indicator has reached 12.4 % in 
2015, according to the most recent feedback from 
national  authorities  (2014,  12.6 %;  2013,  12.7%; 
2012, 13.1%) 

The target had already been reached and the trend 
remains good. 

(46)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (04.10.2016). See the 
the  2016  Report  on  Renewable 

in  Realisation  of 

Öko-Institut  Report:  Study  on  Technical  Assistance 
Energy,  http://ec.europa.eu/energy/en/studies. 

52 

 
 
                                                           
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP Scoreboard for Sweden 

Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report. 
For REER and ULC, the first threshold applies to euro area Member States. 
Source: European Commission 

53 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%6.65.85.75.55.25.0-35%-5.6-8.0-14.6-12.7-0.44.1Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -3.32.910.15.1-3.6-7.9Export market share - % of world exports5 years % change-6%-12.5-11.8-18.9-16.6-9.1-9.3Nominal unit labour cost index (2010=100)3 years % change9% & 12% 8.35.64.08.66.93.66%6.40.80.74.78.212.014%5.36.92.34.85.96.5133%189.0190.7192.3192.1192.9188.660%38.337.537.840.445.243.9Unemployment rate3 year average10%7.78.28.17.98.07.816.5%2.93.45.38.613.52.3-0.2%0.00.61.42.01.61.40.5%0.80.70.4-0.2-0.10.02%5.62.6-1.3-1.20.1-3.3Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

(1) Latest data Q2 2016. 
(2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

54 

201120122013201420152016Total assets of the banking sector (% of GDP)281.7286.6278.8288.4286.7283.3Share of assets of the five largest banks (% of total assets)57.857.458.358.557.8-Foreign ownership of banking system (% of total assets)8.48.68.79.69.3-Financial soundness indicators:1)              - non-performing loans (% of total loans)0.60.50.51.41.21.1              - capital adequacy ratio (%)11.812.112.322.224.124.2              - return on equity (%)2)10.611.311.111.811.26.4Bank loans to the private sector (year-on-year % change)5.53.63.05.14.47.0Lending for house purchase (year-on-year % change)5.64.75.46.48.47.8Loan to deposit ratio215.3207.8201.9201.0195.7193.6Central Bank liquidity as % of liabilities0.00.00.00.00.00.0Private debt (% of GDP)190.7192.3192.1192.9188.6-Gross external debt (% of GDP)1) - public17.318.018.721.920.417.1    - private63.861.254.954.549.549.3Long-term interest rate spread versus Bund (basis points)*-0.39.755.155.322.345.8Credit default swap spreads for sovereign securities (5-year)*35.736.214.39.99.514.2 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

(1) The unemployed are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within 2 weeks.       
(2) Long-term unemployed are those who have been unemployed for at least 12 months.       
(3) Not in education, employment or training.       
(4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted. 
Source: European Commission ( EU Labour Force Survey) 

55 

201120122013201420152016 4Employment rate(% of population aged 20-64)79,479,479,880,080,581,2Employment growth (% change from previous year)2,10,71,01,41,51,7Employment rate of women(% of female population aged 20-64)76,576,877,277,678,379,3Employment rate of men (% of male population aged 20-64)82,181,982,282,282,583,1Employment rate of older workers (% of population aged 55-64)72,073,073,674,074,575,4Part-time employment (% of total employment, aged 15-64)25,225,024,724,524,323,9Fixed-term employment (% of employees with a fixed term contract, aged 15-64)16,515,916,316,816,616,3Transitions from temporary to permanent employment41,638,142,739,233,4:Unemployment rate1 (% active population, age group 15-74)7,88,08,07,97,46,9Long-term unemployment rate2 (% of labour force)1,51,51,41,41,51,3Youth unemployment rate (% active population aged 15-24)22,823,723,622,920,418,9Youth NEET3 rate (% of population aged 15-24)7,57,87,57,26,7:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)6,67,57,16,77,0:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)46,847,948,349,950,2:Formal childcare (30 hours or over; % of population aged less than 3 years)32,035,034,037,0:: 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

(1) People at risk of poverty or social exclusion: individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity. 
(2) At-risk-of-poverty rate: proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.        
(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes)  
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

56 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare7.07.17.37.57.5:Disability3.83.63.63.63.5:Old age and survivors11.911.912.512.912.6:Family/children2.92.93.03.13.1:Unemployment1.31.11.21.31.1:Housing0.40.40.50.50.5:Social exclusion n.e.c.0.70.60.70.70.8:Total28.027.728.729.529.0:of which: means-tested benefits0.80.80.80.80.8:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)15.016.115.616.416.916.0Children at risk of poverty or social exclusion  (% of people aged 0-17)14.515.915.416.216.714.0At-risk-of-poverty  rate2 (% of total population)12.914.014.114.815.114.5Severe material deprivation rate3  (% of total population)1.31.21.31.40.70.7Proportion of people living in low work intensity households4 (% of people aged 0-59)6.06.95.77.16.45.8In-work at-risk-of-poverty rate (% of persons employed)6.56.86.77.17.87.1Impact of social transfers (excluding pensions) on reducing poverty51.749.848.545.447.046.1Poverty thresholds, expressed in national currency at constant prices5117228117985121033123518125495129381Gross disposable income (households; growth %)3.05.74.22.43.83.6Inequality of income distribution (S80/S20 income quintile share ratio)3.53.63.73.73.93.8GINI coefficient before taxes and transfers43.843.943.643.944.7:GINI coefficient after taxes and transfers24.224.424.824.925.4: 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
(2) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were scored as follows: zero if received everything, one if 
received most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the 
application is still pending or if the outcome is not known.       
(3) Percentage population aged 15-64 having completed tertiary education.       
(4) Percentage population aged 20-24 having attained at least upper secondary education.       
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
(6) Aggregate OECD indicators of regulation in energy, transport and communications.       
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

57 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry15.851.90-0.480.691.384.23Labour productivity in construction2.43-4.85-8.23-4.500.626.66Labour productivity in market services1.332.702.713.262.932.67Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-17.321.625.661.451.79-0.70ULC in construction0.7010.2710.806.711.95-1.66ULC in market services-1.601.712.52-0.46-0.670.80Business environment201020112012201320142015Time needed to enforce contracts1 (days)314.0314.0314.0321.0321.0321.0Time needed to start a business1 (days)16.016.016.016.016.07.0Outcome of applications by SMEs for bank loans2na0.20na0.570.710.38Research and innovation201020112012201320142015R&D intensity3.223.253.283.313.153.26Total public expenditure on education as % of GDP, for all levels of education combined6.986.827.387.43nanaNumber of science & technology people employed as % of total employment495051525455Population having completed tertiary education3282930313334Young people with upper secondary education4878786868787Trade balance of high technology products as % of GDP0.140.11-0.140.09-0.07-0.11Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1.611.52OECD PMR5, retail0.720.600.60OECD PMR5, professional services0.770.550.55OECD PMR5, network industries62.302.201.87 
 
 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)       
Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)       
Carbon intensity: greenhouse gas (GHG) emissions (in kg CO2 equivalents) divided by GDP (in EUR)       
Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)       
Waste intensity: waste (in kg) divided by GDP (in EUR)       
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.         
Weighting of energy in HICP: the proportion of ‘energy’ items in the consumption basket used for the construction of the 
HICP. 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).       
Real unit energy cost: real energy costs as a percentage of total value added for the economy. 
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European 
Union’.       
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added (in 2005 EUR). 
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors.       
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.       
Electricity and gas prices for medium-sized industrial users: consumption band 500-20 00MWh and 10 000-100 000 GJ; figures 
excl. VAT.       
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.       
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.       
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions (excl. land use, land use change and forestry) as reported by Member States to the European Environment 
Agency.        
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR).       
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector.       
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.       
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and 
hence lower risk.       
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels.       
* European Commission and European Environment Agency.  
Source: European Commission (Eurostat) unless indicated otherwise 

58 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.140.130.130.130.120.11Carbon intensity kg / €0.190.180.170.160.15-Resource intensity (reciprocal of resource productivity)kg / €0.590.610.610.620.620.62Waste intensity kg / €0.35-0.45-0.46-Energy balance of trade % GDP-1.6-1.8-1.7-1.5-1.4-Weighting of energy in HICP%10.9911.9911.6811.0110.699.64Difference between energy price change and inflation %2.00.7-3.9-0.4-2.5-4.1Real unit of energy cost% of value added9.59.69.78.88.9-Ratio of environmental taxes to labour taxesratio0.110.100.100.090.09-Environmental taxes% GDP2.62.42.42.42.2-Sectoral Industry energy intensity kgoe / € 0.170.160.170.170.16-Real unit energy cost for manufacturing industry excl. refining% of value added13.513.813.012.312.3-Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.080.090.080.080.070.06Gas prices for medium-sized industrial users€ / kWh0.050.050.050.060.050.04Public R&D for energy % GDP0.040.040.040.030.040.03Public R&D for environmental protection% GDP0.010.020.020.020.020.01Municipal waste recycling rate%48.147.347.248.749.948.0Share of GHG emissions covered by ETS*%38.235.734.736.335.932.9Transport energy intensitykgoe / €0.520.480.460.460.470.47Transport carbon intensitykg / €1.231.131.041.010.99-Security of energy supplyEnergy import dependency%36.636.328.731.632.030.1Aggregated supplier concentration indexHHI20.024.516.316.621.8-Diversification of energy mixHHI0.280.290.320.300.31- 
 
 
 
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