COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2018 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 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Sweden, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 225 final  COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2018 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 2018 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(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the Macroeconomic Imbalance Procedure 

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 

Annex A: Overview Table 

Annex B:  Macroeconomic Imbalance Procedure scoreboard 

Annex C: Standard Tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic and financial indicators – Sweden 

Table 2.1: 

Summary table on CSR assessment  

Table 3.1: 

MIP assessment matrix (*) — Sweden 2018 

Table 4.2.1: 

Financial soundness indicators 

Table B.1: 

The MIP Scoreboard for Sweden (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

1 

4 

10 

13 

18 

18 

22 

36 

43 

47 

50 

53 

54 

61 

9 

11 

16 

24 

53 

54 

55 

56 

57 

58 

59 

 
 
 
 
 
LIST OF GRAPHS 

Graph 1.1:  Output gap, real GDP growth and its components 

Graph 1.2: 

Contributions to potential growth  

Graph 1.3: 

Household debt evolution 

Graph 1.4: 

Labour shortages in the economy  

Graph 1.5: 

Unemployment rates of specific groups 

Graph 1.6: 

Changes in the income share owned by the highest decile of the country’s 

population since 1945  

Graph 1.7: 

Net international investment position 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date  

Graph 4.2.1:  Common Equity Tier (CET1)-to-total-assets ratio and implied risk weights (%), four major 

Swedish banks versus sample of 62 large EU banks  

Graph 4.2.2:  Averages of the annual growth rates of real disposable income and real house prices 

between 2001-2016 

Graph 4.2.3:  House prices by market segment (nominal)  

Graph 4.2.4:  Valuation gap based on price-to-income and price-to-rent ratios and fundamental-

model-based estimate 

Graph 4.2.5:  Revenues from property taxes 

Graph 4.2.6:  Residential construction investment 

Graph 4.2.7:  Housing starts, including net conversions, versus projected need 

Graph 4.2.8:  Price level index for residential construction costs for selected EU countries and 

Norway 

Graph 4.2.9:  Labour productivity in construction sector, Sweden and selected EU countries  

Graph 4.2.10:  Cumulative change in rental versus tenant-owned housing stock in Greater Stockholm 

Graph 4.2.11:  Debt-to-income ratios for selected groups of mortgage borrowers (as of September 

2017) 

Graph 4.2.12:  Estimated monthly income surplus for newly mortgaged households in different 

income deciles, by year of origination 

Graph 4.2.13:  Share of households with different debt-to-income ratios, new loans 

Graph 4.2.14:  Rate of amortisation given the debt-to-income ratio and loan-to-value ratio (2016) 

Graph 4.2.15:  Breakdown of corporate debt by funding source 

Graph 4.2.16:  Drivers of year-on-year changes in corporate debt to GDP ratios 

Graph 4.2.17:  Leverage indicators for non-financial corporations 

Graph 4.3.1:  Employment rate by educational attainment 

Graph 4.3.2:  Beveridge curve, 2000-2016 

Graph 4.3.3:  Employment rate by country of birth 

Graph 4.3.4:  Gap in predicted employment rate for non-EU born and second generation (by 

gender and educational attainment)  

Graph 4.3.5:  Risk of poverty or social exclusion 

Graph 4.3.6:  Proportion of low achievers in science by immigrant background in 2015  

4 

5 

5 

6 

6 

7 

8 

10 

22 

24 

25 

25 

26 

27 

27 

28 

28 

29 

32 

33 

34 

34 

35 

35 

35 

36 

36 

38 

39 

39 

41 

 
 
Graph 4.4.1:  Yearly changes in  export market share: contribution of  world trade versus growth in 

Swedish exports 

Graph 4.4.2:  Gross investment 

Graph 4.4.3:  Breakdown of investment by sector in 2016 

Graph 4.4.4:  Gross fixed capital formation, dwellings versus other investment, comparison with EU 

average 

Graph 4.5.1:  Change in business R&D intensity and public R&D intensity  

Graph 4.5.2: 

Tax revenues from environmental taxes  

LIST OF BOXES 

Box 2.1:  

Tangible results delivered through EU support for structural change in Sweden 

Box 4.1.1:  

Effects of a tax shift from labour to property 

Box 4.3.1:  

Monitoring performance in light of the European Pillar of Social Rights 

Box 4.3.2:  

Policy highlight - Inclusive processes in Sweden 

Box 4.4.1:  

Investment challenges and reforms in Sweden 

43 

44 

44 

44 

47 

49 

12 
20 
37 
42 
45 

 
 
 
 
 
EXECUTIVE SUMMARY 

Sweden's  buoyant 
economic  performance 
represents  an  excellent  foundation  to  address 
structural weaknesses in relation to the housing 
market  and  household  debt.  Further  boosting 
new  construction  in  appropriate  locations  and 
market  segments  could  help  alleviate  a  long-
standing  housing  shortage.  A  more  market-
oriented  rental  housing  sector  could  contribute  to 
this  as  well,  and  would  also  support  mobility  and 
flexibility in the labour market. Tax incentives for 
property ownership and mortgage debt still support 
household  debt  growth  and  overvalued  house 
prices.  Addressing  these  issues  would  make  the 
Swedish economy more resilient. (1)  

After  recording  an  estimated  2.7 %  growth  in 
2017,  the  Commission’s  winter  2018  interim 
forecast projects real GDP to increase by 2.7 % 
and 2.0 % in 2018 and 2019, respectively. Robust 
export growth and a moderate increase in domestic 
demand are expected to support economic activity 
in the coming years. 

Sweden’s  external  position  remains  strong. 
Goods  and  services  exports  benefitted  from  the 
in  2017.  As 
global  upswing 
import  growth 
remained  solid, 
the  current  account  surplus 
hovered  around  5 %  in  2016-2017.  Underpinned 
trading 
by  strong  growth 
partners,  the  outlook  for  exports  will  remain 
favourable, in particular for investment goods. 

in  Sweden's  main 

Investment surged due to buoyant construction 
activity.  After  expanding  at  a  rate  of  above  5 % 
per  year  in  2015-2017,  investment  is  expected  to 
continue increasing at a slower pace in the coming 
years.  Partly 
to  building 
regulations and the planning process, investment in 
housing in particular has rebounded strongly since 
mid-2013. However, this new supply is insufficient 
to match estimated housing needs.  

to  reforms 

thanks 

(1)  This report assesses Sweden’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
resilient  and 
European  economy  more  productive, 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms  and ensuring responsible fiscal policies. 
At  the  same  time,  the  Commission  published  the  Alert 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Sweden warranted an in-depth review, which is 
presented in this report. 

1 

The  labour  market  continues  to  perform  well. 
In  2016  Sweden  had  one  of 
the  highest 
employment rates in the EU at 81.2 %, and overall 
unemployment  was  below  the  EU  average  at 
6.9 %.  Labour  shortages  emerged  in  sectors  such 
as  construction,  education,  health, 
science, 
engineering  and  ICT.  A  major  challenge  for  the 
labour market now is the integration of people with 
a  migrant  background, 
those  with 
relatively low levels of education and skills. 

including 

collection 

The fiscal position has remained strong. Robust 
lower-than-expected 
and 
revenue 
expenditure  for  migration  and  integration  should 
result  in  a  fiscal  surplus  in  2018  and  2019. 
Government  debt  stood  at  about  39 %  of  GDP  in 
2017,  well  below  the  reference  value  of  60 %  of 
GDP  agreed  in  the  Treaty,  and  is  projected  to 
decline in coming years. The outlook for Sweden’s 
fiscal  sustainability  is sound in  the  short, medium 
and long term.   

Inflation  is  expected  to  stay  broadly  stable. 
continued 
Sweden’s 
its 
central  bank  has 
to  support  a 
expansionary  monetary  policy 
sustainable  rise  in  the  rate  of  inflation  to  its  2 % 
target. It has kept repo rates at negative levels. 

Financial  conditions  support  the  economy,  but 
also contribute to imbalances. The central bank’s 
monetary  policy  stance  has  resulted  in  very  low 
mortgage  interest  rates.  In  turn,  low  rates  have 
further boosted private indebtedness and to a lesser 
extent supported house prices.  

the 

strengthened 
for 

limited (2)  progress 
2017 

in 
Sweden  has  made 
addressing 
country-specific 
recommendation.  As  regards  policies  relevant  to 
the  government 
macroeconomic 
imbalances, 
approved 
amortisation 
a 
requirement (3) 
high-debt-to-income 
mortgages;  thus  achieving  substantial  progress  in 
this  area.  Some  progress  has  been  made  on 
fostering investment in housing and improving the 
efficiency of the housing market. In particular, the 
authorities  are  continuing  to  gradually  implement 
the  22-point  plan 
residential 
to 
construction  and  improve  the  efficiency  of  the 

increase 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. 
(3)  Amortisation here refers to capital repayments on mortgage 

loans (see Section 4.2.3).  

 
 
                                                           
                                                           
housing  market.  The  government  has  also 
launched a new initiative for more participation by 
foreign  firms  in  the  Swedish  construction  sector. 
No  significant  policy  action  has  been  taken  to 
introduce  more  flexibility  in  setting  rental  prices. 
Finally, there are key parts of the recommendation 
that  have  not  been  met  by  any  policy  action, 
notably on reforming the favourable tax treatment 
of  mortgage  debt  and  home  ownership.  On  these 
aspects  of  the  recommendation,  no  progress  has 
been made. 

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  remains  relatively 
weak are energy efficiency and R&D targets.  

Sweden  performs  well  on  the  indicators  of  the 
Social  Scoreboard  supporting  the  European 
Pillar  of  Social  Rights.  The  employment  rate  is 
high,  while  the  gender  employment  gap  and  the 
share  of  young  people  not  in  employment,  edu-
cation  or  training  rate  are  at  low  levels.  Positive 
outcomes,  also  on  participation  in  active  labour 
market policies and of children in formal childcare, 
reflect  an  advanced  welfare  model,  strong  social 
dialogue and a high level of gender equality. 

findings  of 

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

in-depth 

the 

  While  banks  are  healthy, 

to 

linked 

there  are 
their  growing 
vulnerabilities 
exposure  to  household  mortgages.  Banks 
remain  profitable.  The 
regulatory  capital 
adequacy ratios are high, but as a share of total 
(unweighted)  assets,  capital  has  remained 
stable at lower levels. Considering the steadily 
increasing  mortgage-related  lending  on  their 
balance  sheets,  the  risk  of  a  rapid  decline  in 
significant 
represents 
house 
vulnerability  for  the  stability  of  the  banking 
system.  Moreover,  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. 

prices 

a 

Executive summary 

  Household  indebtedness  has  continued  to 
rise  from  already  elevated  levels.  Household 
debt  grew  by  7.0 %  in  2017,  reaching  about 
86 % of GDP and 184 % of disposable income 
–  among  the  highest  levels  in  the  EU.  This  is 
driven  mainly  by  higher  mortgage  borrowing, 
linked  to  high  house  prices  and  rising  new 
construction  volumes,  coupled  with  structural 
distortions 
favouring  mortgage-financed 
property  investment.  Debt  levels  are  unevenly 
distributed,  with  lower-income  and  younger 
households  facing  particularly  high  debt  loads 
incomes.  Sweden  has 
relative 
implemented several macroprudential measures 
in 
including  a  mortgage 
amortisation  requirement  in  2016.  The  latter 
influenced 
appears 
borrower  behaviour,  but  the  overall  effect  on 
total  debt 
incurred  seems  modest.  More 
generally,  macroprudential  policy  steps  taken 
so  far  appear  to  have  had  limited  impact  on 
mortgage lending growth.  

to  have  considerably 

recent  years, 

their 

to 

tax 

rates. 

issues 

continued 

accommodative 

  After  two  decades  of  rapidly  rising  house 
prices,  the  housing  market  experienced  a 
gradual  decline  in  autumn  2017,  before 
rising somewhat again in January 2018, but 
prices  remain  above  fundamentals.  Key 
incentives 
include 
structural 
favouring home ownership and mortgage debt, 
and 
credit 
conditions  coupled  with  still  relatively  low 
In  addition, 
mortgage  amortisation 
despite  a  sharp  rise  in  new  construction  in 
recent  years,  there  is  still  an  ongoing  supply 
shortage,  particularly  of  affordable  homes 
around  major  cities.  This  shortage  in  housing 
supply  is  linked  to  structural  inefficiencies, 
including 
the 
construction  sector  due  to  barriers  to  entry  for 
small and foreign firms and the ability of large 
developers to control land resources. There are 
also  barriers  to  efficient  usage  of  the  existing 
housing  stock.  In  the  rental  market,  below-
market 
and 
create 
rents 
the  owner-
‘insider/outsider’  effects. 
occupancy  market,  capital  gains  taxes  reduce 
homeowner  mobility.  The  housing  shortage 
also  hampers 
labour  mobility  and  can 
contribute to intergenerational inequality. 

competition 

lock-in 

limited 

In 

in 

2 

 
Executive summary 

scope for closer cooperation between academia 
and businesses. 

  The  continued  increase  in  household  debt 
and bank exposure to residential mortgages 
is a growing risk to macroeconomic stability. 
Despite  gradual  policy  action,  mortgage  debt 
continues to increase further. With the housing 
market  still  appearing  overvalued,  even  after 
recent  declines,  rising  indebtedness  means 
there  is  the  growing  risk  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. 

Other key structural issues analysed in this country 
report,  which  point  to  particular  challenges  for 
Sweden's economy, are the following: 

low 

long-term  unemployment 

  Despite  favourable  economic  conditions, 
some  population  groups  have  difficulties 
finding  a  job.  Sweden  has  high  employment 
rates. 
and 
However,  challenges  remain,  for  example 
integrating  low-skilled  people  and  non-EU 
migrants into the labour market. This challenge 
is likely to remain in the coming years in light 
of the magnitude and composition of the arrival 
of  asylum  seekers  in  late  2015.  Efforts  have 
been  made  to  improve  the  employability  of 
recently arrived migrants and a new simplified 
scheme  (introduktionsjobb)  is  set  to  begin  in 
spring 2018.  

  The  educational  performance  gap  between 
different social groups is large and widening. 
Despite  recent  measures,  the  education  system 
does  not  appear  to  promote  quality  education 
for  all.  The  integration  of  newly  arrived 
migrant  pupils  warrants  close  monitoring,  as 
does the growing shortage of teachers. 

  The  economy  benefits  from  a  favourable 
business  environment,  although  barriers  to 
investment  and  long-term  growth  remain. 
Sweden  performs  well  in  terms  of  efficient 
public  administration,  access  to  finance  for 
small  and  medium-sized  enterprises,  and 
innovation  and  internationalisation  by  busi-
nesses.  The  public  procurement 
system 
generally  works  well,  but  investment  by  small 
and medium-sized enterprises is in some cases 
constrained by insufficiently transparent public 
procurement procedures. Finally, there remains 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

remained 

Economic  activity 
strong  and 
balanced. Real GDP grew by 3.2 % in 2016 and is 
expected  to  have  increased  by  2.7 %  in  2017, 
according 
the  Commission’s  winter  2018 
interim  forecast.  Domestic  demand  and  exports 
the  continued  accommodative 
benefited  from 
monetary policy and the pick-up in global demand 
(Graph 1.1). 

to 

Investment  was  pushed  up  by  buoyant 
construction  activity.  Investment  is  set  to  have 
contributed to close to 2 percentage points (pps) of 
GDP growth in 2017. Decades of pent-up demand 
for  housing  led  to  a  strong  supply  response  from 
the  construction  sector  in  recent  years.  In  2017, 
dwelling  starts  topped  their  historically  high  level 
of  the  previous  year,  and  housing  investment  is 
projected to have grown by more than 10 %. Other 
construction,  in  particular  of  public  buildings  and 
facilities,  contributed  also  to  the  momentum. 
However, this new supply is insufficient to match 
estimated housing needs (see Section 4.2.2). 

Graph 1.1:  Output gap, real GDP growth and its 

components (1) 

(1) Forecasts for 2017-2019 are based on a no-policy-
change assumption 
Source: European Commission 

The economic outlook is solid. While investment 
growth  is  set  to  decline,  the  further  strengthening 
of  global  activity  should  benefit  Sweden’s  small, 
open  and  competitive  economy  in  the  coming 
years.  All  in  all,  real  GDP  growth  is  projected  to 
hover  around  2.7 %  in  2018  and  fall  to  2.0 %  in 
2019, with the economy going back to its potential. 

Investment is expected to grow at a slower pace. 
As capacity utilisation is high, exporters are likely 
to invest in additional equipment to respond to the 
external demand. However, the recent fall in house 
prices  is  set  to  dampen  residential  investment. 
Overall, investment is expected to grow at around 
2 % in 2019. 

transfers  and 

The  growth  in  public  and  private  consumption 
is set to moderate. Despite modest wage growth, 
the increase in employment, low interest rates and 
tax  cuts  are 
additional  social 
expected to support disposable income and private 
consumption  in  2018.  A  rise  in  core  inflation  and 
the  cost  of  housing  (due  to  gradually  higher 
interest rates) is not expected to affect significantly 
private  consumption  growth 
in  2019.  Public 
consumption  was  broadly  unchanged  in  2017  and 
is projected to slightly increase as the 2018 budget 
bill  includes  additional  funding  to  municipalities 
for staff and for improving the delivery of welfare 
services and education.  

Potential growth 

the  contribution  from 

The  positive  economic  development  is  also 
mirrored  in  Sweden’s  potential  growth,  which 
has  returned  to  pre-crisis  levels.  Following  a 
sharp  fall  with  the  onset  of  the  2009  financial 
crisis,  potential  growth  has  recovered,  albeit  its 
composition has changed. The labour contribution 
increased  due  to  a  larger  working  age  population, 
supported  by  migration,  and  rising  participation 
rates. In addition, since 2013 a larger capital stock 
on  the  back  of  investment  growth  has  also 
supported  the  economy’s  potential  (Graph  1.2). 
total  factor 
However, 
productivity  (TFP)  —  despite  an  increase  since 
2009  —  remains  below  the  rates  seen  in  the  pre-
crisis  period.  This  could  be  an  indication  of  the 
the 
decreasing 
stagnating  levels  of  investment  in  R&D  in  the 
country  (Edquist and  Henrekson,  2016).  Also,  the 
longer  term  shift  towards  a  more  services-based, 
labour-intensive  economy  constitutes  a  structural, 
compositional 
that  moderates  TFP 
evolution. The outlook for total factor productivity 
is  balanced,  possibly  with  diminishing  returns  to 
(Konjunkturinstitutet, 
technological 
2017). 

impact  of  ICT  adoption  and 

innovation 

factor 

4 

 
 
 
1. Economic situation and outlook 

Graph 1.2:  Contributions to potential growth (1) (2) 

(1) Forecasts for 2017-2019 are based on a no-policy-
change assumption 
(2)TFP: total factor productivity 
Source: European Commission (Autumn forecast 2017) 

Inflation and monetary policy 

Despite  strong  economic  growth  and  an 
accommodative  monetary  policy,  inflation  is 
projected  to  remain  sluggish.  For  some  time 
during  2017  it  seemed  that  higher  import  prices 
resulting  from  the  depreciation  of  the  Swedish 
krona  in  2016  and  recovering  energy  prices  were 
pushing  inflation  above 2 %.  However,  at  the  end 
of  2017,  headline  inflation  was  back  to  1.9 %. 
Although  capacity  utilisation  is  high  after  several 
years  of  strong  economic  growth,  cost  pressures 
have  not  built  up  yet.  The  Swedish  central  bank 
(the Riksbank) has continuously used its monetary 
policy toolbox to guide inflation towards its target. 
‘Core  inflation’,  i.e.  the  underlying  long-term 
inflation  excluding  volatile  items  like  food  and 
energy prices, is gradually increasing but held back 
by  subdued  wage  growth.  In  the  coming  years,  a 
further 
labour  market  and 
the 
economic  growth  are  expected  to  support  core 
inflation.  Overall,  the  harmonised  consumer  price 
index  is  expected  to  grow  at  1.8 %  in  2018  and 
1.7 % in 2019. 

tightening  of 

The Riksbank is set to maintain a negative repo 
rate in 2018 to stabilise inflation around its 2 % 
target. Since early 2016, the Riksbank had kept its 
repo  rate  at  -0.5 %  and  acquired  SEK  290  billion 
(EUR  30.1 billion)  in  government  bonds  over  the 
last  three  years  in  order  to  raise  inflation  and 
inflation  expectations.  In  December  2017,  the 
Riksbank  decided  to  end  the  asset  purchase 

5 

programme, albeit with repurchases continuing for 
six  more  quarters,  and  announced  that  slow 
increases of the repo rate would begin towards the 
end  of  2018.  The  low  interest  rate  environment, 
combined  with  other  structural  factors  lowering 
mortgage  debt  service  costs  and  a  continued 
housing  shortage,  has  been  supporting  increase  in 
household  debt  and  house  prices.  These  increases 
have  made  the  financial  system  and  broader 
economy  more  vulnerable  to  external  shocks 
(see Section 4.2). 

Private indebtedness 

In  2017,  household  debt  continued  to  outpace 
economic  growth.  Household  debt  amounted  to 
184 % of disposable income or about 86 % of GDP 
in  Q3  2017,  among  the  highest  levels  in  the  EU 
(see Section 4.2.3). There have been some positive 
developments  at  the  margin,  in  part  driven  by  the 
adoption  of  a  new  mortgage  amortisation 
requirement  in  2016.  This  has  helped  contain 
mortgage  borrowing  at  very  high  debt-to-income 
levels,  leading  to  a  modest  drop  in  the  average 
debt-to-income  ratio  for  new  mortgage  borrowers 
after  years  of  steep  increases.  However,  overall, 
household  debt  has  continued  to  rise  broadly  in 
line  with  its  previous  growth  trend  of  6-7 %  per 
year (Graph 1.3). 

Graph 1.3:  Household debt evolution 

Source: Eurostat 

Labour market 

Favourable economic conditions are supporting 
strong  improvements  in  the  labour  market.  In 
the  third  quarter  of  2017,  Sweden  had  one  of  the 

0123404050607080910111213141516171819pps of potential GDPCapital contributionTFP contributionLabour contributionPotential growthforecast80100120140160180200220050607080910111213141516Index: 2005=100SwedenDenmarkFinlandNetherlandsUnited KingdomEU 28 
 
 
training  decreased 

highest  employment  rates  in  the  EU  (81.8 %), 
above its national target (80 %). Unemployment is 
lower than the EU average (6.8 % versus 7.5 % in 
the  EU  in  Q3-2017),  and  youth  unemployment 
along  with  the  rate  of  people  not  in  education, 
employment  or 
in  2016. 
However,  labour  shortages  in  sectors  such  as 
science, 
construction, 
engineering  and  ICT  have  been  reported.  By 
contrast, 
low-skilled 
people  is  declining,  pointing  to  potential  skills 
mismatches 
is 
therefore  set  to  stabilise  at  around 6.5 %  in  2018-
2019. 

(Graph  1.4).  Unemployment 

the  employment  rate  of 

education, 

health, 

Graph 1.4: 

Labour shortages in the economy (1) 

(1) The index consists of a weighted average based on a 
survey of roughly 11 000 employers from the private sector, 
municipal authorities and county councils. The degree of 
shortage ranges from 1.00 = excessive labour supply to 5.00 
= pronounced labour shortage. 
Source: Public Employment Office 

Bringing migrants into the workforce remains a 
challenge  (see  Section  4.3).  The  percentage  of 
residents  in  Sweden  not  born  in  the  EU  is  among 
the  highest  in  the  EU  as  the  country  has  been 
attracting  migrants  for  humanitarian  and  family 
reunification  reasons  for  decades.  Since  2008,  it 
has  also  been  taking  in  non-EU  labour  migrants. 
However,  the unemployment  rate of non-EU-born 
residents in Sweden stood at 19 % in 2016 (Graph 
1.5),  which  is  four  times  higher  than  the  rate  for 
native-born residents. 

In the medium term, the economy could benefit 
from  successfully  integrating  migrants  into  the 
labour market. The gradual increase in the labour 
the 
the 
force  might 

decrease 

slow 

in 

1. Economic situation and outlook 

unemployment  rate  in  the  short  term.  However, 
past  experience  indicates  that  over  time  people 
granted  asylum  usually  find  employment,  thus 
lifting potential growth. 

Graph 1.5: 

Unemployment rates of specific groups 

Source: European Commission 

Inequality 

Sweden  has  one  of  the  lowest  levels  of  income 
inequality  in  the  EU.  Growth  is  inclusive,  with 
household income per person increasing faster than 
GDP  per  person (4).  The  distribution  of  market 
incomes  (i.e.  before  taxes  and  transfers  and 
excluding pensions) is more equal than in most EU 
countries, 
is  quite 
since  wage  distribution 
compressed.  In  addition,  the  redistributive  power 
of  the  tax  and  benefit  system  further  reduces 
inequality  (in  2014,  the  Gini  coefficient (5) fell 
from 45 before taxes and transfers to 25 after taxes 
and transfers).  

Nevertheless, income inequality has increased in 
Sweden  over  the  past  decades.  The  share  of  the 
country’s  income  owned  by  the  top  10 %  of  the 
population  increased  from  about  20 %  to  30 % 
between  1982-2014  (Graph  1.6).  The  distribution 
of  wages  has  remained  broadly  stable.  Changes 
appear  to  be  driven  by  an  increase  in  capital 
income,  a  diminishing  effect  over  time  of  the  tax 

(4)  Sweden ranks 6th among the 29 advanced economies in the 
2018 
the  World 
Economic Forum) and 3rd among the 26 EU Member States 
covered. 

inclusive  development 

index  (from 

(5)  The closer the Gini is to a value of 100, the more unequal 
the distribution of income. The closer the Gini is to a value 
of 0, the more equal the distribution of income. 

6 

012345Building and ConstructionEducation workComputer/ICTHealthcareTechnical and scientific workInstall., operation & maintenanceSocial workHotel and restaurantManufacturingAgriculture and forestryTransportService and safety workAdministration, Economics and LawSales, Purchasing and MarketingCulture, media and designIndex0510152025080910111213141516% of active populationTotalLow educationNon-EU bornSweden born 
 
 
                                                           
1. Economic situation and outlook 

and benefit system to reduce market inequality and 
structural trends in household composition. 

The  persistent  increase  in  property  prices  and 
the absence of a wealth inheritance and gift tax 
have  negatively  affected  wealth  distribution 
(Lundberg  et  al.,  2018;  OECD,  2017b).  In 
addition,  the  current  tax  treatment  of  owner-
occupied housing with a mortgage is regressive as 
a result of the low recurrent property tax, which is 
generally not aligned with property values. This is 
combined  with  full  deductibility (6)  of  mortgage 
interest  payments  (see  Demand-side  issues  in 
Section 4.3.1). 

Graph 1.6:  Changes in the income share owned by the 

highest decile of the country’s population 
since 1945 (1) 

agreement,  except  for  some  public  services 
professions.  While  wage  growth  is  projected  to 
positively  drift  away in  the  coming  years,  cost 
competitiveness  developments  are  expected  to 
remain contained.  

External position 

Foreign  trade  is  a  key  growth  driver  for 
Sweden’s  economy.  The  tradable  sector  accounts 
for  close 
third  of 
to  half  of  GDP  and  a 
employment.  The  economy  has  become  more 
service-intensive,  and  services’  exports  have 
outpaced goods’ export for more than a decade. A 
pick-up  in  foreign  demand  boosted  exports  in  the 
second  half  of  2017,  and  this  momentum  is 
expected to gather pace in 2018. Import growth is 
forecast to moderate slightly in line with domestic 
demand.  Net  exports  are  therefore  projected  to 
contribute positively to GDP growth in 2018-2019. 

surplus 

activities (7), 

The  current  account  balance 
is 
primarily driven by high savings. The persistent 
current account surplus is declining from 8.6 % in 
2006 to 5.1 % of GDP in 2016. The surplus is not a 
reason  for  concern:  close  to  40 %  is  driven  by 
merchanting 
i.e.  multinational 
enterprises  that  have  moved  their  production 
abroad  (to  gain  a  competitive  edge)  but  retained 
their  headquarters,  research  and  development  and 
other  key  functions  and  assets  in  Sweden.  The 
surplus also reflects high household savings rather 
(see  Section  4.4.1). 
than  underinvestment 
However, the net international investment position 
is  only  slightly  positive,  i.e.  the  accumulated 
foreign  assets  exceed 
liabilities  (Graph  1.7). 
Valuation  effects  and  measurement  errors  might 
continue  to  underestimate  the  net  international 
investment  position 
(European  Commission, 
2016a, p. 13-14). 

(7)  Merchanting  is  the  trade  margin  that  arises  between  the 
purchase price and the sale price when Swedish companies 
buy  and  resell  goods  abroad,  without  the  goods  crossing 
the Swedish border. 

(1) Including capital income, before taxes and transfers. 
Source: The World Wealth and Income database 

Competitiveness 

Sweden has maintained its cost competitiveness, 
as  wage  growth  remains  subdued  despite  high 
economic  activity.  In  the  first  half  of  2017,  the 
exporting  industry  agreed  in  its  wage  bargaining 
negotiations  to  a  2.2 %  annual  rate  increase  for 
2017-2019. This modest outcome was the result of 
negotiations that started in 2016 in an environment 
of downward price and wage pressure from major 
trading partners, intensification of e-commerce and 
political  uncertainty  in  Europe.  Since  then,  other 
sectors  have  closely  followed  this  benchmark 

(6)  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 and 21 % above this 
amount. 

7 

1520253035404555657585950515% of incomeFinlandDenmarkSwedenNorway 
 
                                                           
                                                           
Graph 1.7:  Net international investment position 

Source: European Commission 

Public finances 

collection,  underpinned  by 

fiscal  position  has  remained  strong. 
The 
Revenue 
solid 
economic  growth,  surprised  on  the  upside.  By 
contrast,  expenditure  for  taking  in  and  integrating 
of  asylum  seekers  was  lower  than  expected  in 
2016-2017.  As  a  result,  the  general  government 
headline  surplus  is  set  to  have  reached  0.9 %  of 
GDP  in  2017,  well  above  the  initial  plan  of  the 
2017  budget,  implying  a  structural  surplus  of 
0.8 %  of  GDP.  However,  as  the  fiscal  measures 
included in the 2018 budget bill are only partially 
financed  by  additional 
the 
headline  surplus  is  expected  to  decline  to  0.7 % 
and  0.6 %  of  GDP  respectively  in  2018-19.  With 
prudent 
general 
government  gross  debt  has  been  declining  over 
recent years, a trend that is set to continue with the 
debt-to-GDP  ratio  projected  to  fall  further  to 
34.4 %  in  2019,  significantly  below  the  reference 
value  of  60 %  of  GDP  agreed  in  the  Treaty  (see 
also Section 4.1). 

fiscal  management, 

revenue  growth, 

the 

1. Economic situation and outlook 

8 

 
 
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators – Sweden (1), (2) 

(1)  NIIP excluding direct investment and portfolio equity shares  
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

9 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)3.80.51.94.53.22.72.72.0Potential growth (y-o-y)2.61.51.92.62.83.02.72.5Private consumption (y-o-y)3.01.42.03.12.2...Public consumption (y-o-y)0.61.41.42.43.1...Gross fixed capital formation (y-o-y)7.1-0.53.06.95.6...Exports of goods and services (y-o-y)7.60.92.25.73.3...Imports of goods and services (y-o-y) 7.41.63.05.23.4...Contribution to GDP growth:Domestic demand (y-o-y)3.10.92.03.73.1...Inventories (y-o-y)0.1-0.10.20.40.0...Net exports (y-o-y)0.6-0.3-0.20.40.1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.60.61.01.21.31.00.7Capital accumulation (y-o-y)0.70.60.60.80.81.01.01.0Total factor productivity (y-o-y)1.30.30.70.80.80.70.80.8Output gap1.6-1.7-2.4-0.40.10.20.2-0.2Unemployment rate7.17.88.07.46.96.66.46.3GDP deflator (y-o-y)1.51.81.42.11.62.22.22.1Harmonised index of consumer prices (HICP, y-o-y)1.31.90.30.71.11.91.81.7Nominal compensation per employee (y-o-y)3.93.02.12.72.82.72.72.4Labour productivity (real, person employed, y-o-y)2.90.00.73.01.5...Unit labour costs (ULC, whole economy, y-o-y)1.03.01.3-0.31.31.41.41.2Real unit labour costs (y-o-y)-0.51.2-0.1-2.3-0.3-0.9-0.8-0.9Real effective exchange rate (ULC, y-o-y)-0.31.3-0.2-6.30.1-0.1-0.1-0.5Real effective exchange rate (HICP, y-o-y)-0.70.0-1.5-5.20.8-1.1-0.2.Savings rate of households (net saving as percentage of net disposable income)7.012.315.815.116.5...Private credit flow, consolidated (% of GDP)12.77.84.77.57.6...Private sector debt, consolidated (% of GDP)154.6192.6194.2188.4188.6...of which household debt, consolidated (% of GDP)61.776.282.883.685.1...of which non-financial corporate debt, consolidated (% of GDP)92.9116.3111.4104.8103.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).0.60.91.21.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)3.40.9-1.5-2.0-3.1-2.5-1.8-1.2Corporations, gross operating surplus (% of GDP)24.823.823.124.924.024.825.325.8Households, net lending (+) or net borrowing (-) (% of GDP)1.85.27.76.47.06.26.15.6Deflated house price index (y-o-y)9.71.36.512.17.5...Residential investment (% of GDP)3.83.63.84.65.2...Current account balance (% of GDP), balance of payments7.16.24.94.74.44.85.05.1Trade balance (% of GDP), balance of payments6.75.24.74.94.2...Terms of trade of goods and services (y-o-y)-0.5-0.10.20.80.4-0.50.40.0Capital account balance (% of GDP)-0.2-0.2-0.2-0.2-0.1...Net international investment position (% of GDP)-11.9-8.7-5.74.710.5...Net marketable external debt (% of GDP) (1)-21.5-22.3-20.2-10.9-9.2...Gross marketable external debt (% of GDP) (1)123.4155.6169.4157.2156.3...Export performance vs. advanced countries (% change over 5 years)6.5-4.9-7.0-7.8-10.5...Export market share, goods and services (y-o-y)-0.7-4.2-1.0-1.31.1...Net FDI flows (% of GDP)2.32.52.71.7-0.8...General government balance (% of GDP)1.90.0-1.50.21.20.90.70.6Structural budget balance (% of GDP).0.30.00.41.20.80.60.7General government gross debt (% of GDP)45.338.843.244.242.239.036.634.4Tax-to-GDP ratio (%)46.343.843.343.644.644.043.443.1Tax rate for a single person earning the average wage (%)30.325.424.724.624.9...Tax rate for a single person earning 50% of the average wage (%)26.020.419.919.820.1...forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the  outcomes  for  non-EU-born  people,  given  its 
magnitude  and  the  considerable  time  it  takes  for 
integration measures to show their full effect. 

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. 

include 

introducing  a 

focus  has  so 

The 
far  mainly  been  on 
macroprudential  measures  and  steps  to  tackle 
housing  supply  bottlenecks.  Macroprudential 
loan-to-value 
measures 
ceiling  of  85 %  for  mortgages  in  2010,  gradually 
raising  banks’  risk  weight  floors  for  mortgages  in 
2013 and 2014, and introducing a formal mortgage 
amortisation requirement in June 2016 (see Section 
4.2.3).  Additionally,  Sweden  has 
adopted 
legislation 
the  macroprudential 
to  strengthen 
authority's  legal  mandate.  While  these  steps  have 
improved the resilience of the banking sector (see 
Section 4.2.1), they have not been sufficient to rein 
in  household  debt  growth  (see  Section  4.2.3). 
Additionally, 
time 
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,  but  the  current  level  is  still  insufficient  to 
meet  anticipated  demand,  particularly  in  major 
cities (see Section 4.2.2).  

the  authorities  have  over 

the 

with 

to  Sweden 

implementing 

introduction  of 

the 
Progress 
recommendation  addressed 
in 
2017(8)  has  to  be  seen  in  a  longer  term 
the 
perspective  since 
European  Semester  in  2011.  Looking  at  the 
multi-annual  assessment  of  the  implementation  of 
the  CSRs  since  these  were  first  adopted,  78 %  of 
all the CSRs addressed to Sweden have recorded at 
least 'some progress'. 22 % of these CSRs recorded 
'limited'  or  'no  progress'  (Graph  2.1).  Substantial 
progress  and  full 
implementation  have  been 
achieved in several policy areas, in particular fiscal 
governance  and  research  and  innovation.  Limited 
progress  has  been  achieved 
implementing 
housing market and household debt related CSRs. 

in 

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date (1) 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
(2) 2011-2012: Different CSR assessment categories.  
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2018 country report. 
Source: European Commission 

Sweden has been able to preserve a sound fiscal 
position.  This  has  ensured  compliance  with  the 
medium-term  budgetary  objective  and  keeping 
debt  on  a  declining  path  well  below  the  Treaty 
threshold.  

in 

the 

labour  market, 

the  government 
For 
achieved  some  progress 
improving  the 
employment  situation  of  young  people.  In 
particular,  it  has  adopted  measures  to  strengthen 
apprenticeships  and  other  types  of  work-based 
vocational  education.  However,  on  the  recent 
arrival  of  asylum  seekers,  it  is  too  early  to  assess 

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

past, see in particular Section 4. 

10 

4%18%26%39%13%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table on CSR assessment (1) 

(1) This does not include an assessment of compliance with the Stability and Growth Pact 
Source: European Commission 

initiative  to  raise  participation  of  foreign  firms  in 
the  Swedish  construction  sector.  However,  no 
to 
significant  policy  action  has  been 
introduce  more  flexibility  in  setting  rental  prices. 
No progress has been made on reforming mortgage 
interest  deductibility  and  recalibrating  recurrent 
property taxes. 

taken 

supported 

European  Structural  and  Investment  Funds 
(ESI  Funds)  address  challenges  to  inclusive 
growth  and  convergence  in  Sweden,  and  have 
successfully 
into 
entrepreneurship  or  employee  positions  in  various 
sectors and helped local authorities provide tailor-
made  training  and  support  for  employability.  ESI 
Funds  are  contributing  notably 
to  a  strong 
innovation  environment,  clusters  and  accessibility 
of research resources for industry (Box 2.1). 

migrants 

is 

its 

2017 

relevant 

addressing 

Overall,  Sweden  has  made  limited (9)  progress 
in 
country-specific 
recommendation (CSR). Some policy steps have 
been  taken  in  response  to  the  recommendation 
(which 
the  macroeconomic 
for 
imbalance  procedure  (MIP),  see  Section  3). 
However,  implementation  has  been  uneven  and 
key  areas  are  left  unaddressed.  The  government 
has 
amortisation 
requirement  for  high-debt-to-income  mortgages, 
which will come into force in March 2018. For the 
housing  market,  Sweden  is  moving  forward  with 
the  gradual  implementation  of  the  ‘22-point  plan’ 
to  increase  residential  construction  and  improve 
the  efficiency  of  the  housing  sector  (see  Section 
4.2.3).  The  authorities  have  also  launched  a  new 

strengthened 

approved 

a 

(9)  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 

11 

Sweden Overall assessment of progress  with 2017 CSRs: Limited CSR 1: Address risks related to household debt, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, while constraining lending at excessive debt-to-income levels. Foster investment in housing and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and revising the design of the capital gains tax. (MIP relevant)  Limited progress  No progress on limiting mortgage interest tax deductibility or increasing recurrent property taxes  Substantial progress on constraining lending at excessive debt-to-income levels  Some progress on fostering investment in housing and improving the efficiency of the housing market   
                                                           
 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support for structural change in Sweden 

Sweden  is  a  beneficiary  of  European  Structural  and  Investment  Funds  (ESI  Funds)  support  and 
can receive up to EUR 3.6 billion until 2020. This represents around 3 % of public investment1 annually 
over the period 2014-2018. By 31 December 2017, an estimated EUR 2.1 billion (59 % of the total) was 
allocated  to  projects  and  has  paved  the  way  to  strengthen  the  competitive  edge  of  28 120  companies. 
Project  areas  include  internationalisation,  business  development,  incubation  and  new  entrepreneurship. 
Access  to  risk  capital,  in  particular  venture  capital  has  been  enhanced  and  is  delivered  through  one 
National fund-in-fund (EUR 23.1 million), eight regional venture capital funds (EUR 74 million) and a 
new National “green fund” with a focus on the transition to a low carbon economy (EUR 38.7 million). 

ESI  Funds  help  address  structural  policy  challenges.  They  are  used  to  support  strong  innovation 
environments,  clusters  and  accessibility  of  research  resources  for  industry.  Sweden  uses  the  funds  to 
implement  smart  specialisation  strategies  in  all  regions.  It  will  cover  over  5 600  enterprises  and 
cooperation  with  research  institutes  to  bring  new  products  to  market.  EUR  400  million  supports  the 
transition to a low-carbon economy. European Regional Development Fund (ERDF) activity in Sweden 
shows  how  to  use  the  funds  for  integration  of  third  country  nationals.  The  focus  has  been  to  support 
migrants  to  become  entrepreneurs  or  employees  and  a  dedicated  call  of  proposals  was  made  for 
innovative solutions. A number of projects has been approved and are well in progress. Strengthening the 
employability of individuals through skills development and training is also supported by the European 
Social Fund (ESF) with EUR 808 million. The ESI Funds have helped to develop methods and structures 
for  providing  more  individually  adapted  training  and  support  for  employability.  Nearly  80 000  persons 
have benefitted from different ESF funded projects. 

Various reforms were undertaken already as precondition for ESI Funds support2. These were the 
transposition  of  the  energy  efficiency  directive  and  changes  for  the  provision  of  statistical  data  on  the 
implementation of ESI Funds. 

Sweden  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December 2017, overall financing volume of operations approved under the EFSI amounted to EUR 1.7 
billion, which is expected to trigger total private and public investment of EUR 6.3 billion. Energy ranks 
first  in  terms  of  operations  and  volume  approved,  followed  by  RDI  and  digital.  Some  805  smaller 
companies or start-ups will benefit from this support3. 

Funding  under  Horizon  2020,  the  Connecting  Europe  Facility  and  other  directly  managed  EU 
funds is additional to the ESI Funds. By the end of 2017, Sweden has signed agreements for EUR 194 
million for projects under the Connecting Europe Facility.  

https://cohesiondata.ec.europa.eu/countries/SE  

1 Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture and 

fisheries. 

2 Before programmes are adopted, Member States are required to comply with a number of so-called ex-ante conditionalities, 

which aim at improving conditions for the majority of public investments areas.  

3  For  more  details  see  EFSI  factsheet  for  Sweden  at  https://ec.europa.eu/commission/publications/country-factsheets-

investment-plan-state-play_en. 

12 

 
 
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE 

MACROECONOMIC IMBALANCE PROCEDURE IN-DEPTH 
REVIEW 

as 

identified 

The in-depth review for the Swedish economy is 
presented in this report. In spring 2017, Sweden 
was 
having  macroeconomic 
imbalances,  in  particular  relating  to  persistent 
house  price  growth  coupled  with  a  continued  rise 
in  household  debt.  The  2018  Alert  Mechanism 
Report  concluded  that  a  new  in-depth  review 
should  be  undertaken  for  Sweden 
to  assess 
developments  relating  to  identified  imbalances 
(European Commission, 2017h). Analyses relevant 
for  the  in-depth  review  can  be  found  in  the 
following  sections:  the  banking  sector  in  Section 
4.2.1;  the  housing  market  in  Section  4.2.2;  and 
private indebtedness in Section 4.2.3.  

3.1. 

IMBALANCES AND THEIR GRAVITY 

by 

Private  sector  debt  stands  at  188 %  of  GDP, 
among  the  highest  in  Europe.  Both  households 
(85 %  of  GDP  end-2016)  and  non-financial 
corporations (103 % of GDP end-2016) have high 
debt levels compared to other EU countries, which 
are  also  above  proprietary  debt  benchmarks 
developed 
the  European  Commission, 
Household debt is a particular source of concern. It 
has  risen  rapidly  and  persistently,  outpacing  GDP 
growth for over two decades now, driven primarily 
by  mortgage  lending.  Although  households  own 
significant  assets,  these  are  generally  illiquid  and 
their  value  is  exposed  to  market  risks.  Moreover, 
the  distribution  of  debt  across  households  is 
uneven,  and  there  is  a  significant  fraction  of 
ratios, 
borrowers  with 
particularly  among  younger  households  and  those 
buying properties in major cities. 

large  debt-to-income 

in 

January 

increase 

significant 
The  Swedish  economy  has  a 
exposure to the housing market, which makes it 
vulnerable to shocks. Swedish house prices have 
steadily  risen  for  almost two decades,  although  in 
autumn  2017  the  market  experienced  a  gradual 
decline,  followed  by  another  month-on-month 
price 
2018.  Strong 
fundamentals, 
in  particular  robust  disposable 
income and population growth, can explain part of 
Sweden’s  historical  house  price  growth,  but 
several 
as  price-to-income 
such 
(affordability)  and  price-to-rent  (dividend)  ratios 
their 
suggest 
fundamental  values.  Distortive 
taxation  and 
structural supply-side inefficiencies in the housing 
market  contribute 
this  overvaluation  (see 
Section  4.2.2).  The  risks  linked  to  this  scenario 
have prompted the European Systemic Risk Board 
to issue a formal warning in 2016. 

that  house  prices  are  above 

indicators 

to 

the 

The banking sector is solid, but it would be only 
partially shielded against a potential abrupt fall 
in  house  prices.  So  far  banks’  assets  have 
performed  well  and 
sector  has  high 
profitability  compared  to  its  peers  in  other  EU 
countries. 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  fully  reflect  the  underlying  risks  in 
banks’ 
to  household  mortgages. 
Consequently,  in  a  severe  housing  market  slump 
this vulnerability could have repercussions for the 
wider  economy  and  the  financial  system.  Due  to 
the  importance  of  Swedish  banks  in  the  region, 
other Nordic economies might also be affected. 

exposure 

Corporate  debt,  while  elevated,  is  matched  by 
high  equity  cushions  and  corporate  savings 
levels.  Despite  the  significant  stock  of  debt, 
financial  risks  remain  limited  thanks  to  healthy 
financial  positions,  in  particular  a  low  degree  of 
balance  sheet  leverage  and  strong  profitability. 
Moreover,  external 
funding  exposure,  while 
growing,  remains  limited:  domestic  loans,  which 
have  proved  resilient  during  the  crisis,  constitute 
for  non-financial 
the  main 
corporations.  

funding  source 

3.2. 

EVOLUTION,  PROSPECTS,  AND  POLICY 
RESPONSES 

While  overall  private  debt  has  roughly 
stabilised  relative  to  GDP,  household  debt 
remains  on  an  upward  trajectory.  It  grew  at 
7.0 %  year-on-year 
terms  as  of 
December  2017,  continuing  to  outpace  economic 
and  income  growth.  The  increase  in  mortgage 
lending is driven by house price rises coupled with 
structural  factors  favouring  (mortgage-financed) 

in  nominal 

13 

 
 
property investment, notably mortgage interest tax 
deductibility, variable rates and long maturities for 
mortgages.  

introducing 

a  mortgage 

The  authorities  have  gradually  taken  some 
policy  action  to  curb  household  debt  growth. 
After 
amortisation 
requirement  in  2016,  in  late 2017  the government 
approved  a  stricter  amortisation  rule  specifically 
targeting borrowing at high-debt-to-income levels, 
which  will  come  in  force  in  March  2018.  In 
addition, 
adopted 
the  Swedish  parliament 
legislation  to  strengthen  the  legal  mandate  of  the 
macroprudential  authority  (Finansinspektionen). 
The  new  mandate  is  operational  from  February 
2018, allowing the authority to respond in a more 
timely  manner  with  a  wider  range  of  potential 
measures  to  the  risks  associated  with  growing 
household debt.  

to 

seems 

requirement 

However, so far, these measures appear to have 
had  limited  impact  on  household  debt  growth, 
and  key  policy  gaps  remain.  While  the  2016 
amortisation 
have 
considerably  affected  borrower  behaviour,  the 
overall  impact  on  total  debt  incurred  appears 
modest.  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  2017.  Non-
financial corporation debt relative to GDP is down 
by  about  25  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  bank  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 in some cases expose firms 
more  to  volatility  and  stress  in  the  financial 
markets. 

Swedish banking groups have a substantial and 
growing  exposure  to  household  mortgages,  but 
banks’  capital  buffers  appear  sufficient  to 
support  this.  The  near-term  risks  of  household 

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

debt  service  problems  seem  limited,  given  low 
debt  service  costs  and  sizeable  household  budget 
margins.  However,  stretched  housing  market 
valuations  combined  with  high  debt  levels  make 
the  household  sector  vulnerable  to  shocks.  If,  for 
instance,  mortgage  interest  rates  were  to  rise 
significantly,  or  if  incomes  were  hit  due  to  an 
external  shock  to  the  economy,  households  could 
be  forced  to  rapidly  reduce  consumption  levels. 
Moreover,  as  Swedish  banks  are  reliant  on 
wholesale  funding,  a  downturn  in  the  housing 
market  could  result  in  a  sudden  rise  in  bank 
funding  costs,  thus  amplifying  the  impact  of  any 
domestic  housing  market  adjustment.  Supervisors 
are mindful of such risks. 

falling 

in 
House  prices  started  gradually 
autumn  2017,  but  this  follows  a  long  period  of 
virtually  uninterrupted  strong  growth.  Real 
house  prices  have  more  than  tripled  over  the  past 
income 
two  decades,  significantly  outpacing 
growth.  Contrary  to  most  European  countries, 
Sweden experienced no major adjustment in house 
prices  around  the  2008-2009  financial  crisis. 
House price growth peaked in 2015 at about 12 % 
in  real  terms,  but  since  then  there  has  been  a 
notable  loss  of  momentum:  in  2016,  real  house 
prices  rose  by  7.6 %,  and  in  2017  the  market 
in  prices  seeing 
cooled  further,  culminating 
outright  month-on-month  declines  throughout  the 
autumn.  In  January  2018,  prices  rose  again  by 
3.4 % month-on-month on average, slightly above 
what  could  be  expected  based  on  seasonal  trends. 
Market 
outperformed 
that 
historically,  notably  Stockholm  apartments,  have 
shown  particular  weakness  since  early  2017,  with 
prices  in  January  2018  close  to  10 %  below  their 
peak  in  the  spring  of  2017.  Still,  valuation 
indicators  continue  to  suggest  that  house  prices 
remain very high relative to fundamentals. 

segments 

had 

introduction  of 

A  number  of  policy  measures  appear  to  have 
supported  the  recent  turn  in  the  house  prices. 
The 
the  2016  amortisation 
requirement likely had a modest dampening impact 
on  prices.  The  gradual  simplification  of  planning 
and  building  regulations,  combined  with  rapid 
house  price  rises  in  recent  years,  encouraged  new 
housing construction. The ongoing implementation 
of  the ‘22-point  plan’  for  the  housing  market  will 
likely  further  support  housing  supply.  It  will  be 
important,  however,  for  new  construction  to  be 
focused on market segments where needs are most 

14 

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

pressing,  as  it  is  becoming  increasingly  apparent 
that  specific  market  sectors  (notably 
luxury 
apartments)  are  experiencing  a  degree  of 
oversaturation.  The  latter  is  likely  a  significant 
contributing  reason  for  the  recent  house  price 
correction. 

Some  key  structural  distortions  in  the  housing 
market  have  not  been  addressed  yet.  In 
particular,  no  policy  action  has  been  taken  to 
reform the tax incentives for home ownership and 
mortgage  debt  (see  above),  liberalise  tight  rental 
market  regulations  and  revise  the  capital  tax  on 
owner-occupied homes. In addition, there remains 
scope  to  further  tackle  the  lack  of  land  available 
for  development,  complex  planning  and  building 
regulations, limited incentives for municipalities to 
support  new  construction  and  limited  competition 
in the construction sector.  

3.3.  OVERALL ASSESSMENT 

Sweden faces sources of imbalances in the form 
of  high  private  debt  and  overvalued  house 
prices.  The  elevated  private  indebtedness,  in 
particular  of  households,  makes  the  economy 
vulnerable 
to  macroeconomic  shocks.  Large 
deleveraging  needs  may  potentially  lead  to  a 
harmful  adjustment,  with 
lower  consumption, 
investment  and  credit  flows.  In  spite  of  recent 
declines,  house  prices  continue 
to  appear 
overvalued.  In  the  event  of  a  large,  disorderly 
downturn in the housing market, there is a risk of 
negative spillover effects to other Nordic countries 
through the financial system.  

Policy  measures  to  address  these  imbalances 
have  so  far  been  insufficient.  The  authorities 
have  gradually  taken  some  policy  action  to  curb 
household  debt  growth  in  recent  years,  but  this 
impact  on 
appears 
indebtedness  growth.  In  addition,  some  key 
structural  issues  in  the  housing  market  have  not 
been  addressed.  Overall,  policy  gaps  remain  for 
functioning  of 
housing-related 
housing supply and of the rental market. 

to  have  had 

taxation, 

limited 

the 

15 

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

Table 3.1: 

MIP assessment matrix (*) — Sweden 2018 

(Continued on the next page) 

16 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Private debt  (see Section 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 2016. 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 is a particular concern; it stood at 182 % of disposable income and 86 % of GDP at end-2016. 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. Household debt grew further in 2016, increasing by 6.7 % in nominal terms over the year, significantly outpacing GDP growth. This trend continued in 2017, with household debt reaching 184 % of disposable income as of Q3 2017 GDP. The Riksbank projects that household debt will approach 190 % of disposable income by 2020.  In December 2017, the government approved a proposal by the macroprudential authority to raise the mortgage amortisation requirement for households borrowing more than 450 % of their gross income by 1 percentage point per annum. The new rule will come in force in March 2018.   In addition, parliament adopted legislation to enhance the macroprudential authority's legal framework, so that it can respond in a more timely manner and use a wider range of measures to address the risks associated with growing household debt. The new framework is fully operational from February 2018.  Corporate debt is relatively high compared to other EU countries, 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. Corporate debt has remained broadly stable, while firms continue to 'passively' deleverage.   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.    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 reliance of Swedish banks on wholesale funding could amplify the impact of a sharp housing adjustment. Banks are increasingly exposed to the real estate market: loans to households and non-financial corporations holding real estate have increased further, and constitute about 80 % of the major banks' total lending, 75 % of which is mortgage loans to households. At the same time, bank's capital buffers have continued to grow, due to lower average risk weighting of bank assets. The enhanced legal framework for the macroprudential authority and the macroprudential measures adopted to mitigate the risks posed by the housing market (see above) contribute to strengthening the banking sector's resilience.  The Swedish banking sector serves a large share of the market in the Nordic-Baltic countries, thus representing a source of possible spillovers in the event of sudden deleveraging needs. (See Section 4.2.1).     
 
 
 
 
 
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 

17 

Housing sector  (see Section 4.2.2) Swedish house prices appear to be significantly overvalued. Price-to-income and price-to-rent ratios were about 45-60% above their long-term average as of end-2016, and model-based estimates suggest prices are close to 10% above fundamentally justified levels. These valuation gaps are among the highest in the EU.  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 house prices combined with a large mortgage debt stock entail risks of a disorderly correction and adverse consequences for the real economy and potentially the banking sector. House prices have grown almost continuously in the last 20 years. After peaking at 12% in 2015, real house price growth started tapering out, but at about 8% in 2016 it remained well above income growth and among the highest rates in the EU. In 2017, house price momentum slowed significantly, and in the autumn prices started gradually falling on a month-on-month basis. On a year-on-year basis, this left prices down about 2.5 % as of December 2017. In January 2018, prices rose again by 3.4 % month-on-month on average, slightly above what could be expected based on seasonal trends. In spite of the recent declines, prices remain higher than seems justified based on fundamentals, implying risks of a disorderly correction. The latter could be triggered by, for instance, an external shock or a rapid rise in mortgage interest rates. Housing investment has rebounded sharply since 2012, albeit from very low levels. Despite the strong pick-up in construction, new housing supply continues to fall short of projected needs, although there appears to be some oversupply in specific market segments, particularly high-end apartments. The Swedish authorities continue to gradually implement the "22-point plan" for the housing market launched in June 2016. This includes a range of initiatives to increase developable land availability, reduce construction costs and shorten planning process lead times, as well as some specific rental market reforms. In addition, Sweden has launched an initiative to promote foreign competition in the construction sector by making building and planning regulations available in other languages on an online portal. 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 elevated 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. House prices started to experience a gradual correction in autumn 2017, but remain at levels that appear out of line with fundamentals.  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 and the functioning of housing supply and the rental market.   
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

Public  finances  remain  strong.  Sweden  is  set  to 
have  achieved  a  general  government  surplus  of 
0.9 % of GDP and a structural surplus of 0.8% of 
GDP  in  2017.  The  debt-to-GDP  ratio  is  expected 
to  decline  below  the  new  35 %  debt  anchor  by 
2019.  The  2018  budget  bill  includes  initiatives  to 
address  key  objectives  while  strengthening  fiscal 
soundness.  It  includes  new  spending  measures  of 
about  SEK  40  billion  (EUR  4.1 billion),  or  0.8 % 
of  GDP  centred  on  labour  market  and  migrant 
integration,  climate  and  environment,  education, 
health  and  defence.  The  bill  also  provides  for 
amendments  to  the  fiscal  framework  from  2019 
onwards.  With  prudent  fiscal  policy  in  place, 
Sweden faces low fiscal sustainability risks in the 
medium to long term. 

4.1.1.  FISCAL FRAMEWORK 

fiscal 

The  recently  revised  fiscal  framework  aims  to 
sustainability.  The  Swedish 
ensure 
authorities  adopted  a  fiscal  governance  reform 
package  in  late  2017,  with  effect  in  2019.  Most 
notably, the net lending surplus target defined over 
the  cycle  is  lowered  to  0.33 %  of  GDP  from  the 
current 1 % of GDP. The structural balance rule is 
complemented  by  a  debt  anchor  set  at  35 %  of 
GDP,  a  new  feature  serving  as  a  benchmark 
consistent with the surplus target (10). 

The  reforms  further  improve  the  soundness  of 
the framework. The main conceptual pillars of the 
framework essentially remained in place. Changes, 
such as the establishment of a new debt anchor as 
an  explicit  multi-annual  debt  objective,  helped  to 
bring  the  Swedish  national  regulation  in  line  with 
the Budgetary Frameworks Directive (2011/85).  

The  Fiscal  Policy  Council  (Finanspolitiska 
rådet) has received a stronger mandate. It has a 
more prominent role in assessing compliance with 

(10)  The revised elements are foreseen to be synthesised in the 
update  of  the  government  communication  (or  'code  of 
conduct') on the fiscal policy framework in the first half of 
2018. 

the rules and is tasked with the regular evaluation 
of the government's economic forecasts.(11) 

as  well 

The  nomination  procedure  for  the  Council's 
members  has  been  amended.  So  far,  members 
have been  elected  at  the  discretion of  the  Council 
itself.  Following  a  broad  political  agreement,  this 
process  will  be  replaced  on  1  July  2018  by  a 
selection  process  steered  by  a  nomination 
committee.  This  committee  will  include  the  Chair 
and  Deputy  Chair  of  the  Riksdag’s  Finance 
Committee, 
officials 
knowledgeable in the field of e.g. economic policy 
elected 
or 
representatives in the nomination procedure for the 
Fiscal  Policy  Council  was  officially  motivated  by 
the  desire  to  give  the  independent  body  more 
its 
democratic 
responsibilities  and  diversity.  However,  former 
and current members of the Council have opposed 
this  change  because  it  may  actually  decrease  the 
members’  autonomy  now  that  their  selection  will 
be more political. 

statistics.  The 

legitimacy 

inclusion 

increase 

senior 

and 

as 

of 

4.1.2.  TAXATION DEVELOPMENTS 

The general level of taxation remains one of the 
highest  among  EU  countries.  In  2017,  the  total 
tax  burden  was  43.5 %  of  GDP  compared  to  the 
EU  average 
the 
composition  of  the  2018  budget  the  level  is 
expected to remain broadly unchanged. 

(39.4 %  of  GDP).  Given 

The  2018  budget  bill  has  introduced  limited 
changes  to  the  tax  system.  These  include  tax 
reductions  for  pensioners  to  gradually  close  the 
gap  between  taxation  of  income  from  work  and 
taxation of income from pensions. The budget also 
raised the income tax rate for non-residents (from 
20 %  to  25 %).  It  plans  to  change  corporate 
taxation,  such  as  a  lowered  corporate  tax  rate 
(from  22 %  to  20 %)  combined  with  a  restriction 
of interest deductibility for companies. 

(11)  See last year's country report for the detailed discussion of 
the  reform  package.  The  English  summary  of  the  original 
report  ('A  review  of  the  surplus  target')  is  available  at: 
http://www.government.se/globalassets/government/dokum
ent/finansdepartementet/pdf/publikationer-infomtrl-
rapporter/summary---a-review-of-the-surplus-target  

18 

 
 
                                                           
                                                           
4.1. Public finances and taxation 

Other  tax  measures  focus  on  small  and 
medium-sized  businesses  and  a  greener  more 
sustainable  economy.  To  promote  job  creation 
and  entrepreneurship,  the  self-employed  are  given 
incentives to hire their first staff member, taxes are 
reduced  on  stock  options  used  by  start-ups  as  an 
alternative  to  a  higher  salary,  and  an  exemption 
from  value  added  tax  exemption  is  introduced  for 
small  businesses.  To  make  the  economy  greener, 
the budget includes tax increases on aviation and a 
lower electricity tax for certain sectors. 

Addressing  tax  incentives  could  help  mitigate 
the  build-up  of  household  indebtedness.  There 
are  currently  no  plans  to  revise  taxation  on 
housing, such as mortgage interest deductions and 
recurrent  property  tax.  Reforms  in  this  area  could 
contribute  to  a  more  favourable  development  of 
household  debt  (see  Section  4.2)  and  would  also 
have  a  favourable  impact  on  income  equality, 
particularly if the proceeds are used to reduce taxes 
on labour (Box 4.1.1). 

4.1.3.  SUSTAINABILITY OF PUBLIC FINANCES  

Sweden's  public  debt  burden  is  expected  to 
continue  declining  over  the  medium-term. 
Sound  fiscal  and  strong  economic  performance  is 
projected  to  bring  government  debt  close  to  20 % 
in  2028  from  39 %  in  2017,  well  below  the  60 % 
of  GDP  Treaty  reference  value.  The  outlook  for 
Sweden's fiscal sustainability appears sound in the 
short, medium and long term. (12) (13) 

(12)  For an overview of the Commission’s assessment of fiscal 
sustainability,  see  European  Commission  (2018),  ‘Debt 
Sustainability  Monitor  2017’  Directorate-General 
for 
Economic  and  Financial  Affairs,  European  Economy, 
Institutional Paper 071/2018. 

Debt dynamics appear to be resilient to shocks. 
In  all  scenarios  public  debt  remains  on  a 
downward  trend  and  the  increase  in  the  level  of 
debt  compared  to  the  baseline  is  moderate.  In  the 
worst  case  scenario,  based  on  a  shock  to  the 
exchange 
(under  a  cumulative  20.8 % 
depreciation over 2 years), gross public debt would 
reach 39.3 % of GDP in 2019 given that over 26 % 
of public debt is denominated in foreign currency.  

rate 

long-term  care 

is 
Public  expenditure  on 
projected  to 
increase.  Demographic  changes 
imply that under current policies spending on long-
term care can be expected to increase significantly, 
from 3.2 % of GDP in 2016 (among the highest in 
the  EU),  to  4.9 %  of  GDP  in  2070  (European 
Commission,  2018b).  This  corresponds  to  a  41 % 
increase,  similar  to  the  EU  average.  The  share  of 
the population that receives long-term care benefits 
is  relatively  high  by  EU  standards,  whereas  the 
underlying level of need (14) is broadly in line with 
the EU average. 

The  long-term  care  sector  is  not  fully  efficient. 
Resources  are  not  always  targeted  at  those  who 
need  care  the  most  and  can  least  afford  it. 
Additionally, the proportion of recipients receiving 
care in an institutional setting (rather than at home) 
is  relatively  high.  There  is  room  to  improve  the 
flexibility of the system. 

(13)  This  sound  outlook  will  be  further  supported  by  the 
December  2017  six-party  parliamentary  group  agreement 
on  raising  the  retirement  age.  Over  a  five-year  period 
ending  in  2026,  the  minimum  pensionable  age  would 
gradually increase from 61 to 64 years (by 2023).  

(14)  Based  on  indicators  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. 

19 

 
                                                           
                                                                                   
 
4.1. Public finances and taxation 

Box 4.1.1: Effects of a tax shift from labour to property 

Mortgage interest tax deductibility has been a long-standing issue in Sweden. The country is one of the very 
few EU member states with an uncapped (15) tax reduction on mortgage interest paid by owner-occupiers. 
This is widely seen as an incentive for households to take on high levels of debt and as a source of growing 
imbalances (see Sections 4.2.2 and 4.2.3). In order to address these imbalances, the Council has repeatedly 
called on Sweden in its country-specific recommendation to gradually limit mortgage interest deductibility 
(MID). Removing MID would ease housing demand and discourage excessive leverage.  

The Joint Research Centre of the European Commission has used the EU tax-benefit microsimulation model 
EUROMOD1  to  simulate  the  effect  of  a  tax  shift  from  labour  to  property.  Results  suggest  that  removing 
MID has, on average, a small effect on disposable income. If combined with cuts in labour taxes or in-work 
tax subsidies, it could boost employability and work incentives for those with a lower income, thus further 
reducing  inequality.  These  simulations  are  primarily  aiming  to  improve  our  understanding  of  the  impact 
various  policies  could  have  on  individuals  and  the  economy,  while  identifying  possible  trade-offs. 
Simulations inevitably abstract some possible sentiment effects that could result from a significant reform.   

As a first step, the fiscal and distributional effects of removing MID are considered. Removing the incentive 
would result in an additional SEK 17 billion (or EUR 1.8 billion) of revenues (0.3 % of GDP). This would 
decrease  household  disposable  income  by  a  mere  0.8 %  in  a  smooth  progressive  pattern  across  the 
household deciles (see graph 1), thereby reducing income inequality. 

As a second step, the resulting extra fiscal space is used to reduce labour taxes to support low-skilled and 
non-EU born people to enter the labour market. Unemployment rates of these groups are relatively high in 
Sweden.  As  suggested  by  economic  theory,  moving  the  tax  burden  from  labour  to  more  growth-friendly 
revenue  sources  may  improve  labour  market  participation.  Swedish  labour  taxation  is  relatively  elevated 
(25 % of GDP versus 19.6 % on average in the EU), especially for the single worker who earns 50 % of the 
average wage (tax wedge of 39.2 % versus 32.8 % EU average). For illustration, two policies shifting taxes 
from labour to property are considered: (1) lifting labour demand by reducing the rate of employers’ social 
security contributions (SSC) from 33.2 % to 22.3 % for low-wage earners2 while ensuring budget neutrality; 
and  (2)  lifting  labour  supply  with  a  targeted  increase  of  the  earned  income  tax  credit  (EITC)  for  workers 
earning less than the average wage while making the tax credit refundable3.  

Results show that the rebate of the SSC lowers the implicit tax rates on labour income for all households, 
and  that  the  impact  is  particularly  significant  for  wage  earners  in  the  first  income  deciles  (i.e.  low  and 
middle-income earners – see graph 2). The rebate allows reducing the gap between labour costs and take-
home pay and could result in higher employment and/or wages4.  

Sweden  is  using  the  EITC  to  ensure  appropriate  tax  incentives  for  individuals  to  participate  in  the  labour 
market.  The  simulated  EITC  reform  would  partially  compensate  for  the  decrease  in  household  disposable 
income caused by the removal of the MID, especially between the first and fifth deciles (see graph 1). As a 
consequence,  distributional  effect  could  be  significant  (reduction  in  the  Gini  coefficient  from  0.239  to 
0.237).  In  addition,  since  this  scenario  would  not  use  the  entire  fiscal  space,  roughly  SEK 8 billion 
(EUR 0.8 billion)  could  be  used  to  finance,  for  example,  complementary  policies  like  upskilling  or 
integration of vulnerable groups in the labour market.  
Using the full amount of freed up resources in a broader EITC increase offsets most of the negative impact 
from the MID reform on disposable income, but leads to a smaller impact on inequality (Gini index moving 
from  0.239  to  0.238)  and  a  minor  employment  effect  (a  slight  increase  in  labour  market  participation, 
especially from women)5.     

(15)  For further details on mortgage interest deductibility rules see footnote 6. 

20 

 
 
 
 
 
 
 
                                                           
4.1. Public finances and taxation 

Graph 1:   change in disposable income by decile 

Graph 2: Implicit tax rates on labour by decile 

Notes.  Households  are  put  into  deciles  according  to  their  pre-
reform disposable income. "1" represents the 10% lowest-income, 
"10" the 10% highest-income households in the sample. Values are 
calculated  on  average,  for  all  households,  on  an  annual  and 
equivalised basis. Bars show the change in monetary values (left-
hand  scale).  Diamonds  display  the  percentage  change  in 
disposable  income  (right-hand  scale).  The  effect  of  the  MID 
reform  is  in  blue.  The  combined  effect  of  the  MID  and  EITC 
reforms is in yellow. 

Notes. Implicit tax rates are calculated for each decile taking 
into account the subgroup of individuals with positive labour 
income.  

Source: European Commission Joint Research Centre, calculations based on the EUROMOD model. 

1 EUROMOD simulates the benefit entitlements and tax liabilities (including social security contributions) of individuals 
and  households  according  to  the  tax-benefits  rules  in  place  in  each  Member  State.  The  simulations  are  based  on 
representative data from the 2015 European Survey on Income and Living Conditions. 

2 At 50 % of the average wage, i.e. about EUR 1600 monthly in the sample 
3 If, as a result of applying the EITC the tax liability becomes negative, that amount is given to the taxpayer. 
4 EUROMOD is a static model which cannot take into account possible second-round effects and behaviour change 
5 Estimations with a labour supply model. 

21 

 
 
 
 
 
 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR (*) (16) 

well  above  the  EU  average  of  15.9 %  (Table 
4.2.1). 

Overview 

is 

The  Swedish  banking  sector 
large  and 
interconnected.  The  sector’s  assets  have  been 
around  300 %  of  Sweden’s  GDP  in  recent  years, 
while  its  equity  has  for  long  remained  broadly 
stable  relative  to  total  assets.  Given  its  size  and 
operations in the region, the banking sector plays a 
key  role  and  is  highly  interconnected  with  the 
Nordic-Baltic financial system.  

Bank profitability remains among the highest in 
Europe  despite  the  negative  rate  environment. 
Banks’  returns  on  equity  are  averaging  12 %.  In 
addition  to  low  funding  costs  and  high  cost 
efficiency,  strong  economic  conditions  boosted 
lending  as  well  as  revenue  from  advisory  and 
transaction fees, thus supporting profits. 

Banks  are  increasingly  exposed  to  the  real 
estate  market.  Loans  to  households  and  non-
financial  corporations  holding  real  estate  have 
increased  and  constitute  about  80 %  of  the  major 
banks’ total lending. Of this, about 75 % represents 
housing  loans  to  households  and  the  remaining 
25 % lending to corporates holding property assets. 
Too  strong  a  focus  on  housing  lending  in  the 
banks’  portfolios  could  lead  to  a  misallocation  of 
credit to non-productive uses. 

Good asset quality has been a major strength of 
the Swedish banking sector. In 2016 the average 
non-performing loan ratio stood well below the EU 
average  of  5.2 %  and  remained  one  of  the  lowest 
in  the  EU.  High  repayment  capacity  due  to  high 
savings  and  a  strong  repayment  culture  have 
helped to limit defaults.  

Banks’  capital  buffers  have  increased  and  are 
above requirements. In response to stability risks 
stemming  from  the  housing  market  and  high 
household  indebtedness,  Finansinspektionen,  the 
Financial  Supervisory  Authority 
(FSA),  has 
activated  specific  sectoral  and  countercyclical 
buffers  (European  Commission,  2017a).  The 
average Tier 1 ratio stood at 22.8 % in June 2017, 

(16)  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). 

Regulatory  capital  ratios  are  high  but  risk 
weights  are  among  the  lowest  in  Europe.  The 
average  risk  weighting  of  bank  assets  has  fallen, 
contributing  to  the  rise  in  capital  adequacy  ratios, 
while  the  ratio  of  capital  to  total  (non-risk-
weighted) assets has been broadly stable over time. 
Swedish  banks  have  relatively  low  risk  weights 
and capital levels compared to total assets (Graph 
4.2.1).  This  results  from  the  extensive  use  of 
internal  rating-based  models  which  incorporate 
low historical defaults on large portfolios, notably 
residential  mortgages.  Because  these  historical 
values  might  underestimate  the  actual  risks,  the 
(FSA) 
Financial 
(Finansinspektionen)  imposed  some  adjustments 
such  as  higher  risk  weights  for  residential 
mortgages, whereas the Riksbank has argued for a 
leverage  ratio  requirement  as  a  complement  to 
risk-weighted capital requirements. 

Supervisory 

Authority 

Graph 4.2.1:  Common Equity Tier (CET1)-to-total-assets 

ratio and implied risk weights (%), four major 
Swedish banks versus sample of 62 large EU 
banks (1), (2) 

(1) CET ratio is calculated as the ratio of reported CET1 
capital to total (non-risk-weighted) assets 
(2) Implied risk weights are computed as the ratio of risk-
weighted to total assets 
Source: Riksbank, Bankscope 

Key risks 

The  banks’  high  exposure  to  the  housing 
market  remains  a  key  risk.  Households  remain 
vulnerable to an adjustment in the housing market 

22 

0510152025020406080100CET ratio, %Implied risk weight, % 
 
                                                           
 
 
4.2. Financial sector 

to the FSA to introduce macroprudential measures 
that  may  be  required  in  a  timely  and  effective 
manner  and  using  a  wider  range  of 
tools. 
Importantly,  a  formal  public  consultation  process, 
which  is  standard  procedure  before  introducing 
any  new  regulations,  and  government  approval 
will still be required for any proposed measures. It 
is  the  government’s  intention  to  use  this  approval 
requirement as an ‘emergency brake’ (IMF, 2017). 

Nordea’s  planned  move  to  Finland  will  have 
significant implications for the Swedish banking 
sector. Subject to shareholder approval, Nordea, a 
globally  systemically-important  institution,  will 
relocate  its  headquarters  to  Finland  by  end-2018. 
The move would reduce the asset-to-GDP ratio of 
the  Swedish  banking  sector  by  over  100 %  of 
GDP.  While  Nordea’s  operations  in  Sweden  are 
not  expected  to  markedly  change  in  terms  of  size 
and  interconnectedness,  the  move  will  also  have 
implications  for  the  supervisory  and  resolution 
framework.(17)  This  concerns  not  only  liquidity 
management in the event of cross-border financial 
stress and possible resolution issues, but also how 
to 
macroprudential  measures  will  be  applied 
branches of foreign banks active in Sweden. 

to  regional 

Some  progress  has  been  made  to  reduce 
spillovers. 
vulnerabilities  due 
Mindful of the interconnectedness of the financial 
system  in  the  Nordic-Baltic  region,  supervisors 
and  national  central  banks  together  with  the 
European Central Bank have signed memoranda of 
understanding  to  strengthen  coordination  among 
countries. However, this arrangement has yet to be 
tested  in  a  distress  situation.  In  addition,  the 
Swedish  government  set  up  an  inquiry  to  analyse 
possible 
of 
the 
participation  in  the  EU  Banking  Union,  with 
reporting expected by November 2019. 

consequences 

Sweden's 

(17)  The  plan  to  move  its  headquarters  from  Stockholm  to 
Helsinki  will  place  the  Nordea  Group  under  the  Single 
Supervisory  Mechanism  (SSM)  and  the  Single  Resolution 
Board  (SRB).  The  Finnish  Deposit  Guarantee  Fund  will 
assume  responsibility  for  insuring  Nordea’s  deposits  (for 
more details see the 2018 country report for Finland). 

with  substantial  repercussions  for  the  overall 
economy  and  the  financial  system  (see  Risks  in 
Section 4.2.3). This is highlighted in the European 
Systemic Risk Board warning to Sweden issued in 
November 2016.  

Commercial  real  estate  (CRE)  markets  have 
been  buoyant,  driven  by  a  search  for  yield. 
in  CRE  has  been  growing  fast, 
Investment 
supported  by  bank 
lending  but  also  by  an 
increasing  share  of  market-based  funding.  While 
the  associated  risk  does  not  appear  to  be  of  the 
same  order  as  for  residential  property,  CRE  is 
sensitive  to  economic  downturns.  There  is  the 
potential  of  negative 
the 
connections  to  the  financial  system  and  the  real 
economy (Finansinspektionen, 2017c).  

spillovers,  given 

A downturn in housing markets could result in 
higher  funding  costs  with  implications  for  the 
region. Banks are reliant on wholesale funding as 
domestic  deposits  fund  only  around  half  of  the 
banks’  loan  portfolio.  To  cover  this  funding  gap 
banks  issue  covered  bonds  that  are  held  by  other 
domestic and foreign financial institutions. Against 
this  backdrop,  a  change  in  risk  perception  could 
result in a sudden rise in bank funding costs, thus 
amplifying  the  impact  of  any  domestic  housing 
market adjustment. To contain associated liquidity 
risks,  the  Riksbank  urges  banks  to  have  enough 
liquidity  reserves  and  maintain  sufficiently  stable 
funding in foreign currency. 

Macroprudential policy 

the 

internal 

Macroprudential  measures  have  been  adopted 
to  mitigate  the  risks  posed  by  the  housing 
market.  The  FSA  has  introduced  a  number  of 
specific  capital  buffers  for  banks,  a  25 %  risk 
weight  floor  on  residential  mortgages  for  banks 
applying 
rating-based  approach, 
specific  amortisation  requirements  for  households 
with  mortgage  loan-to-value  ratios  over  50  or 
70 %,  and  the  imposition  of  a  100 %  risk-weight 
on  mortgages  for  real  estate  (as  of  2007).  In 
addition,  the government  approved  a  strengthened 
amortisation  requirement  that  enters  into  force  in 
March 2018 (see Section 4.2.3). 

In  December  2017,  parliament  adopted 
legislation  to  strengthen  the  legal  framework 
for  the  macroprudential  authority.  The  new 
legislation was introduced to give a clear mandate 

23 

 
                                                           
4.2. Financial sector 

Table 4.2.1: 

Financial soundness indicators 

(1) ECB aggregated balance sheet: loans excl. to government and MFI / deposits excl. from government and MFI 
(2) For comparability only annual values are presented 
Source: ECB 

4.2.2.  HOUSING MARKET (*) 

Graph 4.2.2:  Averages of the annual growth rates of real 

disposable income and real house prices 
between 2001-2016 

Housing market developments 

While  the  Swedish  housing  market  appears  to 
be  undergoing  a  correction,  this  follows  a  two-
decade  period  of  strong  price  growth.  Since 
bottoming out after the banking crisis in the early 
1990s,  real  house  prices  have  more  than  tripled, 
significantly  outpacing  income  growth  as  well  as 
house  price  rises  in  other  EU  countries  (Graph 
4.2.2).  In  addition,  whereas  most  EU  countries 
experienced 
property  market 
adjustments  over  the  past  decade,  the  house  price 
upswing 
in  Sweden  has  continued  virtually 
uninterrupted  until  recently,  aside  from  a  short-
lived  and  relatively  mild  dip  around  the  2008 
financial  crisis.  This  steep  and  broadly  persistent 
growth  in  house  prices  poses  risks  to  financial 
stability (see Sections 3, 4.2.1 and 4.2.3) and also 
has implications for social equality (see Inequality 
in Section 1). 

significant 

(1) Euro area (EA) average is calculated as the arithmetic 
average of the indices of the EA Member States (euro area 
changing composition). 
Source: European Commission 

albeit  with 

House price momentum has decelerated notably 
since  mid-2016, 
significant 
differences  between  regions  and  market 
segments.  On  average,  real  house  price  growth 
slowed  from  12 %  year-on-year  in  2015  to  7.6 % 
in  2016,  as  a  combination  of  steep  price  rises  in 
formal 
prior  years, 
amortisation requirement in June 2016 (see Section 
4.2.3), and a sharp rise in new supply appeared to 
weigh  on  the  market,  notably  in  Stockholm.  In 
2017,  house  price 
further, 
transaction 
accompanied  by  a  slowdown 
volumes.  In  autumn  2017,  the  housing  market 
started  experiencing  outright  month-on-month 

introduction  of  a 

inflation  cooled 

the 

in 

24 

01234567SEUKFIDKNLEA avg.%Real disposable incomeReal house prices(%)20102011201220132014201520162017Q2Non-performing debt-0.60.50.51.41.21.10.5Non-performing loans----1.31.31.21.2Non-performing loans NFC----1.81.91.61.7Non-performing loans HH----1.41.21.21.2Coverage ratio126.369.863.563.026.026.926.126.3Loan to deposit ratio(1)217.4215.3207.8201.9201.0195.7192.5183.7Tier 1 ratio10.710.911.311.519.221.022.722.8Capital adequacy ratio12.211.812.112.322.224.126.326.2Return on equity(2)10.210.611.311.111.811.211.9-Return on assets(2)0.50.40.50.50.60.60.7-Financial soundness indicators, all banks in Sweden 
 
 
 
 
 
4.2. Financial sector 

owner-occupied  houses)  are  respectively  about 
40 %  and  60 %  above  their  long-term  averages, 
and  fundamental-model-based  estimates  suggest 
that  the  housing  market  is  overvalued  by  around 
8 % (20)  as  of  end-2016  (Graph  4.2.4).  These 
estimated valuation gaps are among the highest in 
the  EU  (European  Commission,  2017a).  While 
such  indicators  are  inevitably  subject  to  some 
modelling  uncertainty,  they  do  underscore  the 
vulnerabilities  linked  to  the  Swedish  housing 
market. 

Graph 4.2.4:  Valuation gap based on price-to-income 
and price-to-rent ratios and fundamental-
model-based estimate (1), (2) 

(1) Price-to-income and price-to-rent gaps are based on 
the percentage difference between these ratios and their 
long-run average (1995-2016) 
(2) The model-based valuation gap is based on a 
proprietary house price model that reflects key 
fundamental drivers (including interest rates, 
demographics and construction output) 
Source: European Commission 

Demand-side issues 

The  impact  of  low  mortgage  rates  on  housing 
demand  has  been  amplified  by  a  number  of 
specific  structural  features  of  the  Swedish 
mortgage  market.  Monetary  policy  in  Sweden 
has 
accommodative,  with 
benchmark  interest  rates  entrenched  in  negative 
territory  for  over  2  years  now  (see  Section  1). 
While  falling  interest  rates  naturally  act  as  a 
tailwind  for  the  property  market,  in  Sweden  this 

remained  highly 

(20)  The  model-based  valuation  gap  estimate  may  appear 
relatively  modest  compared  to  the  price-to-income  and 
rent-to-income  indicators.  However,  this  is  largely  due  to 
impact in the model of the current historically low level of 
mortgage  interest  rates  –  which  itself  could  potentially 
change rapidly and significantly. 

in 

in 

the 

continuing 

declines,  culminating  in  an  overall  average  price 
fall  of  2.5 % (18)  over  2017.  This  was  driven 
mainly  by  weakness 
tenant-owned 
apartment (19)  market,  with  prices  of  Stockholm 
apartments 
their 
particular 
underperformance  relative  to  the  national  average 
and  falling  by  9 %  over  the  year  (Graph  4.2.3). 
Single-family  homes,  on  the  other  hand,  which 
until  2015  had  lagged  the  apartment  market,  still 
registered a minor overall price rise (about 0.2 %) 
in  2017.  In  January  2018,  prices  rose  again  by 
3.4 %  month-on-month  on  average  for  the  overall 
housing  market,  slightly  above  what  could  be 
expected based on seasonal trends. 

Graph 4.2.3:  House prices by market segment (nominal) 

Source: NASDAQ OMX Valueguard-KTH Housing Index 

in 

particular 

justified  based  on 
drivers, 

In  spite  of  recent  declines,  valuation  indicators 
suggest  that  house  prices  remain  higher  than 
fundamentals. 
seems 
Fundamental 
strong 
population  and  income  growth  and  increasing 
urbanisation,  have  supported  house  price  growth 
(European  Commission,  2016a).  Nevertheless, 
over  time  valuations  appear  to  have  become 
disconnected  from  fundamentals.  In  particular, 
price-to-income  and  price-to-rent  ratios  (measures 
return-on-investment  of 
of  affordability  and 

(18)  2017 price growth estimates are based on NASDAQ OMX 
Valueguard-KTH Housing Index and are in nominal terms. 
(The  corresponding  figures  for  prior  years  are  8.6 %  for 
2016 and 14.3 % for 2015.) 

(19)  The term "tenant-owned apartment" (Bostadsrätt) refers to 
a  cooperative  property  ownership  structure 
for  an 
apartment  building,  where  each  resident  owns  a  share  in 
the overall building together with a legal right to occupy a 
specific  housing  unit.  This  is  the  most  common  owner-
occupancy model for apartments in Sweden. 

25 

-60-40-200204060809597990103050709111315Model-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
 
                                                           
 
                                                           
4.2. Financial sector 

Graph 4.2.5:  Revenues from property taxes 

effect  has  been  magnified  by  a  high  share  of 
variable-rate  mortgages,  long  contract  maturities 
and  still  generally  low  amortisation  rates  (see 
Section 4.2.3 for details). As a result, debt service 
costs  relative  to  incomes  have  steadily  fallen  to 
reach  post-crisis  lows  in  2015,  even  as  house 
prices and debt levels have continued to climb. In 
2016,  the  introduction  of  the  new  amortisation 
requirement  has  raised  average  debt  service  costs 
for new borrowers somewhat (further discussed in 
Section 4.2.3). 

imputed 

The  Swedish  tax  system  provides  some  of  the 
strongest  incentives  for  home  ownership  in  the 
EU.  The  overall  tax  take  from  property  taxes  in 
Sweden is about 1 % of GDP, just over half the EU 
average  (Graph  4.2.5).  This  is  partly  due  to  a 
ceiling on annual property taxes, resulting in most 
owner-occupiers  effectively  paying  a  relatively 
modest fixed fee that does not scale with property 
are 
values.  Consequently, 
significantly undertaxed compared to other capital 
income,  particularly  for  higher-value  properties 
(European  Commission,  2017a).  Additionally, 
Sweden is one of the very few EU countries where 
an  uncapped  (21)  tax  reduction  is  granted  on 
mortgage  interest  paid  by  owner-occupiers.  This 
provides  an  effective  subsidy  for  funding  a 
property purchase using mortgage debt, and further 
favours  (debt-financed)  home  ownership  —    both 
over other investment opportunities and over rental 
housing,  for  which  the  overall  tax  burden  is 
considerably higher (SOU, 2014). 

rents 

(21)  For further  details  on  mortgage  interest  deductibility rules 

see footnote 6. 

Source: OECD 

the 

tax 

that 

incentives 

reducing  mortgage 

Reforming 
for  home 
ownership and mortgages could also benefit job 
creation and income equality. By design, phasing 
out tax reductions for mortgage interest and raising 
recurrent property taxes would dampen demand for 
housing  and  mortgages  and  thus  help  contain 
imbalances  in  these  areas.  In  addition,  these  tax 
reforms  could  bring  about  broader  economic  and 
social  benefits  as  well.  Analysis  by  the  Swedish 
Fiscal  Policy  Council  (Finanspolitiska  rådet)  has 
shown 
interest 
the  ceiling  on 
deductibility  and  abolishing 
recurrent  property  taxes  would  have  a  broadly 
progressive impact, as these tax incentives tend to 
be 
households 
largest 
rådet,  2016).  This  potential 
(Finanspolitiska 
inequality-reducing  effect  could  be 
further 
enhanced by using the fiscal room created by such 
reforms  to  reduce  taxes  on  income  from  labour. 
the  Commission’s 
Microsimulations 
EUROMOD  model  suggest 
that  eliminating 
mortgage  interest  deductibility  could  free  up  an 
estimated SEK 17 billion (EUR 1.8 billion) to ease 
the  labour  tax  burden,  with  a  broadly  progressive 
distributional impact (Box 4.1.1). 

higher-income 

using 

for 

Supply-side issues 

Investment in residential construction has been 
subdued  compared  to  peer  countries  for  a 
prolonged  period  of  time.  While  rising  house 
prices  have  spurred  sizable  investment  in  housing 
in other EU countries (particularly before the 2008 
financial  crisis),  new  construction  in  Sweden  has 
remained muted historically (Graph 4.2.6). This is 

26 

012345ATSEDEPTIEFINLDKESELITLUBEFRUKOECD% of GDP20162000 
                                                           
 
4.2. Financial sector 

Graph 4.2.7:  Housing starts, including net conversions, 

versus projected need 

Source: Statistics Sweden (historical data until 2016); 
Boverket (estimated starts for 2017-2018, and projected 
need) 

it  appears 

the  recent  surge 

Moreover, while aggregate construction growth 
seems  encouraging,  it  is  unclear  if  it  is  focused 
on  the  regions  and  market  segments  where 
shortages are most pressing. While hard data are 
limited, 
in 
that 
construction  activity  may  be  overly  skewed 
(Riksbank, 
towards 
2017b), including in some regional markets where 
end-user  demand  for  such  properties  tends  to  be 
especially  limited.  As  a  result,  there  is  a  risk  of 
oversupply  in  specific  segments  of  the  housing 
market,  while  a  chronic  shortage  of  affordable 
housing near major economic hubs remains. 

developments 

high-end 

land 

A  number  of  structural  bottlenecks  are 
constraining  housing 
supply  and  raising 
construction  costs.  A  first  key  issue  is  lack  of 
developable  land,  partly  driven  by  the  fact  that  a 
is  owned  by 
large  share  of  buildable 
municipalities,  who  can  have  financial  incentives 
for making it available in a piecemeal fashion over 
time rather than when it is needed most (European 
Commission, 2015). Secondly, while reforms have 
been  introduced  to  simplify  zoning  and  building 
regulations,  overall 
relatively 
they 
cumbersome  and  complex.  In  particular,  local 
standards 
to  vary  between  different 
a 
some 
municipalities 
fragmented  market  that  reduces  efficiency  and 
raises  uncertainty  for  construction  companies 

creating 

remain 

areas, 

tend 

in 

partially  explained  by  a  steep  fall  in  residential 
investment in the wake of the early-1990s banking 
crisis.  However,  new  construction  activity  in 
Sweden  continued  to  lag  behind  the  EU  average 
until  2013, 
in  spite  of  comparatively  high 
population  growth  and  house  price  rises.  Direct 
measures  of  the  effect  of  house  price  growth  on 
construction output also point to a relatively weak 
supply 
(European 
Commission, 2017a; IMF, 2015). 

that  period 

response 

in 

Graph 4.2.6:  Residential construction investment 

Source: European Commission 

Building  activity  has  picked  up  sharply  in 
recent  years,  but  still  falls  short  of  near-term 
demand.  After  experiencing  a  protracted  post-
crisis  ‘double  dip’,  new  construction  has  seen  a 
notable  upswing,  with  annual  housing  starts  more 
than  tripling  from  their  2012  nadir  (Graph  4.2.7). 
However,  this  still  remains  somewhat  below 
projected  near-term  needs,  and  growth 
in 
construction  output  appears  likely  to  gradually 
taper  off  as  capacity  constraints  in  the  sector 
become increasingly binding.   

27 

01234567892949698000204060810121416% of GDPSEDKNLFIUKEU28010203040506070809008091011121314151617E18E…20ThousandsNet conversionNew constructionProj. need '17-'20 
 
 
4.2. Financial sector 

Graph 4.2.9:  Labour productivity in construction sector, 

Sweden and selected EU countries (1) 

(European  Commission,  2016).  Also,  the  timeline 
to obtain planning permission can be considerably 
longer  than  in  other  countries  (Emanuelsson, 
2015).  This  raises  financial  risks  for  construction 
projects  and  causes  delays  in  new  supply  coming 
online. Finally, rigidities in the construction sector 
have  weighed  on  productivity  growth  and  limited 
raising 
competition 
construction costs in Sweden to among the highest 
in the EU (Graph 4.2.8). 

developers, 

among 

Graph 4.2.8:  Price level index for residential construction 
costs for selected EU countries and Norway 

(1) Labour productivity defined as gross value added per 
hour worked 
Source: European Commission 

Source: European Commission 

Productivity  in  the  construction  sector  has 
started  to  recover,  but  remains  well  below  its 
mid-2000s  peak.  While  construction  productivity 
growth  has  been  lacklustre  in  many  countries,  it 
has  performed  particularly  poorly  in  Sweden 
(Graph  4.2.9).  This  is  partly  due  to  the  broader 
housing supply cycle: housing construction, which 
accounts  for  a  large  part  of  value  added  in  the 
construction sector, plunged after 2007 and did not 
recover  meaningfully  until  2013.  However, 
structural factors likely also play a significant role, 
regulations 
including 
constraining  potential  economies  of  scale  and 
relatively  limited  competition  among  construction 
firms.  It  remains  to  be  seen  if  the  recent  positive 
trend will be lasting. 

fragmented 

planning 

land 

firms, 

foreign 

Competition  in  the  residential  construction 
sector remains limited. Barriers to entry for small 
and 
like  complex  planning 
regulations  that  favour  well-connected  established 
companies,  and  the  ability  of  large  developers  to 
resources,  hamper  competition 
control 
(European 
2017a).  Market 
concentration  in  the  construction  sector  remains 
high,  in  spite  of  a  modest  decrease  recently. 
Among the 30 largest construction companies, the 
share in turnover of the four leading ones dropped 
from  73  to  65 %  over  the  past  5  years  (Sveriges 
Byggindustrier 2012 and 2017). 

Commission 

Barriers 
housing stock 

to  efficient  usage  of 

the  existing 

(Hyresgästföreningen) 

Sweden’s  unique  rent-setting  framework  leads 
to  below-market  rents  in  major  cities.  Rent 
levels  for  most  residential  tenancies  are  set  in 
negotiations  between 
the  Swedish  Union  of 
and  housing 
Tenants 
companies  using  a  collective  bargain  approach. 
These  are  in  turn  based  on  a  ‘utility  value’ 
(bruksvärde) determination, intended to reflect the 
quality of accommodations and tenant preferences 
in  the  negotiated  rent  level.  In  practice,  however, 
this  system  tends  to  result  in  rents  that  are  well 
below market levels, particularly in urban areas. In 
the  Stockholm  metropolitan  area,  for  instance, 
model-based  estimates  suggest  that  negotiated 
rents  are  on  average  roughly  25-30 %  below 
market rents, and considerably more so in the most 

28 

020406080100120140160180200PTELESITUKIEBELUNLATFRFIDEDKNOSEIndex: EU15=10020162007808590951001051101151201250001020304050607080910111213141516Index: 2000=100SEDKNLFIEU28 
 
 
4.2. Financial sector 

the conversion of rental units into owner-occupied 
homes, thus further aggravating the rental housing 
shortage. This has been particularly problematic in 
major  metropolitan  areas:  in  greater  Stockholm, 
since the early 2000s the total rental housing stock 
has  steadily  fallen  (Graph  4.2.10),  in  spite  of 
strong underlying demand. In contrast, the stock of 
the  nearest  owner-
tenant-owned  apartments, 
occupancy  equivalent  to  rental  apartments,  has 
seen comparatively strong (albeit still insufficient) 
growth. 

Graph 4.2.10: Cumulative change in rental versus tenant-
owned housing stock in Greater Stockholm 

Source: Boverket, Statistics Sweden 

In addition, there are negative knock-on effects 
on labour mobility and social equality. The lock-
in and insider/outsider effects in the rental market 
can prevent workers from moving to locations with 
the  best  job  opportunities,  thus  hampering  labour 
market  dynamism.  Furthermore, 
rental 
regulations  combined  with  a  severe  shortage  of 
affordable rental housing can exacerbate inequality 
and  social  problems.  This  particularly  affects 
lower-income  households  who  cannot  afford  to 
buy  their  own  home  and  for  whom  access  to 
affordable,  entry-level  rental  housing 
thus 
especially  important (24).  This  may  force  them  to 
resort to the growing shadow rental market, which 
can  involve  sizeable  payments  for  unauthorised 

tight 

is 

help address this issue, but failed to resolve the current lack 
of clarity. 

(24)  In  addition,  these  groups  typically  cannot  rely  on  the 
informal networks through which a large share of primary 
tenancies  in  the  rental  sector  are  facilitated  in  practice 
(Donner et al., 2017). 

attractive  central-city  locations  (Donner  et  al., 
2017). While the Swedish system does not involve 
direct rent control regulations, the overall impact is 
thus  essentially  the  same.  Cross-country  analysis 
shows that the effective degree of rent control and 
overall tenant protections in Sweden is among the 
highest  in  the  EU  (European  Commission, 2017a; 
Cuerpo et al., 2014). 

Below-market  rents  result  in  poor  access  to 
rental  accommodation  and  create  lock-in  and 
‘insider-outsider’ effects. The rent-setting system 
is  highly  favourable  for  ‘insiders’  who  have  been 
able  to  obtain  a  primary  tenancy  and  thus  enjoy 
low  rents  and  effectively  permanent  security  of 
tenure.  Conversely, 
‘outsiders’  —  mainly 
newcomers  to  the  rental  market,  such  as  students, 
recent immigrants and younger households — face 
great  difficulty  accessing  rental  housing,  as  the 
large  demand/supply  imbalances  resulting  from 
below-market rents lead to long waiting lists (e.g. 
on average over 9 years in greater Stockholm). In 
addition,  the  favourable  conditions  enjoyed  by 
sitting tenants incentivises them not to move, even 
if their accommodation is no longer fully suited to 
their  needs,  thus  creating  lock-in  effects  in  the 
rental housing market.(22)   

The  disconnect  between  actual  rents  and 
market  rents  has  also  impaired  the  supply  of 
rental  housing.  Below-market  rents  combined 
with  high  land  prices  incentivise  developers  to 
favour  construction  of  owner-occupancy  housing 
over rental units (23). The situation also encourages 

(22)  There is an exchange system in place that allows tenants 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  direction),  and 
to  prevent 
insider/outsider-effects  as  only  those  who  already  have  a 
primary tenancy qualify. It can also lead to abuse, whereby 
tenancies in particularly attractive locations are exchanged 
in return for unauthorised payments.  

it  does  nothing 

(23)  This  is  somewhat  mitigated  by  the  possibility  to  use  a 
special  system  of  "presumption  rents"  (presumtionshyra). 
This exempts the property from the utility value system for 
a  period  of  15  years,  allowing  negotiated  rents  to  better 
reflect market levels. However, even in these cases there is 
no  mechanism  to  allow  rents  to  adjust  flexibly  over  time, 
e.g. to reflect growing demand in certain areas. In addition, 
under current rules, at the  end of the 15-year presumption 
period  rents  are  set  to  become  subject  to  the  utility  value 
system  again,  which  potentially  could  lead  to  a  cliff-edge 
drop. This can create considerable uncertainty about long-
run  investment  returns  for  new  rental  housing.  An  inquiry 
in  the  presumtionshyra  system  was  conducted  in  2017  to 

29 

-150-100-5005010015020025091939597990103050709111315ThousandsNew constr. (rental)Reconstr. (rental)Conversion (rental)Demolition (rental)Total rentalTotal tenant-owned 
                                                           
 
                                                                                   
sublets  without  security  of  tenure.  Sweden’s  tight 
rental  regulations  also  contribute  to  a  relatively 
high  degree  of  overcrowding  among  socially 
vulnerable  groups,  including  non-EU  migrants 
(OECD,  2017).  While  reforming  Sweden’s  rental 
market  may  have  significant  redistributive  and 
social  consequences  as  well, 
this  could  be 
managed  by  a  combination  of  tax  measures  and 
targeted  subsidies 
for  vulnerable  households 
(Donner et al., 2017). 

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 when a homeowner is selling 
to buy another property of similar value elsewhere 
(meaning  no  actual  economic  gain  is  realised).  In 
light  of  the  steep  house  price  rises  over  the  past 
two  decades,  this  implies  that  households  who 
have  owned  their  home  for  a  long  time  can  face 
prohibitively  high  moving  costs (25).  In  practice, 
this tends to particularly affect elderly households 
living  in  a  large  single-family  house  looking  to 
to  a  conveniently-located  apartment. 
relocate 
Reforming  capital  gains  taxation  to  eliminate  this 
lock-in effect could help free up underused family 
dwellings  from  the  existing  housing  stock  and 
liquidity  and  supply-demand 
improve  overall 
matching in the owner-occupier market. The latter 
will become especially important as the aggregate 
supply-demand  gap 
the  housing  market 
in 
continues  to  gradually  shrink  thanks  to  the  strong 
rise  in  construction  output,  while  imbalances 
remain within market segments (see above). 

Policy developments 

Demand-side  policy  action 
in  the  housing 
market  has  been  focused  on  curbing  mortgage 
lending  via  macroprudential  measures.  Since 
2010,  Sweden  has  gradually  introduced  a  number 
of measures to contain mortgage debt growth (and 
thus housing demand). Steps taken include setting 
loan-to-value  limits,  adjusting  banks’  risk  weight 
formal  mortgage 
floors,  and 
amortisation  rule  in  June  2016  (see  Section  4.2.3 
for details).  In addition,  an  enhanced  amortisation 

introducing  a 

(25)  This  issue  is  somewhat  mitigated  by  the  ability  to  defer 
(part of) the capital gains tax liability, but this only reduces 
the  immediate  cash  flow  impact  and  not  the  effective 
wealth  reduction,  and  requires  interest  payments  on  the 
deferred amount. 

4.2. Financial sector 

requirement  for  borrowers  with  high  debt-to-
income  ratios  is  set  to  come  in  force  in  March 
2018 (also discussed in Section 4.2.3). 

While earlier measures largely failed to make a 
dent  in  house  price  momentum,  the  2016 
amortisation  requirement  appears  to  have  had 
some  modest  impact.  Analysis  based  on  the 
macroprudential  authority’s  annual  mortgage 
market survey suggests that households affected by 
the  new  rule  are  buying  somewhat  less  expensive 
properties  on  average,  with  the  overall  effect  on 
purchase  prices(26)  estimated  at  about  3 % 
(Finansinspektionen, 2017a). While this should not 
be interpreted as a direct measure of overall market 
impact (27),  it  indicates  that  the  2016  amortisation 
the  recent 
likely  contributed 
requirement 
slowdown in house price growth. 

to 

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

support 

tape 

The  authorities  are  proceeding  with 
the 
implementation  of  the  22-point  plan  for  the 
housing market launched in mid-2016. The plan 
contains  a  range  of  measures  aimed  at  making 
more  land  available  for  development,  reducing 
construction  costs,  shortening  planning  process 
lead  times  and  addressing  some  specific  rental 
market inefficiencies. Significant parts of the plan 

(26)  This estimate is based on the average purchase price impact 
across  all  new  mortgage  borrowers,  including  those  not 
affected  by  the  amortisation  requirement  because  their 
loan-to-value ratio is below 50 %. 

(27)  The reason is that with the underlying data it is not possible 
to account for compositional shifts in properties bought, so 
a  drop  in  average  purchase  price  may  simply  signify  that 
borrowers  are  buying  smaller  or  less  attractively  located 
homes  rather 
lower  prices  for  similar 
properties.  In  addition,  cash  purchasers  are  entirely 
excluded from the analysis by construction. 

than  paying 

30 

 
                                                           
                                                           
4.2. Financial sector 

about  184 % (29)  of  disposable  income  as  of  Q3 
2017.  While  an  estimated  57 %  of  the  adult 
population  are  tenants  or  mortgage-free  home-
owners  (Ölcer  et  al.,  2017),  households  who  do 
have  a  mortgage  have  an  average  debt-to-income 
(DTI) ratio approaching 340 % (Blom et al., 2017). 
Among  mortgaged households,  DTI  ratios tend  to 
be  highest  for  lower-income  households  (Graph 
4.2.11), although this trend appears to be gradually 
reversing (Finansinspektionen, 2017b) — possibly 
driven  by  increasing  difficulties  faced  by  lower-
income  households  to  obtain  a  mortgage  at  all. 
Younger  mortgage  borrowers  also  tend  to  have 
higher  debt  loads  relative  to  income  than  older 
households, and are more likely to have unsecured 
loans 
their  mortgage 
(Finansinspektionen,  2017b).  DTI  ratios  are  also 
higher  on  average for  those  living in  major  cities, 
particularly Stockholm.  

addition 

to 

in 

(29)  This  includes  only  households'  direct  debt  load.  Many 
owner-occupiers  living  in  tenant-owned  apartments  (see 
footnote 17) are also indirectly exposed to the debt burden 
of the tenant-owner association in which they own a share 
(Sveriges  Riksbank,  2017a).  Including  this  debt  would 
raise  the  debt-to-income  ratio  by  about  20  percentage 
points. 

to 

regard 

have been largely implemented over the course of 
2017,  particularly  with 
reducing 
construction  costs  and  lead  times.  Other  key 
reforms under the plan, including a comprehensive 
review  of  building  and  planning  regulations  and 
measures  for  more  developable  land,  involve 
significant  preparatory  work  and  stakeholder 
consultation processes. It will therefore take  more 
time  before  these  proposals  are  finalised  and  they 
remain  subject  to  implementation  uncertainty. 
Nevertheless, overall, the 22-point plan and similar 
new  initiatives  will  likely  provide  further  support 
for the strong ongoing construction upswing. 

Sweden  is taking  steps  to  raise  participation  of 
foreign companies in the construction industry. 
In July 2017, the government announced a plan to 
facilitate  entry  of  foreign  construction  firms  in 
order to increase competition and lower residential 
construction  costs.  The  National  Board  of 
Housing, Building and Planning (Boverket) will set 
up  a  website  with  translations  of  the  building 
regulations  into  other  languages  (initially  just 
English)  which  should  be  operational  by  mid-
2018. In addition, it will report on possible further 
measures  to  address  obstacles  foreign  operators 
encounter. 

4.2.3.  PRIVATE INDEBTEDNESS (*) 

Household debt 

In  spite  of  a  modest  slowdown  since  mid-2016, 
Swedish  household  debt  continues  to  grow  at 
one  of  the  fastest  rates  in  the  EU.  Household 
debt  has  been  on  a  steep  and  persistent  upward 
trajectory,  outstripping  GDP  growth  for  over  two 
decades  now.  In  nominal  terms,  it  increased  by 
7.0 % (28) 
a  gradual 
deceleration from its recent peak year-on-year rise 
of 7.8 % in May 2016. However, its current growth 
rate  remains  among  the  highest  in  the  EU,  even 
though  Swedish  household  debt  levels  already 
appear  elevated  compared 
to  peer  countries 
(European Commission, 2017a).  

continuing 

in  2017, 

Household  debt  is  unevenly  distributed.  The 
aggregate debt level across all Swedish households 
(including  those  without  any  debt)  amounts  to 

(28)  Year-on-year growth as of December 2017. 

31 

 
                                                           
                                                           
4.2. Financial sector 

Graph 4.2.11: Debt-to-income ratios for selected groups of 
mortgage borrowers (as of September 2017),  
(1), (2) 

years,  but  it  also  shifts  risks  related  to  future 
rate rises to the household sector. 

  Swedish  mortgage  contracts  have  historically 
been characterised by long maturities compared 
to  other  EU  countries,  generally  accompanied 
by  low  amortisation  (i.e.  capital  repayment) 
the 
requirements.  This 
relative  impact  of  lower  interest  rates  on 
monthly  mortgage 
(European 
Commission, 2017a). 

further  amplifies 

payments 

Risks  

(1)  Disposable monthly income below about SEK 11 000 
(EUR 1 142) (excluding certain tax-free income sources 
such as child allowance) 
(2) Average household age (excluding children) 27 or 
lower 
Source: Blom et al., 2017 

Drivers for household debt growth 

Household  debt  growth  has  been  driven  by 
house price rises coupled with structural factors 
(mortgage-financed) 
favouring 
property 
in  Swedish 
increase 
investment.  The  steady 
household debt stems almost entirely from growth 
in 
loans  for  property  acquisition  (European 
Commission, 2017a). The latter is interlinked with 
rapid  house  price  rises  (see  Section  4.2.1)  in  a 
mutually  reinforcing  way:  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 exacerbated by the 
following  structural  factors  that  act  to  lower  debt 
service costs: 

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

  Mortgages are mostly variable-rate: about 73 % 
of new and 68 % of all outstanding mortgages 
rates 
short-term 
are 
(European  Mortgage  Federation,  2017).  This 
has reduced debt service costs  as interest rates 
have  fallen  to  historically  low  levels  in  recent 

interest 

linked 

to 

thus 

Steadily  growing  household  leverage  coupled 
with  elevated  house  prices  makes  the  economy 
vulnerable  to  shocks.  If  mortgage  interest  rates 
were 
to  rise  –  either  driven  by  a  gradual 
normalisation in monetary policy or by wider risk 
premiums (30)  –  highly-indebted  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 
further 
decreasing  households’  ability  to  service  their 
mortgages.  Ultimately, 
to  a 
disorderly  deleveraging  process  with  a  significant 
broader  macroeconomic 
line  with 
historical  developments  in  some  other  countries 
facing  a  combination  of  high  house  prices  and 
household 
These 
(OECD, 
vulnerabilities  are  also  confirmed  by  proprietary 
debt  benchmarks  developed  by  the  European 
Commission  based  on  empirical  cross-country 
evidence,  which  suggest  that  Sweden’s  household 
debt  load  is  higher  than  can  be  justified  by 
fundamental drivers, and above levels at which the 
risk of crisis becomes elevated. 

this  could 

2017a). 

impact, 

debt 

lead 

in 

Risks  are  partly  mitigated  by  households’ 
robust  payment  ability  and  financial  wealth. 
Households  with  a  mortgage  generally  have 
relatively high income surpluses (roughly 40 % of 
disposable  income  on  average)  after  mortgage 
service 
expenses 
(Finansinspektionen,  2017b).  Households’  strong 
payment  ability  is  also  reflected  in  a  very  low 
share  of  non-performing  household  loans  (see 

day-to-day 

costs 

and 

(30)  Wider  mortgage  risk  premiums  could  potentially  be 
triggered by, for example, a house price correction, a wider 
economic  slowdown  or  higher  funding  costs  for  banks  as 
market perceptions of their riskiness worsen. 

32 

0100200300400500600Lowestincomedecile (*)Lowest agedecile (**)Householdsin StockholmAllmortgagedhouseholds% of disposable incomeAverage DTIMedian DTI 
 
                                                           
4.2. Financial sector 

Section  4.2.1).  Additionally,  households  have  a 
high  savings  rate  and  significant  financial  wealth, 
estimated at roughly 3 times their liabilities. 

Graph 4.2.12: Estimated monthly income surplus (1) for 
newly mortgaged households in different 
income deciles, by year of origination 

likely  provide  only 

However, this relatively strong overall financial 
position  would 
limited 
cushioning  in  a  significant  housing  market 
downturn.  While  income  surpluses  are  high  on 
average,  they  are  heavily  skewed  towards  higher-
income  households  (Graph  4.2.12).  Moreover, 
while significant income surpluses imply that most 
households  would  likely  be  able  to  continue 
servicing  their  debt  even  in  a  downturn,  there 
could 
still  be  a  considerable  consumption 
reduction  as  households  may  wish  to  maintain  or 
even  raise  their  savings  rate  in  light  of  increased 
economic  uncertainty.  As  for  financial  wealth, 
close  to  50 %  of  non-housing  assets  owned  by 
Swedish  households  are  invested  in  pension  fund 
or  life  insurance  instruments  and  can  therefore 
only be accessed upon retirement. A large portion 
of 
equity 
investments,  which  account  for  about  a  third  of 
total  household  wealth  —  is  exposed  to  market 
risks, and would likely fall in value in an economic 
downturn.  Consequently,  rather  than  cushioning 
the  impact  of  a  housing  market  fall,  this  could 
further amplify it, by weighing on consumption via 
wealth effects. 

remainder  — 

particularly 

the 

33 

(1) Income surplus calculations are based on an average 
of standardised cost assumptions for mortgage holders 
(including on e.g. operating costs for the individual 
household and tenant-owner apartment charges where 
applicable) used in banks' discretionary income 
calculation. For full details of the underlying methodology, 
see Finansinspektionen, 2017b (appendix 1). 
Source: Finansinspektionen  

Policy developments 

years, 

mainly 

relying 

The  authorities  have  gradually  taken  some 
policy action to curb household debt growth in 
on 
recent 
macroprudential  measures.  These  include  the 
setting  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. 
the  authorities 
June  2016, 
implemented a formal mortgage amortisation rule, 
requiring  new  mortgages  to  be  paid  down  by  a 
minimum  of  2 %  per  year  until  the  LTV  drops 
below 70 %, and by 1 % afterwards until the LTV 
drops  below  50 %.  In  December  2017,  Sweden 
also  adopted  an  expanded  legal  mandate  for  the 
macroprudential authority (see Section 4.2.1). 

In 

The  2016  amortisation  requirement  has  had  a 
considerable  impact  on  borrower  behaviour, 
but  the  effect  on  total  debt  incurred  appears 
modest.  Estimates  based  on  the  macroprudential 
authority’s  mortgage  market  survey  indicate  that 
the measure led affected borrowers to reduce their 
mortgage 
9-14 % 
(Finansinspektionen, 2017a). However, the impact 
on  borrowers’  overall  debt  levels  appears  much 
smaller (up to 4 %, and only for the most strongly 

borrowings 

by 

01020304050607012345678910% of disposable incomeIncome decile20122016 
 
4.2. Financial sector 

point  per  annum.  Combined  with  the  existing 
amortisation  rule  introduced  in  2016,  this  would 
bring  the  overall  amortisation  rate  to  a  maximum 
of 3 % per annum (Graph 4.2.14). This represents 
an  additional  step  towards  reining  in  lending  at 
excessive  DTI  levels.  Given  the  recent  cooling  in 
the  housing  market,  this  measure  seems  to  be 
balanced. It is projected to affect only about 14 % 
of  new  mortgages  issued  by  raising  the  debt 
service  cost  (in  cash  flow  terms)  for  high-DTI 
borrowing,  as opposed  to  imposing  an  actual  DTI 
limit.  

Graph 4.2.14: Rate of amortisation given the debt-to-

income ratio and loan-to-value ratio (2016) 

that 

affected  borrowers).  This  suggests 
the 
amortisation  rule  may  have  prompted  some 
households  to  resort  to  unsecured  borrowing  to 
replace  part  of  their  mortgage  financing,  although 
further  investigation  will  be  required  before  firm 
conclusions can be drawn.  

Despite this possible undesirable side effect, the 
overall impact of the amortisation requirement 
appears  broadly  positive.  It  has  led  to  a  modest 
fall  in  the  average  debt-to-income  ratios  for  new 
mortgage borrowers (to 402% in 2016 from 406% 
in  2015)  after  years  of  steep  increases,  and 
prompted  a  small  reduction  in  the  share  of 
households  borrowing  at  the  highest  debt-to-
income  levels  (Graph  4.2.13).  By  design,  it  also 
raised  amortisation  rates:  on  average  across  all 
borrowers,  mortgages  obtained 
in  2016  are 
amortised at a rate that is close to 50 % higher than 
for those originated in 2015. While this still leaves 
low  by 
overall 
international standards, it nevertheless represents a 
meaningful  step  forward  that  will,  at  the  margin, 
contribute 
the 
household sector. 

the  financial  resilience  of 

levels  quite 

amortisation 

to 

Graph 4.2.13: Share of households with different debt-to-

income ratios, new loans 

Source: Finansinspektionen 

A  strengthened  amortisation  rule  for  new 
mortgage  borrowers  with  high  debt-to-income 
(DTI) levels will come into force in March 2018. 
This  new  macroprudential  measure  will  require 
households  obtaining  a  mortgage  with  an  overall 
debt  level  over  450%  of  gross  income  (roughly 
equivalent 
to  630 %  of  after-tax  disposable 
income) to amortise by an additional 1 percentage 

(1) Each dot represents one household. 
Source: Finansinspektioen’s sample from the mortgage 
survey in 2016 and own calculations. Figures on 
percentages of affected households may not add up due 
to rounding. 

Corporate debt 

Swedish non-financial corporations continued a 
gradual  post-crisis  deleveraging  process 
in 
2017.  Consolidated  corporate  debt  fell  to  about 
100 % of GDP as of mid-2017 (Graph 4.2.15). On 
a  non-consolidated  basis  (including  financing 
flows  between  domestic  companies),  corporate 
debt  fell  to  141 %  of  GDP  as  of  Q2-2017,  down 
about  5 pps  year-on-year.  Since  its  peak  in  2009, 
the corporate debt-to-GDP ratio has come down by 
about  25 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  80 %  of  GDP  (on  a 
consolidated basis) at the end of 2016. 

34 

051015202530350-150150-300300-450450-600600-750750-900Above900% of households with a mortgageDebt to income ratio (%)201120122013201420152016010020030040050060070080090010000102030405060708090100Debt-to-gross income, %Loan-to-value, %1%1%2%0%2%3%New requirementRequirement since June 2016450%3% of new borrowers7% of new borrowers5% of new borrowers39% of new borrowers25% of new borrowers21% of new borrowers 
 
 
Graph 4.2.15: Breakdown of corporate debt by funding 

source 

Source: Statistics Sweden 

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

debt to GDP ratios 

4.2. Financial sector 

branches,  which  fell  sharply  after  corporate  tax 
reforms  in  2013  (European  Commission,  2016a). 
These foreign intra-group loans were replaced by a 
larger funding contribution from domestic lending 
between firms and more bond market funding. 

While  overall  corporate  debt  levels  are  still 
high,  firms  generally  seem  to  have  a  healthy 
financial position with limited risks of financial 
distress.  Sweden’s  corporate-debt-to-GDP  ratio  is 
relatively  high  compared  to  other  EU  countries. 
However,  other  leverage  indicators  demonstrate 
that  financial  risks  are  limited.  Corporates  have 
significant equity cushions, as indicated by a debt-
to-equity  ratio  that  is  already  at  a  quite  low  level 
(43 %  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  16 %  of  GDP 
(about  12 %  EU  average),  underscoring  that  the 
corporate sector is sufficiently profitable to be able 
to reduce its debt level quickly if needed. 

Graph 4.2.17: Leverage indicators for non-financial 

corporations 

* Estimated figure using quarterly data. 
Source: European Commission 

(1) ‘Other changes’ mainly reflect 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  4.2.17 
shows  that  domestic  lending  (mostly  from  banks) 
to  firms  has  been  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  16 %  end-2016.  Lending  from 
abroad  contracted  from  a  peak  of  about  48 %  of 
GDP  in  2009  to  26 %  of  GDP  over  the  same 
period.  However,  this  change  is  essentially  fully 
accounted  for  by  intra-group  loans  from  foreign 

35 

-15-10-505101520253004050607080910111213141516y-o-y changeCredit flowReal growthInflationOther changesD/GDP, change0204060801001201400001020304050607080910111213141516*%Debt/GDP, consolidatedDebt/financial assets, consolidatedGross savings/GDPDebt/equity 
 
 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET AND SOCIAL POLICIES 

Labour market 

rate  was  at  81.8 %,  and 

Strong  economic  activity  has  improved  labour 
market  conditions.  The  labour  market  is  per-
forming  well.  In  the  third  quarter  of  2017,  the 
the 
employment 
unemployment 
to  6.8 %.  Youth 
fell 
unemployment  reached  the  lowest  level  since 
2003. In addition, the percentage of young people 
not in employment, education or training declined 
to  6.5 %  in  2016,  well  below  the  EU  average  of 
11.5 %.  

rate 

Graph 4.3.1:  Employment rate by educational attainment 

Source: Eurostat, LFS 

However,  labour  shortages  are  emerging  in 
certain sectors and a lack of affordable housing 
is undermining labour mobility. Despite the high 
employment  rate,  demand  for  labour  remains 
strong and firms are reporting difficulties to recruit 
in  certain  sectors.  The  construction,  education, 
health,  science,  engineering  and  ICT  sectors  are 
among  those  reporting  the  largest  shortages  of 
labour.  Moreover, 
is  mainly 
concentrated  in  the  major  metropolitan  areas, 
where limited availability of affordable housing is 
undermining labour mobility.  

job  creation 

The  developments  on  the  labour  market  prove 
the 
latest 
economic expansion, the employment rate of low-

importance  of  skills.  During 

the 

skilled workers has been decreasing, while the one 
of medium and high-skilled workers increased (see 
Graph 4.3.1). Evidence suggests that this is a long-
term issue, possibly linked to the fact that Swedish 
companies have positioned themselves at the high-
end  of  the  global  value  chain,  thus  reducing  their 
demand  for  low-skilled  labour.  At  the  same  time, 
the demand for highly-skilled workers is not fully 
matched  by  supply.  The  outward  shift  of  the 
Beveridge curve indicates a higher unemployment 
rate for a given labour shortage in manufacturing. 
This suggests a growing skill mismatch (see Graph 
4.3.2). 

Graph 4.3.2:  Beveridge curve, 2000-2016 

Note: The graph shows the relationship between the labour 
shortage indicator and the unemployment rate. Labour 
shortage indicator derived from EU business survey results 
(% of manufacturing firms pointing to labour shortage as a 
factor limiting production). To highlight the changes before 
and after the 2008 crisis, two curves are drawn for the 
respective periods.  
Source: European Commission based on Eurostat data 

in 

lifelong 
While  participation  of  adults 
learning  is  generally  high,  the  government  has 
made  training  of  low-skilled  people  a  priority. 
The  percentage  of  adults  in  lifelong  learning  is  at 
29.6 %,  well  above  the  Education  and  Training 
target (15 %). Sweden excels on the percentage of 
unemployed  participating  in  education  or  training 
and since 2017 adults over 20 who had already left 
the formal education system are entitled to start an 
adult  education  improving  their  employability. 
This  is  expected  to  provide  about  70 000  adults 
with  a  higher  level  of  skills.  To  make  vocational 
secondary  education  more  attractive, 
upper 
vocational  education  and  training  courses  that 
prepare  for  tertiary  education  are  being  put  into 
place.  

36 

556065707580859001020304050607080910111213141516% population, age group 20-64High skilledMedium skilledLow skilled00070816024681012456789Labour Shortage Indicator (%)Unemployment rate (% of labour force)2000-20072008-1016 
 
 
 
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council  and  the  European  Commission,  sets  out  20  principles  and  rights  to  benefit  citizens  in  the  EU.  In 
light of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions. 

Sweden  performs  well  on  the  indicators  of  the 
Social  Scoreboard  (1)  supporting  the  European 
Pillar  of  Social  Rights.  The  employment  rate  is 
high,  while  the  gender  employment  gap  and  the 
NEET  rate  (the  share  of  young  people  not  in 
education, employment or training) are at low levels. 
These positive outcomes reflect an advanced welfare 
model,  a  strong  social  dialogue  and  a  high  level  of 
gender equality. 

The  unemployment  rate  among  youth  and  those 
born  outside  the  EU  is  relatively  high.  The 
integration  of  new  immigrants  continues  to  put 
pressure on the labour market and the social policies, 
as  well  as  on  the  educational  system.  This  is  due 
both  to  the  high  number  of  recently  arrived  and  to 
the  fact  that acquiring  skills needed  on  the  Swedish 
labour  market 
lengthy  process.  Various 
is  a 
instruments are used to address this issue.  

Sweden  has  a  high  participation  rate  of  children 
under  the  age  of  3  in  formal  childcare.  Childcare 
in Sweden has been given high priority since several 
decades  and  has  been  developed  as  part  of  family 
policy  with  links  to  labour  market  policy.  In 
particular, the costs of formal childcare for youngest 
children are capped at an affordable level and most facilities work long hours, allowing both parents to have 
full-time job. Addressing demographic changes, the 2018 budget further raises child benefits. 

1   The  Social  Scoreboard  is  composed  of  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member 
States' performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to reservations by Member States. Possible 
alternatives will be discussed in the relevant Committees. GDHI: gross disposable household income. 

In  2018,  the  government  is  planning  a  number 
of  measures  to  make  the  labour  market  more 
inclusive.  The  focus  will  be  on  groups  at  the 
margin of  the labour  market,  such  as  unemployed 
low-skilled  people  (especially  those  who  arrived 
recently  from  outside  the  EU).  The  government 
has earmarked SEK 7.3 billion (EUR 758 million) 
in 
this. 
labour  market 
Furthermore, 
integration  of  the  long-term  unemployed  and 
recently  arrived  migrants  more  efficient,  five 
different employment subsidy programmes will be 

the  2018  budget  bill 

targeted  for 

to  make 

the 

37 

consolidated  into  one  (introduktionsjobb).  This 
new  scheme  includes  harmonising  the  subsidy 
ceiling by synchronizing the level of the qualifying 
gross  salary  to  SEK  20 000  per  month  (or 
EUR 2 077).  The  new  scheme  (introduktionsjobb) 
is  set  to  begin  in  spring  2018  with  a  degree  of 
wage  subsidization  at  80 %.  Also  social  partners 
recently  proposed  a  scheme 
the 
employability  of  newly  arrived  and  long-term 
unemployed 
This 
would combine education and employment and the 

(etableringsanställningar). 

increase 

to 

 
 
 
4.3. Labour market, education and social policies 

salary would correspond to the lowest level of the 
collective agreements.  

importance of social background and education for 
the integration process. 

Evidence shows that labour market integration 
of migrants is a long-term process. For refugees 
and  family  migrants  arriving  between  1990  and 
2014, it took on average more than 5 years for half 
of  those  who  arrived  in  a  given  year  to  enter  the 
labour market and 15 years for 80 %. Even after 20 
years,  people 
remain 
concentrated  in  the  lower  part  of  the  earnings 
distribution (IFAU 2017). 

those  groups 

from 

Graph 4.3.3:  Employment rate by country of birth 

Source: Eurostat, LFS  

replacement 

Sweden’s social safety net is well developed and 
facilitates 
labour  mobility,  while  ensuring 
economic security. Compared with other Member 
States, unemployment benefits are quite generous. 
Among  others,  they  can  be  drawn  on  the  basis  of 
1-year work record for a relatively long period and 
rate  at  12th  month  of 
their 
unemployment is among the highest in the EU (31). 
The relative low long-term unemployment (20.1 % 
of  all  unemployed  in  2017Q3,  versus  an  EU 
average  of  45.2 %)  suggests  that  the  system 
provides 
incentives  for  finding  an 
appropriate  job  and  keeping  social  security.  The 
compulsory insurance against unemployment (first 
tier, 
rate  benefit)  covers  self-employed 
workers  who  can  also  opt  for  an  additional 
state-subsidised) 
earnings-related 
(but 
the  Swedish 
compensation.  The  design  of 
minimum  income  scheme  makes  it  efficient  in 
severe  material  deprivation  and 
preventing 
persistent  risk  of  poverty.  However, 
jobless 
households  remain  at  a  considerable  risk  of 
poverty. 

the  right 

flat 

Migration policy 

into  the 

integrating  migrants 

Sweden  has  a  good  track  record  of  receiving 
and 
labour 
market. However, the historically high number of 
arrivals in 2015 challenged the country’s capacity. 
Although  the  number  of  people  seeking  asylum 
has  fallen  sharply  (close  to  29 000  in  2016, 
compared  to  163 000  in  2015),  not  all  asylum 
applications have been processed yet.  

The employment rate of non-EU born residents 
is  better  than  the  EU-average,  but  well  below 
the  one  of  the  native  population  (Graph  4.3.3). 
In 2016 the employment rate of non-EU-born was 
64.9 %  (EU  average  61.2 %).  Compared  to  native 
born,  a  high  employment  gap  is  visible  for  non-
EU-born  women  and  people  with  a  low  level  of 
education.  Although  the  gap  is  lower  for  the 
second  generation  (Graph  4.3.4), 
it  remains 
significant  for  these  two  groups,  indicating  the 

(31)  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies, 
conducted  within  the  EMCO  Committee  (draft  Joint 
Employment Report 2018, [COM (2017) 674 final]). 

38 

55606570758085900607080910111213141516% population, age group 20-64SwedenOther EU28 countriesNon-EU28 countries 
                                                           
 
 
4.3. Labour market, education and social policies 

Graph 4.3.4:  Gap in predicted employment rate for non-
EU born and second generation (by gender 
and educational attainment) (1) 

among  the  low-skilled  participants  only  22 %  of 
the  men  and  8 %  of  the  women  were  in  (usually 
subsidised) employment (OECD, 2016c). 

the 

labour  market 

Since  2015,  the  ‘fast-track’  initiative  aims  at 
shortening 
integration 
process  and  has  a  focus  on  sectors  with  labour 
shortages.  While  it  is  too  early  to  assess  impact, 
the  programme  expanded  in  2017  in  terms  of 
participants  and  professions  covered  (from  10  to 
31), 
teachers,  doctors,  nurses  and 
electrical  and  mechanical  engineers.  Recent  data 
shows  that  about  1  year  after  completing  the 
programme,  between  17 %  and  50 %  of  the 
participants  were  employed,  and  after  1.5  year 
between  32%  and  60%  (Arbetsförmedlingen, 
2017b). 

including 

(1)Based on a logit regression, which allows estimating the 
adjusted probability of employment controlling for age, 
education and gender. The gap is calculated in relation to 
native born with native born parents. 
Source: European Commission calculations based on the 
2014 ad hoc module of the Labour Force Survey 

Appropriate  education  and  limited  language 
proficiency  are  among  the  key  challenges 
migrants  face  when  trying  to  enter  the  labour 
market.  Recently  arrived  often  have 
low 
educational attainment and even those with higher 
face  difficulties  gaining 
level  of  education 
their  skills  and  qualifications 
recognition  of 
acquired  outside  of 
temporary 
migration act of 2016 may also in some cases slow 
down  the  integration  process  by  introducing  an 
incentive  to  choose  a  faster  path  for  entering  the 
labour market, which might prove less sustainable 
in the long term.. 

the  EU.  The 

Policy  measures  have  focused  particularly  on 
individual skills assessment, upskilling and job-
oriented  measures,  including  the  ‘fast-track’ 
integration programme. The main instrument is a 
two-year  introduction  programme  for  the  newly 
arrived, which first entered into force in 2010, and 
was  modified  in  2015  and  2016.  The  programme 
includes  language  courses,  civil  orientation  and  a 
range of activities aimed at getting people into the 
labour market. It is organised with the involvement 
of  social  partners,  the  public  employment  service 
and  other  relevant  authorities  and  education 
agencies  (European  Commission,  2017a).  Results 
have been mixed so far. A large share of the newly 
arrived  are  neither  working  nor  studying  after  the 
programme  ends.  One  year  after  completion, 

39 

Social developments 

The  overall  poverty  rate  in  Sweden  compares 
favourably  to  the  EU  average,  with  poverty 
risks 
concentrated  among  older  women 
(European  Commission  2017f).  The  share  of 
people  at  risk  of  poverty  or  social  exclusion 
(AROPE)  has  increased  from  15.6 %  in  2012  to 
18.3 %  in  2016  (all  ages).  The  AROPE  rate  is 
higher  for  certain  groups,  especially  women  aged 
65 and older (21.9 % in 2016, Graph 4.3.5). 

Graph 4.3.5:  Risk of poverty or social exclusion 

Source: Eurostat 

Educational  and  social  background  has  an 
impact  on  the  risk  of  poverty.  Children  of  low-
skilled  parents  face  a  higher  risk  of  poverty  than 
children  born  to  high-skilled  parents.  It  is  also 
higher  for  children  of  foreign-born  parents,  for 

0510152025MenWomenMenWomenMenWomenLowMediumHighNon-EU bornNative born with at least one non-EU born parent051015202530051015202530050607080910111213141516% of total population% of population 65+Men, aged more than 65Women, aged more than 65Total population, all age groups (rhs) 
 
 
4.3. Labour market, education and social policies 

whom  the  risk  of  poverty  increased  to  58.1 %  in 
2016.  Sweden has  taken  measures  in  education  to 
protect  children,  particularly  of  disadvantaged 
groups from poverty (see Section 4.3.2). 

remain 

Sweden dedicates sizeable human and financial 
resources  to  the  health  care  sector.  The  healthy 
life  expectancy  at  65  is  among  the  highest  in  the 
EU for both men and women. Similar to other EU 
Member  States  challenges 
regarding 
socioeconomic  disparities  including  behavioural 
risk  factors  which  are  more  prevalent  among 
populations  with  lower  income  or  education.  The 
shortage  of  medical  staff,  in  particular  in  rural 
areas, prevents securing an optimal mix of doctors 
and  nurses,  impeding  the  system's  efficiency 
(OECD/European  Observatory  on  Health  Systems 
and Policies (2017)).  

4.3.2.  SKILLS AND EDUCATION  

As  job  creation  is  concentrated  in  high-skilled 
occupations,  investment  in  higher  education 
and  training  is  crucial  to  reduce  the  gap 
between labour supply and demand. The success 
of  the  Swedish  economy  is  based  on  relatively 
knowledge-intensive  production  processes  and 
entry wages are high compared with other Member 
States.  Few  jobs  require  less  than  an  upper-
secondary  education.  Therefore,  education  and 
training  opportunities  play  a  key  part 
in 
maintaining  appropriate  skill  levels  and  ensuring 
that  students  are  equipped  with  those  skills  in 
demand  (see  also  Section  4.3.1).  Education  and 
training  opportunities  are  also  essential  to  ensure 
appropriate 
integration  of  newly  arrived  and 
ultimately social cohesion. 

The  insufficient  supply of  ICT graduates  could 
become  a  bottleneck  for  the  economy.  The 
number of new tertiary graduates in computing per 
thousand  and  aged  25-34  remains  below  the  EU 
average.  Thus,  despite  well-developed  adult 
learning  and  business  investments  in  ICT  training 
of  employees,  there  is  a  shortage  of  employees 
with  ICT  skills.  In  times  when  economies  are 
undergoing  rapid  digital 
this 
shortage  of  people  highly-skilled 
in  science, 
technology and engineering could negatively affect 
Sweden's productivity and innovation, and prevent 
investments in R&D. 

transformations, 

in 

in 

negative 

previous 

improved 

significantly 

Basic skills  proficiency  picked  up  in  2015  after 
years  of  deteriorating  performance  and 
continues to be the government’s focus. Student 
in 
performance 
mathematics  and  reading  compared  to  2012,  and 
remained  stable  in  science  (PISA  results  2015). 
literacy 
The 
trend 
the  2016 
performance  was  also  reversed 
Progress  in  International  Reading  Literacy  Study 
(PIRLS),  an  international  survey  of  fourth  grade 
students  (aged  9-10).  In  line  with  international 
evidence,  which  suggests  that  focusing  on  basic 
skills  in  the  first  years  of  schooling  is  beneficial, 
the  government  is  taking  several  measures.  The 
2018  budget  bill  continues  to  allocate  a  grant 
financing  for  ‘early  intervention’ (32).  Since  over 
teachers  have  already  been 
4 000  additional 
employed and class sizes are already below the EU 
average,  increasing  teaching  hours  could  be  more 
cost  efficient  way  forward.  From  autumn  2018, 
pre-school  class  (age  6)  will  be  mandatory, 
meaning that compulsory education will last for 10 
years.  

The  adequate  provision  of  education  could  be 
hampered  by  a  growing  teacher  shortage.  The 
growing number of students is not matched by the 
number  of  teachers  entering  the  profession.  The 
Swedish  Higher  Education  Authority  estimates 
that  in  order  to  satisfy  the  needs,  21  000  new 
teachers  would  have  to  graduate  each  year,  while 
at present only 13 000 do. It adds to the challenge 
that  39 %  of  teachers  are  50  or  older  while  only 
7 % 
30 
(Universitetskanslersämbetet,  2017).  The  share  of 
teachers without a formal qualification is therefore 
expected to increase (33). The low perceived status 
of  teachers  and  salaries  seem  to  prevent  retention 
and recruitment (OECD, 2014 and 2016b). 

teachers 

under 

are 

of 

to 

The  government  has  started 
improve 
financial  incentives  for  teachers,  so  far  with 
mixed  results.  A  career  development  reform  was 
launched  in  2013  and  since  the  start  of  the  2016-
2017  academic  year,  one  in  three  school  teachers 
has  benefited  from  the  government’s  ‘Boost  for 
Teacher Salaries’ initiative (SEK 3 billion, or EUR 
0.31 billion, per year) (see European Commission, 

(32)  Up  to  the  end  of  2018,  a  central  grant  of  SEK  2.3  billion 
(EUR  0.24  billion)  is  provided  per  school  year  for  pre-
school class (age 6) and grades 1-3 (age 7-9). 

(33)  close  to  30 %  teachers  are  teaching  while  not  trained  as 

teachers i.e. without a 'pedagogisk högskoleexamen' 

40 

 
                                                           
4.3. Labour market, education and social policies 

In  2017, 

the  direct 

in 
from 

to  allocate  additional  resources 

The  government  increased  resources  to  tackle 
learning  outcomes  between 
inequalities 
pupils 
socioeconomic 
different 
backgrounds. In the 2018 budget, the government 
proposes 
to 
improve  equity  and  knowledge  development  in 
schools. 
in 
education  by  the  central  government  already 
amounted  to  SEK  11  billion  (EUR  1.14  billion). 
An  additional  disbursement  of  SEK  10.5  billion 
(EUR  1.1  billion)  in  2018-2020  is  proposed  to 
reduce inequalities in the school system. The focus 
on  equity  and  the  weighting  of  funding  based  on 
pupils’ socioeconomic background are fully in line 
with  the  recommendation  made  by  the  Swedish 
School Commission. 

investment 

Graph 4.3.6:  Proportion of low achievers in science by 

immigrant background in 2015 (1) 

(1) The proportion is expressed as the percentage of 
approximately 540 000 students who completed the 
assessment in 2015, representing about 29 million 15-year-
olds in the schools of the 72 participating countries and 
economies of the OECD. 
Source: OECD  

 Integrating  the  newly  arrived  pupils  into  the 
school  system  remains  a  priority  for  the 
government.  In  the  2016-2017  school  year,  close 
to  80 000  pupils  in  compulsory  schools  were 
newly  arrived,  17 000  more  than  a  year  before. 
Although  admission  to  schools  is  still  largely  left 
to  the  discretion  of  the  local  municipality  and  the 
head  teacher,  central  government  guidelines  have 
started  to  set  standards.  From  1 January 2016, 
skills mapping is the basis for placing students in a 
grade  and  for  planning  their  study  programme. 
Newly 
students  may  be  offered 
introductory  classes  for  up  to  2  years  to  ensure 

arrived 

2017a,  p.39).  Results  have  been  mixed:  the 
National  Audit  Office  found  that  although  these 
two reforms increased teachers’ salaries, they also 
created  divisions  between  teachers.  Therefore,  to 
make  the  system  clearer  and  more  legitimate,  the 
auditors have called for a common set of criteria to 
assess teachers’ qualifications. 

There  are  signs  of  growing  inequalities  in 
learning  outcomes.  In  OECD  PISA  results  for 
2015,  the  impact  of  students’  socioeconomic 
background on their performance in science at age 
15 is around the OECD average. However, where 
in  2006  socioeconomically  advantaged  students 
scored  77  points  higher 
than 
disadvantaged  students,  in  2015  the  difference 
increased  to  94  points,  equivalent  to  more  than  3 
years of schooling. 

science 

in 

The performance gap between foreign-born and 
native students remains high and is widening. In 
PISA  2015,  one  in  two  foreign-born  students 
performed  below  the  baseline  level  in  science 
(Graph  4.3.6).  Since  students  with  a  migrant 
background  represent  17.4 %  of  the  2015  PISA 
population, compared to 11 % in PISA 2006, these 
results  clearly  indicate  a  growing  concern.  The 
transition  from  compulsory  to  upper  secondary 
school  remains  a  hurdle  for  many  foreign-born 
students (see European Commission, 2017a, p38). 
The  widening  of  the  performance  gap  since  2008 
probably  reflects  changes  in  the  composition  of 
foreign-born  students:  recent  arrivals  are  on 
average older and increasingly from countries with 
weaker school systems (Grönqvist, H., Niknami S., 
2017). 

The  distribution  of  school  resources  does  not 
guarantee equal learning opportunities. There is 
a strong relationship between performance and the 
types  of  school  that  students  attend.  The  share  of 
schools  where  more  than  20 %  of  students  do  not 
obtain the necessary grades to qualify for an upper 
secondary ‘national programme’ is on the rise. The 
concentration  of  low-achieving  students  from  a 
in 
disadvantaged 
schools with fewer resources is largely a result of 
residential  segregation.  Nevertheless,  evidence 
also suggests that school choice, which was part of 
the  1990s  comprehensive  school  reforms,  has 
exacerbated school segregation. 

socioeconomic  background 

41 

0102030405060FRSEDEEU avg.DKESIENon-migrant studentsFirst-generation migrantsSecond-generation migrants 
 
4.3. Labour market, education and social policies 

transition 

their  phased 
to  regular  schooling. 
Nevertheless,  structured  assessment  of  students’ 
knowledge  in  various  subjects  is  still  inadequate. 
Their  progress  is  not  systematically  tracked,  and 
documentation on their abilities may not be passed 

on if they move to another municipality. Bridging 
the gap between schools and newly arrived parents 
is a further challenge. In addition, the distribution 
of  newly  arrived  pupils  remains  unequal,  both 
between municipalities and between schools. 

Box 4.3.2: Policy highlight - Inclusive processes in Sweden 

Swedish society is founded on an inclusive and consensus-based approach,  often referred to as "the Swedish model". 
This  model  is  aiming  at  inclusive  growth  to  increase  prosperity  for  all,  while  safeguarding  the  autonomy  and 
independence  of  citizens  in  order  to  prevent  power  imbalances.  It  is  based  on  three  pillars:  (i)  a  labour  market 
facilitating adjustment to change, (ii) a universal welfare policy, and (iii) an economic policy that promotes openness 
and  stability1.  A  consensus-based  approach  is  also  applied  to  issues  of  EU  relevance.  In  order  to  promote  a  more 
participatory approach, the government is committed to further increase knowledge and involvement in matters decided 
within the EU. 

Concerning the labour market, the Swedish model implies that the social partners are responsible for wage formation 
without any interference from the state. In collective agreements they specify the labour market conditions. This way of 
working has avoided severe labour market disputes for a long time. The recently proposed 'etableringanställningar' (see 
Section  4.3.1)  is  an  example  of  an  innovative  working  scheme  stemming  from  social  dialogue,  rather  than  from 
government's initiative. 

 

In  the  context  of  the  European Semester  and  the  EU  2020  Strategy,  the  Government  has  established  different  fora  to 
ensure the involvement of relevant parties. In particular: 
  Consultations with social partners take place in a reference group with representatives from the ministries and the 
social partners, and the social partners can also submit written suggestions for the national reform programme. To 
further enhance participation, consultations on broader EU matters will take place in recently established biannual 
advisory boards ("EU-råd"). 
To benefit from the expertise of civil society and interest organisations, these groups can participate in consultation 
procedures relevant for the Europe 2020 Strategy and the national reform programme. To further strengthen their 
participation, thematic consultation forums for EU matters have been introduced ("EU-sakråd"). 
To ensure a proper dialogue between national, regional, and local level, a National Forum for Sustainable Regional 
Growth  and  Attractiveness  2015-2020  has  been  set  up.  It  meets  four  times  a  year,  both  at  political  and 
administrative level. 
-------------------------------- 

 
(1) The Swedish Model, Government Offices of Sweden, Ministry of Finance, 2017 

 

42 

 
 
4.4. 

INVESTMENT 

4.4.1.  EXPORT PERFORMANCE 

The increase in Sweden's share of world exports 
in  2016  appears  largely  driven  by  temporary 
factors. After a cumulative fall of over 30 % since 
the  early  2000s,  Sweden's  share  of  the  export 
market  rose  by  1.1 %  in 2016.  However, this was 
driven  primarily  by  a  slowdown  in  world  trade 
(Graph 4.4.1), which more than offset a slight fall 
in  the  value  of  Swedish  exports  (expressed  in 
EUR) (34).  With  global  trade  rebounding  since 
2017,  this  will  likely  prove  a  one-off.  The 
underlying  declining  trend  in  Sweden's  share  of 
world  exports  can  thus  be  expected  to  remain 
broadly  intact,  particularly  given  the  structural 
nature  of  its  drivers  (European  Commission, 
2017a). 

Graph 4.4.1:  Yearly changes in  export market share: 

contribution of  world trade versus growth in 
Swedish exports 

countries 

industrialised 

world  trade  growth  outpaced  export  growth  for 
many 
(European 
Commission,  2016a,  p.  16).  As  such,  Sweden's 
declining export market share does not suggest any 
underlying fall in competitiveness. This conclusion 
is  buttressed  by 
in  cost 
competitiveness  indicators  and  Sweden’s  strong 
competitiveness 
in 
performance 
(European Commission, 2017a).  

the  benign  change 

non-cost 

ensuring 

envisaged) 

further  steps 

In  2017,  Sweden 
to 
took 
counteract its shrinking export market share by 
moving  forward  with  the  2016  export  strategy. 
The  authorities  decided  to  have  regional  export 
centres  in  all  21  counties  (instead  of  just  six  as 
initially 
targeted 
thus 
internationalisation  support  closer  to  businesses. 
The Swedish Customs Service also restructured its 
website to better target businesses and individuals 
and 
to  provide  an  efficient  and  automated 
information  management  system.  The  Customs 
Service 
sectoral 
organisations to identify problems with the current 
approach to customs  management. This work was 
undertaken  after  Sweden’s  National  Board  of 
Trade identified obstacles to import and export.  

consulted  businesses 

and 

4.4.2.  INVESTMENT SITUATION 

Investment levels have essentially rebound since 
the  substantial  drop  during  the  crisis  (Graph 
4.4.2).  Apart  from  investments  in  dwellings  and 
infrastructure  (Graph  4.4.3),  it  is  investments  in 
R&D, as well as computer software and databases 
(together  accounting  for  more  than  one  fourth  of 
total investment) that have increased the most as a 
share  of  GDP  over  the  latest  period.  At  the  same 
time,  productivity  developments  which  as  a 
general  rule  are  linked  to  investment,  are  still 
lagging with an increase of only 0.2 % per year on 
average in 2007-2014.(35)  

(35)  Further details on the productivity trends in Sweden can be 

found in Konjunkturinstitutet (2015). 

Source: European Commission (Eurostat) 

This decline in export market share is linked to 
changing  global  trade  patterns  and  does  not 
suggest  any  issues  with  competitiveness.  The 
cumulative  loss  in  Sweden’s  share  of  world 
exports  over  the  past  10  years  is  broadly  in  line 
with  other  industrialised  economies  that  have  a 
similar 
exports 
focus  on  high-value-added 
(European  Commission,  2017a).  The  underlying 
reason  for  this  broader  trend  is  the  increasing 
volume of trade due to the integration of emerging 
economies  into  global  supply  chains.  As  a  result, 

(34)  Swedish  exports  grew  robustly  in  local-currency,  i.e.  in 
krona  terms  in  2016  (see  Section  1),  but  due  to  a  weaker 
krona  this  translated  into  a small  fall  when  converted  into 
euros. 

43 

-30-20-100102001020304050607080910111213141516Rate of change y-o-y (%)Contribution: World export growth (neg. Sign)Contribution: Export growthEMS growth rate 
 
 
                                                           
                                                           
4.4. Investment 

Graph 4.4.2:  Gross investment 

since 2013 and has been the main driver of overall 
investment  growth  in  Sweden  (Graph  4.4.4).  It  is 
now slightly above the EU average for investment 
in  dwellings  but  this  follows  a  long  period  of 
underinvestment  that  led  to  a  large  structural 
housing  shortage,  particularly  in  major  cities  (see 
Section 4.2.2).  

Graph 4.4.4:  Gross fixed capital formation, dwellings 

versus other investment, comparison with EU 
average 

Source: Statistics Sweden 

Graph 4.4.3:  Breakdown of investment by sector in 2016 

Source: Statistics Sweden 

on 

returns 

Stagnating  productivity  is  an  indication  of 
technological 
diminishing 
investments, and a slower pace in development of 
the  ICT  sector  since  2007.  It  is  also  linked  to  a 
more long-term compositional shift, away from the 
highly  productive  industrial  sector  towards  the 
labour-intensive services sector. 

Investment in dwellings 

in  dwellings  has  accelerated 
Investment 
significantly 
recent  years.  Residential 
in 
construction  investment  has  been  growing  rapidly 

Source: European Commission 

Investment in infrastructure 

infrastructure,  particularly 

Sweden’s 
the 
railway  system,  could  benefit  from  additional 
investments.  Among  EU  Member  States,  the 
quality  of  Swedish  infrastructure  ranks  9th  in  the 
Global  Competitiveness  Report  (World  Economic 
Forum, 2017). Railroad infrastructure in particular 
scores  relatively  low,  in  contrast  with  Sweden’s 
strong performance on most other competitiveness 
indicators  considered  in  the  Report.  To  help 
address  this,  the  Infrastructure  Bill  for  2018-2029 
provides  for  an  overall  increase  of  20 %  in 
infrastructure 
railway 
maintenance)  compared  to  the  previous  planning 
period  covering  2014-2025.  Moreover,  Sweden 
announced  plans  for  a  first  high-speed  railway 
between  major  metropolitan  regions  (see  Section 
4.5.3).  This  infrastructure  investment  could  also 
serve to open up opportunities for new residential 
development, thus helping to alleviate the housing 
shortage in urban areas.  

investment 

(47 % 

for 

44 

1920212223242526080910111213141516% of GDPDwellingsConstruction -other than dwellingsTransportICTMachineryCultivated biological assetsResearch and developmentComputer software and data basesOther immaterial assets0246810121416180001020304050607080910111213141516% of GDP Sweden - dwellings GFCFEU28 avg. - dwellings GFCFSweden - total GFCF excl. dwellingsEU28 avg. - total GFCF excl. dwellings 
 
 
 
 
4.4. Investment 

Box 4.4.1: Investment challenges and reforms in Sweden 

Macroeconomic perspective 

Total  investment  as  a  %  of  GDP  was  above  the  EU  average  over  the  last  decade.  Both 
private  and  public  investment  have  grown  faster  than  GDP  and  than  the  EU  average. 
Even  certain  sub-categories  like  investment  in  construction  historically  below  the  EU 
average have started to grow rapidly. Private investment is expected to grow at a lower 
but  still  robust  pace  with  capacity  constraints  starting  to  bind  in  some  sectors.  Public 
investment in housing, healthcare and education infrastructure is also set to remain robust 
in 2018.  

Assessment of barriers to investment and ongoing reforms 

Barriers to investment in Sweden are overall low (European Commission, 2017a). Some 
reforms were adopted in public procurement (see Section 4.4.3), research and innovation 
(see  Section  4.5.1)  and  construction  investment.  However,  scope  remains  for  further 
measures, particularly on tackling barriers for construction (see Section 4.2.2). 

Main barriers to investment and priority actions underway 

1.  Investment  from  SMEs  could  benefit  from  more  transparent  public  procurement 
procedures,  as  the  share  of  contracts  awarded  to  SMEs  remains  low.  The  new  Public 
Procurement  Strategy  (see  Section  4.4.3)  can  contribute  to  fostering  competition, 
stimulating innovation and developing new products and services. 

2. Cooperation between academia and business could be further enhanced, particularly for 
SMEs. Initiatives such as the Innovation Partnership Programmes 2016-2018 (see Section 
4.5.1) can help promote increased collaboration. 

3.  Construction  investment  has  been  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. 
This has contributed to a significant pick-up in residential investment in recent years, but 
some key structural bottlenecks remain (see Section 4.2.2).  

45 

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 
 
 
 
 
4.4.3.  BUSINESS ENVIRONMENT 

Sweden  has  a  high-quality  and  competitive 
business  environment.  The  country  stands  out in 
several  areas,  including  public  administration, 
access  to  finance,  innovation and  ability  of SMEs 
to 
international  opportunities.  The 
authorities  regularly  assess  framework  conditions 
to identify and address challenges. 

exploit 

the 

overall 
is 

administrative  burden 
for 
The 
companies 
low,  although  some  specific 
challenges  remain.  SMEs  continue  to  appreciate 
the  stability  of 
regulatory  environment 
(European  Commission,  2017b).  The  time  needed 
to set up a business has further fallen to 4 days (36). 
is 
e-business  portal  www.verksamt.se 
The 
continuously  expanding  its  services  and  is  a  one-
stop-shop  for  business  reporting.  However,  an 
increasing  challenge  is  the  slow  processing  of 
work permit  extensions for  highly-skilled non-EU 
professionals.  Finally, 
and 
procedures for companies to directly transfer their 
registered  offices  into  and  out  of  Sweden  are 
missing.  

national 

rules 

to 

finance 

general 

Sweden is one of the top performers in Europe 
for access to finance. The 2017 survey on access 
to  finance  confirms  that  companies  have  good 
access 
(European 
in 
Commission, 2017c). Almost no SME who applied 
for  a  loan  was  rejected  (compared  to  5 %  at  EU 
level). The 3 most important issues SMEs reported 
were  staff,  customers  and  competition.  Only  9 % 
of SMEs said that access to finance was their most 
important  concern  (2013:  10 %).  A  much  higher 
share  than  the  EU  average  considers  venture 
capital  relevant  to  their  activities.  Availability  of 
venture capital is adequate with several private and 
public  funds  active  on  the  market.  In  addition, 
access  to  public  financial  support  has  further 
reporting 
improved  with  even 
difficulties (European Commission, 2017b). SMEs 
benefit from financial support by various European 
programmes  (InnovFin,  EFSI,  Employment  and 
Social Innovation (EaSI) programme) and from the 
European Investment Bank (37). 

fewer  SMEs 

(36)  Source: Bolagsverket (Companies Registration Office) 
(37)  An overview of EU financial support programmes relevant 
on 

for 
http://europa.eu/youreurope/business/funding-

available 

Swedish 

SMEs 

is 

systems 

research 

Sweden's innovation performance ranks high in 
the  EU.  Relative  strengths  of  the  innovation 
system  are 
in  human  resources,  an  overall 
innovation-friendly  business  environment  and 
attractive 
(European 
Commission,  2017d).  At  the  same  time,  the  share 
of employees with specialised ICT skills continued 
to fall and is now below the EU average. The share 
of companies training their employees on ICT has 
also  fallen  (European  Commission,  2017b).  28 % 
of SMEs perceive a shortage of skilled workers as 
an  important  barrier  to  growth  (Tillväxtverket, 
2017) (see Section 4.3).  

Public procurement 

The  public  procurement  system  is  generally 
efficient  and  works  well,  apart  from  some 
specific aspects. The proportion of contract award 
notices  without  information  on  the  contract  value 
remains  very  high  (20 %,  against  6 %  on  average 
across  the  European  Economic  Area).  Thus,  it  is 
difficult to identify any unjustified modification of 
contracts  and  whether  the  prices  paid  correspond 
to market prices.  

The adoption of a national public procurement 
strategy  in  2016  is  an  important  development. 
This  strategy (38) promotes 
the  use  of  public 
procurement as a tool to drive innovation, address 
environmental  considerations  and  contribute  to  a 
socially  sustainable  society.  It  aims  at  raising  the 
number  of  potential  suppliers  and  the  level  of 
competition:  increased  SME  participation  should 
be encouraged through the division of major public 
procurements into smaller parts. The strategy also 
promotes  transparency  and  a  better  use  of  data. 
Overall, the goals stipulated in the new strategy are 
in  line  with  the  priority  areas  identified  by  the 
European  Commission (39).  The  National  Agency 
for  Public  Procurement  is  using  seminars  and 
targeted  dialogues  with  contracting  authorities  to 
ensure implementation of the strategy.  

grants/access-to-finance/search/en/financial-
intermediaries?shs_term_node_tid_depth=1646 

(38)  See  http://www.upphandlingsmyndigheten.se/globalassets/ 
english/procurement/national_public_procurement_strateg
y_english_web.pdf 

(39)  Commission  Communication  'Making  Public  Procurement 
work  in  and  for  Europe',  COM(2017)  572  final,  available 
at:  http://ec.europa.eu/docsroom/documents/25612 

46 

 
 
                                                           
                                                                                   
 
4.5.  SECTORAL POLICIES 

4.5.1.  RESEARCH, 

DEVELOPMENT 

AND 

INNOVATION 

Sweden  is  one  of  Europe’s  innovation  leaders. 
The  country  benefits  from  an  excellent  science 
base,  a  highly  qualified  workforce  and  several 
internationally  competitive  and  innovative  large 
companies, both in the manufacturing and services 
sector.  This 
the  stable 
is  also  visible 
performance  for  innovation  (European  Innovation 
Scoreboard  summary  index)  and  business  R&D 
intensity (Graph 4.5.1). 

in 

Graph 4.5.1:  Change in business R&D intensity and public 

R&D intensity (1) 

(1) Public R&D intensity: Government intramural 
expenditure on R&D (GOVERD) plus higher education 
expenditure on R&D (HERD) as % of GDP. 
Source: European Commission (Eurostat) 

this 

stable 

to  keep 

investment, 

large  multinational 

Continued 
framework 
conditions  and  a  broader  innovation  base  are 
important 
leading  position. 
Sweden’s innovation model has traditionally relied 
on 
The 
enterprises. 
internationalisation  of 
these  companies  has, 
however,  led  in  some  cases  to  headquarters 
moving abroad. There is a risk that corresponding 
research  and  innovation  activities  could  partially 
follow,  if  conditions  do  not  remain  attractive.  In 
addition,  the  economy  has  not  yet  fully  exploited 
the potential of innovative SMEs and start-ups. 

There  is  room  for  closer  cooperation  between 
academia and business. Knowledge exchange and 
joint  projects  among  firms  and  universities  can 
support  marketable  R&D  and  raise  business 
awareness  of  upcoming  scientific  developments. 
Private  co-funding  of  public  R&D  expenditures 

47 

to  capture  such 

and  the  share  of  public-private  co-publications  in 
all scientific publications are indicators commonly 
used 
In  both 
dimensions Sweden's performance has declined in 
recent  years. (40)  In  particular,  the  below-average 
performance 
in  co-funding  of  public  R&D 
expenditure  seems  to  suggest  there  is  scope  for 
closer cooperation. 

interaction. 

Ensuring the supply of highly-skilled workers is 
vital  for  innovation  and  business  investments. 
Recent years saw a gradual decline of the number 
of  new  graduates,  in  particular  in  science  and 
engineering  and  notably  those  with  special  ICT 
skills (see Section 4.3.2). 

Recent policy initiatives have started to address 
these key challenges. In 2016, the government has 
launched  the  'smart  industry'  initiative  to  boost 
competitiveness  and  innovation.  The  2017-2020 
Research Bill also supports both basic and applied 
research and the development of human resources 
through  an  additional  budget  of  around  SEK  2.8 
billion  (EUR  291  million)  in  2017-2020,  while 
cooperation  between  academia  and  business  is 
promoted  e.g.  within 
innovation 
partnership programmes 2016-2018 (41).  

five 

the 

4.5.2.  ENERGY, RESOURCES AND CLIMATE 

Climate policy 

Sweden’s climate policy has been successful and 
remains  ambitious.  Between  1990  and  2015  the 
country’s greenhouse gas emissions fell by 25.1 %, 
more  than  the  EU  average  of  23.7 %,  while  its 
GDP  per  capita  increased  by  29 %.  In  June  2017 
the Swedish Parliament adopted a national climate 
policy  framework  to  have  no  net  emissions  of 
greenhouse gases into the atmosphere by 2045 and 
negative  ones  after  that.  The  intention  is  to  move 
towards an entirely renewable electricity system by 
2040, without banning nuclear energy and to halve 

(40)  European 

Innovation  Scoreboard  2017  available  on 

http://ec.europa.eu/growth/industry/innovation/facts-
figures/scoreboards_en 

(41)  The  specific  partnership  programmes  are 

(i)  next 
generation's  travel  and  transport,  (ii)  smart  cities,  (iii) 
circular  and  bio-based  economy,  (iv)  life  sciences  and  (v) 
See: 
and 
connected 
http://www.government.se/articles/2016/07/innovation-
partnership-programmes--mobilising-new-ways-to-meet-
societal-challenges/     

new  materials. 

industry 

0.00.51.01.52.02.53.00304050607080910111213141516R&D intensity (R&D expenditure as % of GDP)Public R&D intensityBusiness R&D intensity 
 
 
                                                           
4.5. Sectoral policies 

consumers the right to receive hourly metering and 
billing for free since 2012. 

Gas represents a negligible share of households' 
energy  consumption  and  therefore  gas  retail 
markets  are  not  fully  developed.  As  a  result, 
despite  relatively  low  market  concentration  prices 
are higher than the EU average, although they have 
fallen  somewhat  since  2013.  In  addition,  taxes, 
which  amount  to  45 %  of  the  final  price,  are  also 
contributing  to  relatively  high  household  gas 
prices. 

Energy efficiency 

a 

Despite 
energy 
gradual  decline 
consumption  over  the  past  years,  absolute 
increased 
energy 
2016. 
Therefore, 
is  some  distance  off 
reaching the 2020 national target.  

consumption 
the  country 

in 

in 

energy  intensity  in  2030  compared  to  2005.  For 
emissions  outside  of  the  EU  emissions  trading 
system  (ETS),  the  target  is  a  reduction  of  75 % 
compared to 1990 (42). 

Although  Sweden  is  on  course  to  meet  its  EU 
2020  greenhouse  gas  emission  target,  CO2 
emissions  from  transport  remain  a  challenge. 
According to the latest projections, the greenhouse 
gas emission target is expected to be achieved by a 
wide  margin  (see  Annex  A).  Emissions  from 
transport account for 33 % of total greenhouse gas 
than  50 %  of  non-ETS 
emissions  and  more 
emissions.  This  is partially  related  to  the  Swedish 
car  fleet,  which  in  2015  had  an  emission  level 
above  the  EU  average  (131 gCO2/km  versus. 
124.7 gCO2/km).  The  government  therefore  has 
created 
low-emission 
vehicles/fuels,  and  premiums  for  the  purchase  of 
new plug-in hybrids and battery-electric vehicles. 

incentives 

tax 

for 

Energy 

Energy market 

Sweden  benefits 
from  a  dynamic  and 
competitive electricity wholesale market. This is 
supported  by  full  liberalisation  of  the  wholesale 
market  combined  with  good  connectivity  both  to 
the  Nordic  electricity  market  and  other  European 
countries.  Concentration  of  power  generation  is 
well  below  the  EU  average  and  has  been  falling 
over  the  last  decade.  Wholesale  electricity  prices 
are among the lowest in the EU. However, they are 
vulnerable  to  the  hydrologic  situation  due  to  the 
importance of hydro power and the availability of 
the fleet of nuclear power plants.  

Households'  electricity  prices  are  somewhat 
below  the  EU  average,  and  have  gradually 
decreased  since  2013.  Annual  switching  rates 
from  one  electricity  supplier  to  another  are  high 
(10.2 %)  and  compare  favourably  to  other  EU 
countries. Swedish consumers increasingly opt for 
more innovative offers such as dynamic electricity 
contracts linked to spot market prices. The uptake 
of price-based demand response services has been 
greatly  facilitated  by  the  full  rollout  of  smart 
meters and a law that has given smaller electricity 

(42)  For  details,  see  the  2017  country  report  for  Sweden 

(European Commission, 2017a, p.47). 

Energy  intensity  in  industry  is  well  above  the 
EU  average.  The  Swedish  industry  remains  the 
largest  energy  consumer  accounting  for  over  a 
third  of  total  final  energy  consumption.  In  2015, 
Sweden was one of only two EU countries with an 
increase in industry energy intensity, partly due to 
the strong presence of energy intensive industries. 
The government has proposed an energy efficiency 
programme  for  the  industry  sector  as  part  of  the 
budget bill for 2018.  

The residential sector's energy consumption per 
square meter is well above the EU average, even 
after  correcting  for  climate  conditions.  While 
this  may  partially  be  due  to  methodological 
differences  in  quantifying  living  areas,  it  may  in 
part  be  related  to  the  widespread  use  of  'warm 
rent'.  Under  this  system,  occupants  of  apartment 
buildings do not pay individually for space heating 
and  domestic  hot  water,  which  reduces  their 
incentives for energy efficient behaviour. 

Environmental taxation  

Sweden’s share of environmental taxes in GDP 
has  fallen  since  2010  and  was  relatively  low 
compared  to  other  Member  States  in  2015 
(Graph  4.5.2).  Partly,  the  sliding  share  has  been 
due  to  the  intended  behavioural  impact  of  taxes, 
and  an  increased  substitution  to  biofuels  in  the 
transport sector.  

48 

 
                                                           
4.5. Sectoral policies 

enabling 

maintenance  (mainly  safety  improvements  and 
friendly 
further 
solutions),  and  20 % 
rail  network 
maintenance.  The  remaining  54 %  is  for  new 
investments to match the growth in traffic volume.  

environmentally 
targeting 

The  government  aims  to  increasingly  shift 
traffic  from  road  to  rail  and  maritime  modes, 
thus  decreasing  the  environmental  impact  of 
transport. Currently roughly 90% of all goods are 
transported  by  road  domestically,  and  a  transition 
to  other  modes  requires  significant  investments. 
Investments in the railway system aim to increase  
capacity  and  remove  bottlenecks  to  cross-border 
traffic,  while  in  maritime  transport  the  Transport 
Administration  proposes  to  focus  on  upgrading 
capacity and improving access to ports and sluices. 
This  is  complemented  by  the  aviation  strategy  of 
January 2017 addressing the role of aviation within 
the overall transport system. 

The  planned  high-speed  railway  between  the 
three major metropolitan regions could support 
labour  market  connectivity  and  open  up 
opportunities  for  new  residential  development. 
This  will  involve  striking  a  balance  between  cost 
efficiency  and  fiscal  prudence  on  the  one  hand, 
and a timely and sufficiently large-scale roll-out of 
the  high-speed  rail  on  the  other.  In  parallel  to  the 
Transport  Administration’s  plans  for  high-speed 
the  national 
responsible 
rail, 
negotiation 
infrastructure 
housing 
(Sverigeförhandlingen) has received a government 
mandate  to  negotiate  on  the  local  and  regional 
level 
to  achieve  co-financing  and  project 
ownership. 

the  body 
on 

for 
and 

further 
Sweden  also  puts  emphasis  on 
improving  the  environmental  performance  of 
urban  transport  solutions.  There  has  been  a 
considerable increase in the number of electric cars 
and  bicycles,  and  tax  adjustments  to  further 
promote environmentally friendly vehicles will be 
implemented  in  2018.  As  a  result  of  negotiations 
under  the  national  negotiation  on  housing  and 
infrastructure,  metropolitan  areas  are  to  benefit 
from  public  transport  investment  (e.g.  metro  and 
tram  extensions)  and  further  construction  of 
bicycle paths. 

or 

limiting, 

exemptions 

In  recent  years,  there  has  been  a  focus  on 
removing, 
and 
reductions  in  tax  rates  for  carbon  and  energy, 
increase  environmental 
which  should  help 
revenues.  Further,  discounts  in  the  carbon  tax  on 
heating  fuels  in  the  non-ETS  sectors  have  been 
progressively reduced and will be totally abolished 
in  2018.  Since  2017,  an  additional  annual 
appreciation rule for taxes on petrol and diesel has 
been  applied  with  an  annual  adjustment  of  two 
percentage  points  on  top  of  consumer  price 
inflation.  Recent  initiatives  to  make  the  economy 
greener  include  the  increased  taxation  of  aviation 
in the 2018 budget bill. 

Graph 4.5.2:  Tax revenues from environmental taxes (1) 

(1) Energy taxes include taxes on energy products used for 
both transport and stationary purposes. (2) Transport taxes 
include (i) taxes related to the ownership and use of motor 
vehicles, (ii) taxes on other transport equipment such as 
planes and on related transport services. (3) Pollution taxes 
include taxes on measured or estimated emissions to air 
(except taxes on carbon dioxide emissions) and water, on 
the management of waste and on noise. (4) Resource 
taxes include any taxes linked to the extraction of use of a 
natural resource. 
Source: European Commission 

4.5.3.  TRANSPORT SECTOR 

Given Sweden’s geographical size and location, 
reliable  transport  modes  are  important  for 
trade,  mobility and  regional cohesion.  In spring 
2018,  the  government  will  decide  on  the  2018-
2029  national  transport-modes  plan,  which  the 
Swedish  Transport  Administration  presented  in 
August  2017.  The  plan  includes  a  budget  of  SEK 
622.5 billion (EUR 64.6 billion) (SEK 100 billion 
(EUR 10.4 billion) more than for the previous ten-
year-period),  split  into  26 %  allocated  to  road 

49 

0.00.51.01.52.02.53.03.54.04.5DKELITNLFIUKPTATSEFRBEDEIEESLUEU avg.in % of GDP20102015 
 
ANNEX A: OVERVIEW TABLE 

Commitments 

Summary assessment (43) 

2017 Country specific recommendations (CSRs) 

the 

limiting 

recurrent  property 

CSR 1: Address risks related to household debt, 
in  particular  by  gradually 
tax 
deductibility of mortgage interest payments or by 
taxes,  while 
increasing 
constraining lending at excessive debt-to-income 
levels. Foster investment in housing and improve 
the  efficiency  of  the  housing  market,  including 
by  introducing  more  flexibility  in  setting  rental 
prices and revising the design of the capital gains 
tax. 

  Address  risks  related  to  household  debt,  in 
tax 
particular  by  gradually 
deductibility  of  mortgage  interest  payments 
or by increasing recurrent property taxes  

limiting 

the 

  …while constraining lending at excessive 

debt-to-income levels. 

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  (see  section  4.2.2).  

excessive 

debt-to-income 

  Substantial  progress  on  constraining  lending 
a 
at 
strengthened  amortisation 
for 
high-debt-to-income  mortgages  has  been 
adopted  and  will  come  into  force  in  March 
2018 (see section 4.2.3). 

levels: 
requirement 

  Foster investment in housing and improve the 

  Some  progress  on  fostering  investment  in 

(43)The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category 
covers a number of typical situations, to be interpreted on a case-by-case basis taking into account country-specific conditions. 
They include the following: 

 

 
 

no legal, administrative, or budgetary measures have been announced in the national reform programme, in any 
other official communication to the national Parliament/relevant parliamentary committees or the European 
Commission, publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory 
actions). However, it has not proposed any clearly-specified measure(s) to address the CSR. 

Limited progress: The Member State has: 
 
 

announced certain measures but these address the CSR only to a limited extent; and/or 
presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 

 
 

Some progress: The Member State has adopted measures: 
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the 
measures have been implemented. For instance, a measure or measures have been adopted by the national 
Parliament or by ministerial decision, but no implementing decisions are in place. 

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

them have been implemented. 

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

50 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
A. Overview Table 

efficiency  of  the  housing  market,  including 
by  introducing  more  flexibility  in  setting 
rental  prices  and  revising  the  design  of  the 
capital gains tax. 

. 

housing  and  improving  the  efficiency  of  the 
housing  market.  Sweden  is  moving  forward 
with  the  gradual  implementation  of  the  ‘22-
point  plan’  to increase  residential  construction 
and  improve  the  efficiency  of  the  housing 
sector (see section 4.2.3). The authorities have 
also 
to  raise 
participation  of  foreign  firms  in  the  Swedish 
construction  sector.  However,  no  significant 
policy action has been taken to introduce more 
flexibility  in  setting  rental  prices  or  to  revise 
the design of the capital gains tax. 

launched  a  new 

initiative 

Europe 2020 (national targets and progress) 

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

Employment  rate  (%)  in  2016:  81.2 %  (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 

3.25% (2016) 

No progress towards the target. While public R&D 
intensity  has  grown  by  1.3  %  per  year  over  the 
2007-2016  period,  business  expenditure  on  R&D 
as  a  percentage  of  GDP  decreased  by  0.5  %  per 
year over the same period, resulting in a stagnation 
in  total  R&D  intensity.  Sweden  will  reach  its 
national  target  for  2020  only  if  the  trend  in 
business expenditure can be reversed. 

Between  2005  and  2016,  Sweden's  GHG 
emissions  in  the  non-ETS  sectors  fell  by  22 %. 
They are projected to have decline by 32 % overall 
by  2020,  thus  exceeding  the  national  target  by 
15 %. 

National greenhouse gas (GHG) emissions target: 
-17 %  in  2020  compared  to  2005  (in  non-ETS 
sectors) 

2020  Renewable  energy  target:  49 %  of  final 
energy consumption 

At  about  54 %,  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 

primary 

target 

in 

Sweden's  primary  energy  consumption  in  2016 
was of 47.1 Mtoe, a significant increase compared 
to  2015.  Final  energy  consumption  in  2016 

51 

 
energy consumption 

Early school leaving target: below 7 %  

Tertiary education target: 45-50 %  

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 
force  (except  full-time  students), 
long-term 
unemployed or on long-term sick leave. 

A. Overview Table 

reached  32.7  Mtoe,  also  a  slight 
compared to 2015. 

increase 

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

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 2016: 7.4 % (2015: 7 %, 2014, 6.7 
%; 2013, 7.1 %; 2012, 7.5 %). 

The rate is somewhat above the 7 % target.  

attainment 

educational 

Tertiary 
of 
population  30-34  having  successfully  completed 
tertiary  education)  in  2016:  51  %  (2015:  50.2  %, 
2014, 49.9 %; 2013, 48.3 %; 2012, 47.9 %). 

(share 

The target of 45-50 % has been achieved.  

The corresponding indicator has reached 12.0 % in 
2016,  according 
from  national 
authorities  (2015,  12.4%;  2014,  12.6  %;  2013, 
12.7%; 2012, 13.1%) 

feedback 

to 

The target has been reached and the trend remains 
good. 

52 

 
 
ANNEX B:  MACROECONOMIC IMBALANCE PROCEDURE 

SCOREBOARD 

Table B.1: 

The MIP Scoreboard for Sweden (AMR 2018) (1) (2) 

(1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 
(2) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. 
Source:  European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

53 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%5.8 5.7 5.5 5.2 4.9 4.6 Net international investment position% of GDP-35%-8.0 -14.6 -12.5 1.2 4.6 11.2 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)3.2 10.2 5.1 -3.7 -8.2 -9.2 Export market share - % of world exports5 year % change-6%-12.1 -19.1 -16.9 -9.2 -9.1 -7.9 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)5.6 4.0 8.6 6.9 2.4 2.0 House price index (2015=100), deflated 1 year % change6%0.8 0.7 4.7 8.3 12.1 7.6 Private sector credit flow, consolidated% of GDP14%6.9 2.4 4.5 4.8 7.5 7.6 Private sector debt, consolidated% of GDP133%190.8 192.3 194.5 193.9 188.4 188.5 General government gross debt% of GDP60%37.9 38.1 40.8 45.5 44.2 42.2 Unemployment rate3 year average10%8.2 8.1 7.9 8.0 7.8 7.4 Total financial sector liabilities, non-consolidated1 year % change16.5%3.0 5.4 9.0 13.0 2.4 9.0 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp0.6 1.4 2.0 1.6 1.4 1.0 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp0.7 0.4 -0.2 -0.1 0.0 -0.1 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp2.6 -1.3 -1.2 0.1 -3.3 -4.7 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) Quarterly values are not annualised 
(5) Latest data April 2017. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

54 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)286.6278.8288.4285.4282.9300.7Share of assets of the five largest banks (% of total assets)57.458.358.557.856.3-Foreign ownership of banking system (% of total assets)(2)5.96.26.97.28.26.1Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)0.50.51.41.21.10.5              - capital adequacy ratio (%)12.112.322.224.126.326.2              - return on equity (%)(4)11.311.111.811.211.96.1Bank loans to the private sector (year-on-year % change)(1)3.63.05.14.47.36.1Lending for house purchase (year-on-year % change)(1)4.75.46.48.57.67.4Loan to deposit ratio(1)207.8201.9201.0195.7192.5184.5Central Bank liquidity as % of liabilities(5)0.00.00.00.00.00.0Private debt (% of GDP)192.3194.5193.9188.4188.5-Gross external debt (% of GDP)(2) - public18.018.721.920.316.814.7    - private61.254.954.953.150.247.8Long-term interest rate spread versus Bund (basis points)*9.755.155.322.345.032.5Credit default swap spreads for sovereign securities (5-year)*36.214.39.99.514.210.9 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 
2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Source: Eurostat. 

55 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)7.57.16.77.07.4:Gender employment gap (pps)5.15.04.64.23.84.0Income inequality, measured as quintile share ratio (S80/S20)4.04.04.24.14.3:At-risk-of-poverty or social exclusion rate1 (AROPE)17.718.318.218.618.3:Young people neither in employment nor in education and training (% of population aged 15-24)7.87.57.26.76.5:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)79.479.880.080.581.281.8Unemployment rate2 (15-74 years)8.08.07.97.46.96.7Gross disposable income of households in real terms per capita3 (Index 2008=100) ::111.7113.3115.4:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction447.644.648.045.345.8:Children aged less than 3 years in formal childcare52.055.056.864.051.0:Self-reported unmet need for medical care1.41.91.51.31.6:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::72.069.077.0 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD. 

56 

Labour market indicators201220132014201520162017 5Activity rate (15-64)80.381.181.581.782.1:Employment in current job by durationFrom 0 to 11 months17.517.217.818.318.9:From 12 to 23 months10.69.910.010.010.7:From 24 to 59 months15.416.517.617.317.1:60 months or over55.955.753.953.652.6:Employment growth* (% change from previous year)0.71.01.41.51.72.4Employment rate of women(% of female population aged 20-64)76.877.277.678.379.279.8Employment rate of men (% of male population aged 20-64)81.982.282.282.583.083.8Employment rate of older workers* (% of population aged 55-64)73.073.674.074.575.576.4Part-time employment* (% of total employment, aged 15-64)25.024.724.524.323.923.4Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)15.916.316.816.616.116.1Transition rate from temporary to permanent employment(3-year average)41.240.840.038.4::Long-term unemployment rate1 (% of labour force)1.51.41.41.51.31.3Youth unemployment rate (% active population aged 15-24)23.723.622.920.418.917.8Gender gap in part-time employment26.124.924.423.122.621.4Gender pay gap2 (in undadjusted form)15.514.613.814.0::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)27.028.429.229.429.6:Underachievement in education327.1::20.8::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)47.948.349.950.251.0:Variation in performance explained by students' socio-economic status410.6::12.2:: 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

57 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7.37.57.57.5::Disability3.63.63.53.3::Old age and survivors12.512.912.512.3::Family/children3.03.13.13.0::Unemployment1.21.31.11.0::Housing0.50.50.50.4::Social exclusion n.e.c.0.70.70.80.9::Total28.729.528.928.6::of which: means-tested benefits0.80.80.80.7::General government expenditure by function (% of GDP, COFOG)Social protection20.821.320.820.420.6:Health6.97.07.06.96.9:Education6.56.66.66.56.6:Out-of-pocket expenditure on healthcare (% of total health expenditure)15.415.515.515.2::Children at risk of poverty or social exclusion (% of people aged 0-17)*19.420.220.519.819.9:At-risk-of-poverty  rate1 (% of total population)15.216.015.616.316.2:In-work at-risk-of-poverty rate (% of persons employed)7.27.67.78.06.7:Severe material deprivation rate2  (% of total population)1.81.91.01.10.8:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan0.80.50.50.50.5:Tenant, rent at market price3.74.15.06.86.7:Proportion of people living in low work intensity households4 (% of people aged 0-59)8.19.49.08.78.5:Poverty thresholds, expressed in national currency at constant prices*116749118780119560122901124757:Healthy life years (at the age of 65)Females:13.816.716.8::Males:12.915.215.7::Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.60.6:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::67.769.872.275.5GINI coefficient before taxes and transfers*43.643.944.744.248.2:GINI coefficient after taxes and transfers*24.824.925.425.227.6: 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1)The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 codified 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 don't know. 
(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 here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm. 
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
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). 

58 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry15.851.90-0.480.691.38-1.282.56Labour productivity in Construction2.43-4.85-8.23-4.500.623.171.10Labour productivity in Market Services1.172.662.803.302.865.500.51Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-17.321.625.661.451.792.08-0.50ULC in Construction0.7010.2710.806.711.950.412.42ULC in Market Services-1.391.862.46-0.31-0.62-2.071.69Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)314.0314.0314.0321.0321.0321.0321.0Time needed to start a business(1) (days)16.016.016.016.016.07.07.0Outcome of applications by SMEs for bank loans(2)na0.20na0.570.710.380.36Research and innovation2010201120122013201420152016R&D intensity3.223.253.283.313.153.273.25General government expenditure on education as % of GDP6.506.406.506.606.606.506.60Persons with tertiary education and/or employed in science and technology as % of total employment49505152545556Population having completed tertiary education(3)28293031333435Young people with upper secondary level education(4)87878686878787Trade balance of high technology products as % of GDP0.140.11-0.140.09-0.07-0.11naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overall1.501.611.52OECD PMR5, retail0.720.600.60OECD PMR5, professional services0.770.550.55OECD PMR5, network industries(6)2.302.201.87 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG 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 2010 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

59 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.130.130.130.120.110.12Carbon intensity kg / €0.160.150.150.140.13-Resource intensity (reciprocal of resource productivity)kg / €0.550.560.570.560.540.56Waste intensity kg / €-0.41-0.43--Energy balance of trade % GDP-1.8-1.7-1.5-1.3-0.8-0.8Weighting of energy in HICP%11.9911.6811.0110.699.648.66Difference between energy price change and inflation %0.7-3.9-0.4-2.5-4.11.4Real unit of energy cost% of value added9.69.78.88.9--Ratio of environmental taxes to labour taxesratio0.100.100.090.090.09-Environmental taxes% GDP2.42.42.42.22.22.2Sectoral Industry energy intensity kgoe / € 0.150.160.160.150.16-Real unit energy cost for manufacturing industry excl. refining% of value added13.813.012.312.3--Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.090.080.080.070.060.06Gas prices for medium-sized industrial users€ / kWh0.050.050.060.050.040.04Public R&D for energy % GDP0.040.040.030.040.030.04Public R&D for environmental protection% GDP0.020.020.020.020.010.01Municipal waste recycling rate%47.347.248.749.948.048.9Share of GHG emissions covered by ETS*%35.734.736.335.932.936.8Transport energy intensitykgoe / €0.440.420.420.430.420.44Transport carbon intensitykg / €1.040.960.930.910.89-Security of energy supplyEnergy import dependency%36.729.231.532.029.931.9Aggregated supplier concentration indexHHI24.516.316.621.820.4-Diversification of energy mixHHI0.290.320.300.310.330.31 
 
 
 
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