COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2019 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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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: 2019-02-27
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, 27.2.2019  SWD(2019) 1026 final  COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2019          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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Overall findings regarding imbalances, risks and adjustment issues 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector and housing market 

4.3.  Labour market, education and pillar policies 

4.4.   Competitiveness reforms and investment 

Annex A: Overview Table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard Tables 

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7 

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45 

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56 

57 

Annex D: Investment Guidance on Cohesion Policy Funding 2021-2027 for Sweden 

63 

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 2019 

Table 4.2.1: 

Financial soundness indicators, all banks in Sweden 

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 

66 

12 

14 

19 

25 

57 

58 

59 

60 

61 

62 

 
 
 
 
LIST OF GRAPHS 

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

Graph 1.2: 

Contributions to potential growth  

Graph 1.3: 

Labour shortages in the economy  

Graph 1.4: 

Relative change in working-age population due to increased inflows of asylum 

seekers between 2014 and 2017 in Europe  

Graph 1.5: 

Breakdown of rate of change of unit labour costs (ULC) 

Graph 1.6: 

Real Effective Exchange Rate based on unit labour costs 

Graph 1.7: 

Net international investment position 

Graph 2.1:  Overall multiannual implementation of  2011-2018 CSRs to date  

Graph 4.1.1:  Swedish fiscal rules and MTBF and EU average 

Graph 4.1.2: 

Impact of fiscal rules and MTBF on the cyclically-adjusted primary budget balance 

Graph 4.1.3:  Swedish fiscal rules index and government gross debt 

Graph 4.2.1:  House prices by market segment (nominal) 

Graph 4.2.2:  Estimated house price valuation gaps based on different indicators  

Graph 4.2.3:  Revenues from property taxes 

Graph 4.2.4:  Housing starts, including net conversions, versus projected need 

Graph 4.2.5:  Construction sentiment: overall confidence indicator and expectations component  

Graph 4.2.6:  Labour and material cost evolution in new residential construction (total % rise 

between 2015-2018Q2; not annualised) 

Graph 4.2.7: 

Time on waiting list before obtaining primary tenancy in greater Stockholm 

(distribution by number of years) 

Graph 4.2.8:  Household debt evolution (indexed, 2005=100) 

Graph 4.2.9:  Share of new mortgage borrowers by debt-to-disposable-income ratio 

Graph 4.2.10:  Amortisation rate for mortgages 

Graph 4.2.11:  Year-on-year growth rate in mortgages and unsecured loans to households 

Graph 4.2.12:  Household financial assets (*) and stock market index 

Graph 4.2.13:  Breakdown of corporate debt by funding source 

Graph 4.2.14:  Leverage indicators for non-financial corporations 

Graph 4.3.1:  Activity, employment and unemployment rates 

Graph 4.3.2:  Unemployment rate by educational attainment 

Graph 4.3.3:  Employment rate by citizenship 

Graph 4.3.4:  At-risk-of-poverty or social exclusion rate and its components 

Graph 4.3.5:  Proportion of low achievers in OECD PISA (2015) 

Graph 4.3.6:  Proportion of graduates by programme orientation (2016) 

Graph 4.4.1:  Cumulative export market share loss since 2007 for Sweden and selected peer 

countries 

Graph 4.4.2:  Gross fixed capital formation (% of GDP) 

7 

8 

9 

9 

10 

10 

11 

13 

21 

22 

22 

26 

27 

28 

28 

29 

29 

30 

32 

33 

33 

34 

35 

36 

36 

37 

37 

39 

40 

41 

43 

45 

46 

2 

 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness in Sweden 

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

Box 4.4.1: Investment challenges and reforms in Sweden 

15 

38 

48 

3 

 
 
 
 
EXECUTIVE SUMMARY 

overall 

economic 

by 
construction 

compounded 
Boosting 

importance  of  addressing 

Sweden’s 
performance 
remains  healthy,  but  mounting  risks  highlight 
the 
structural 
weaknesses.  The  housing  shortage,  long  a  key 
challenge, is the result of insufficient new housing 
demographic 
construction 
developments. 
in 
appropriate  locations  and  market  segments  could 
help  alleviate  this.  A  more  market-oriented  rental 
housing  sector  could  also  help,  and  would 
underpin  mobility  and  flexibility  in  the  labour 
market. Tax incentives for property ownership and 
mortgage  debt  are  aggravating  the  problems  of 
growing  household  debt  and  overvalued  house 
prices.  Addressing  these  issues  would  make  the 
Swedish  economy  more  resilient  and  reduce  risks 
posed by imbalances (1).  

Economic activity remains solid but is expected 
to  moderate.  According  to  the  Commission’s 
winter  2019  interim  forecast,  real  GDP  grew  by 
2.1 %  in  2017  and  is  set  to  have  increased  by 
2.2 %  in  2018.  With  the  global  economy  slowing 
down  and  residential 
in  Sweden 
starting to fall, economic activity is set to shift to a 
lower gear. Real GDP growth is expected to slow 
over  the  forecast  period  and  reach  1.7 %  in  2020. 
Over  the  longer  run,  potential  growth  is  expected 
to  remain  below  pre-crisis  levels  in  light  of 
continued modest productivity growth, in line with 
global developments. 

investment 

Sweden’s  external  position  continues  to  be 
strong. Growth in goods exports remained solid in 
2018.  Imports  rose  strongly,  however,  due  to 
strong  domestic  demand  resulting  in  a  lower 
current  account  surplus.  Exports  of  goods  and 
services  are  likely  to  expand  by  around  3 %  in 
2019-2020  against  the  backdrop  of  trade  tensions 

(1)  This report assesses Sweden’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  doing  so,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
focusing 
reforms 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic stability and sound public finances. At the 
same 
the  Alert 
the  Commission  published 
Mechanism  Report  (AMR)  that  initiated  the  eighth  round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Sweden warranted an in-depth review, which is 
presented in this report. 

time, 

and  as  growth  in  Sweden’s  main  trading  partners 
eases.  The  current  account  surplus  is  forecast  to 
stabilise at around 3 % of GDP. 

to  reduce 

Investment  growth  is  slowing  as  residential 
investment  adjusts  to  lower  levels.  A  fall  in 
housing  prices  in  the  second  half  of  2017  is 
the  construction  of  new 
expected 
housing,  dampening  growth  in  investment.  In 
addition,  investment  in  equipment  is  set  to  lose 
speed  as 
trade-related  uncertainty  weighs  on 
external  demand  and  adds  to  already  lacklustre 
business sentiment.  

The labour market is performing well but faces 
challenges.  Sweden  has  one  of 
the  highest 
employment  rates  in  the  EU (83.3 %  in  Q3 2018) 
and  the  Commission’s  autumn  2018  forecast 
expects  unemployment  to  level  out  at  6.2 %  in 
2019-2020. At the same time, labour shortages and 
skills mismatches, where the jobs available do not 
match 
jobless,  prevent 
unemployment from falling much further. A major 
challenge will be to successfully integrate non-EU 
migrants  into  the  labour  force  in  a  way  that  will 
benefit growth in the long term.  

skills  of 

the 

the 

The fiscal position is strong. In 2017, the general 
government overall surplus was 1.6 % of GDP. A 
smaller surplus of around 1 % of GDP is expected 
for 2018, and this should decline to 0.8 % of GDP 
in 2020 as the economy slows. Public debt is set to 
fiscal 
continue  declining  due 
management and a strengthened fiscal framework.  

to  prudent 

Monetary policy is normalising, due to inflation 
picking  up  somewhat  from  previous 
lows. 
Monetary policy has remained accommodative for 
years due to low inflation. After an increase in core 
inflation  in  2018,  the  Riksbank  began  increasing 
its  benchmark  interest  rate  in  late  2018  and  has 
announced that further rate hikes could follow. 

Strengthening  investment (2)  in  new  housing, 
education  and  skills  could  further  enhance 
Sweden’s  long-term  growth  potential.  It  would 
also  be  beneficial  to  maintain  investment  in 
transport 
innovation.  The 
investment  rate  in  Sweden  has  stood  well  above 
the  EU  average  for  the  last  decade;  nevertheless, 
some  parts  of  the  economy  could  benefit  from 

infrastructure  and 

(2)  Both private and public investment. 

4 

 
 
                                                           
                                                           
the 

system, 

education 

more investment. A structural undersupply remains 
in 
the  housing  market,  despite  a  significant 
increase in new construction over the past 5 years. 
demographic 
In 
developments  will  lead  to  an  increase  in  the 
number of pupils, while the country already faces a 
teacher  shortage.  Investment  in  education  and 
skills will also be crucial to help boost productivity 
growth  and  address  the  skills  mismatch  in  some 
parts of the labour market. Finally, there is a need 
to  maintain  investment  in  transport  infrastructure 
and  Research  and  Development  at  high  levels  to 
support long-term productivity growth and to fully 
exploit business potential. Annex D identifies key 
priorities  for  support  by  the  European  Regional 
Development Fund and the European Social Fund 
Plus  over  2021-2027,  building  on  the  analysis  of 
investment  needs  and  challenges  outlined  in  this 
report. 

Sweden  has  made 
addressing 
the 
recommendation.  

limited (3)  progress 
2018 

in 
country-specific 

There  has  been  some  progress  in  the  following 
area: 

  Sweden is moving forward with policy steps to 
stimulate residential construction. This includes 
the  gradual  implementation  of  the  ‘22-point 
plan’  for  the  housing  sector,  as  well  as 
measures  to  boost  foreign  competition  in  the 
construction sector (see Section 4.2.2). 

There  has  been  limited  progress  in  the  following 
area: 

 

the  Swedish  authorities 
In  January  2019, 
announced  that  reforms  will  be  prepared  to 
make  the  rent-setting  system  more  flexible. 
There  are  also  plans  to  make  deferred  capital 
gains  taxes  on  sold  properties  in  the  owner-
occupancy market interest-free. 

There has been no progress in the following areas: 

  No  progress  has  been  made  on  reforming  the 
favourable tax treatment of mortgage debt and 
home ownership. 

(3)  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. 

Executive summary 

Regarding  progress  towards  its  national  targets 
under the Europe 2020 strategy, Sweden continues 
to  perform  well  in  the  following  indicators: 
employment rate, greenhouse gas emissions, share 
of renewable energy, tertiary education attainment 
and  poverty  risks.  Areas  where  progress  remains 
relatively  weak  are  early  school  leaving,  energy 
efficiency and Research and Development 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, 
education  or  training  are  at  low  levels.  Positive 
outcomes,  such  as  the  level  of  digital  skills  and 
impact  of  social  transfers  on  poverty  reduction 
reflect  an  advanced  welfare  model  with  a  strong 
social dialogue. 

findings  of 

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

in-depth 

the 

  While 

banks 

healthy, 

some 
are 
vulnerabilities  are  linked  to  their  growing 
exposure  to  the  real  estate  market.  Banks 
regulatory  capital 
remain  profitable.  The 
they 
though 
adequacy  ratios  are  healthy, 
decreased  at  end  2018  due  to  changes  in  the 
calculation of banks’ risk-weighted assets. The 
major  Swedish  banks  showed  resilience  in  the 
2018  stress  test  conducted  by  the  European 
Banking  Authority.  The  banks’  high  level  of 
lending to the real estate market remains a key 
risk  and  households  remain  vulnerable  to  an 
adjustment  in  the  housing  market  and  an 
increase  in  interest  rates.  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. 

  Household  indebtedness  has  continued  to 
rise from already high levels. Household debt 
grew by 5.5 % in 2018, reaching about 88 % of 
GDP and 186 % of disposable income, which is 
among  the  highest  in  the  EU.  This was  driven 
mainly by higher mortgage borrowing linked to 
high  house  prices,  coupled  with  structural 
favouring  mortgage-financed 
distortions 

5 

 
 
                                                           
Executive summary 

however, such as the integration of low-skilled 
people  and  non-EU  migrants  into  the  labour 
market. This challenge is likely to remain in the 
coming  years  in  the  light  of  number  and 
composition  of  the  arrival  of  asylum  seekers 
who  arrived  in  late  2015.  Efforts  have  been 
their  employability  for 
made 
job’ 
instance 
(Introduktionsjobb) programme.  

improve 
via 

‘Introduction 

the 

to 

  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 foreign-born migrant 
pupils  warrants  close  monitoring.  Another 
challenge is the growing shortage of teachers. 

  The  economy  benefits  from  a  favourable 
business  environment,  although  specific 
barriers to investment and long-term growth 
remain. The country performs well in terms of 
efficient  public  administration,  access 
to 
and  medium-sized 
finance 
and 
innovation 
enterprises, 
internationalisation  by  businesses.  However, 
investment and innovation could benefit from a 
closer  cooperation  between  academia  and 
business. 

small 
and 

for 

property  purchases.  Sweden  has  implemented 
several  macro-prudential  measures  in  recent 
years, including a strengthened repayment rule 
for  high  debt-to-income  mortgages  in  force 
since  March  2018,  and  a  decision  to  raise  the 
countercyclical  capital  buffer  for  banks  from 
September  2019.  However,  the  policy  steps 
taken so far appear to have had limited overall 
impact on the growth of mortgage lending.  

  While house prices declined in late 2017 and 
have since been broadly stable, this follows a 
long  period  of  strong  price  rises,  and 
valuations remain well above fundamentals. 
Key  issues  include  tax  incentives  favouring 
home  ownership  and  mortgage  debt,  and 
accommodative  credit  conditions  coupled with 
still  relatively  low  mortgage  repayment  rates. 
Despite  a  sharp  rise  in  new  construction,  a 
shortage  remains,  particularly  of  affordable 
homes  around  major  cities.  This  shortage  is 
linked  to  structural  inefficiencies,  such  as 
limited  competition  in  the  construction  sector. 
The housing stock is not used efficiently. In the 
rental  market,  below-market  rents  create  lock-
in  and  ‘insider/outsider’  effects.  In  the  owner-
occupancy  market,  capital  gains  taxes  reduce 
homeowner  mobility.  The  housing  shortage 
makes  it  harder  for  people  to  change  jobs  and 
can contribute to intergenerational inequality. 

  The  continued  increase  in  household  debt 
and  bank  residential  mortgages  are  a 
growing  risk  to  macroeconomic  stability. 
Despite  gradual  policy  action,  mortgage  debt 
continues  to  grow.  With  the  housing  market 
still  appearing  overvalued,  even  after 
the 
declines  in  autumn  2017,  rising  indebtedness 
means  there  is  a  growing  risk  of  a  disorderly 
correction.  This  could  have  an  adverse  impact 
on  the  economy  and  potentially  the  banking 
sector. 

Other key structural issues analysed in this country 
report, which point to particular challenges facing 
the Swedish economy, are the following: 

  Despite  favourable  economic  conditions, 
some  population  groups  have  difficulties 
finding a job. Sweden is a top performer in the 
EU  for  high  employment  and  low  long-term 
remain, 
unemployment 

rates.  Challenges 

6 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

business  sentiment.  Overall,  investment  growth  is 
forecast to slow markedly until 2020. 

Public and private consumption growth is set to 
remain  moderate.  In  2018  private  consumption 
was  supported  by  high  employment  gains.  Over 
2019-2020, however, it is forecast to grow less  as 
employment  growth  is  set  to  slow  given  the 
already  high  level  of  labour  force  participation. 
Public consumption is projected to have increased 
by  close  to  1 %  in  2018  due  to  municipalities 
having  been  given  more  resources  to  employ 
additional  staff  and  to  improve  the  delivery  of 
welfare  services  and  education.  Assuming  no 
policy  change,  public  consumption  is  expected  to 
grow at around the same pace in the coming years. 

Potential growth 

to 

increasing  participation  among 

Potential  growth  has  recovered  but  is  expected 
to  be  below  pre-crisis  levels.  In  the  wake  of  the 
crisis,  recovery  in  potential  output  growth  was 
mainly  due  to  the  rising  contribution  of  labour 
the 
thanks 
young,  old,  and  foreign  born  (Graph  1.2). 
However,  the  labour  contribution  is  expected  to 
fall  as  migration  levels  taper  off  from  their  2015 
peak  and  also  due  to  negative  demographics.  The 
is 
contribution  of 
projected  to  remain  modest  and  below  pre-crisis 
levels, in line with global developments, weighing 
on  potential  growth  while  capital  accumulation  is 
expected to remain stable.  

factor  productivity 

total 

GDP growth 

Economic activity remains solid. Real GDP grew 
by 2.1 % in 2017 and is expected to have increased 
by  2.2 %  in 2018,  according  to  the  Commission’s 
winter  2019  interim  forecast.  Domestic  demand 
was  the  main  growth  driver,  benefiting  from  the 
continued  accommodative  monetary  policy  and 
growing 
supporting 
consumption.  The  growth  contribution  of  net 
exports  was  modest  and  imports  remained  strong 
(Graph 1.1). 

employment,  which 

is 

Graph 1.1:  Output gap, real GDP growth and its 

components (1) 

(1) Forecasts for 2018-2020 are based on a no-policy-
change assumption 
Source: European Commission 

After years of robust growth, GDP is forecast to 
moderate.  With  the  global  economy  entering  a 
lower-growth period  and  residential investment  in 
Sweden starting to fall, economic activity is set to 
slow down. Real GDP growth is projected to slow 
to  1.3 %  in  2019  before  picking  up  somewhat  to 
1.7 % in 2020, close to the economy’s potential of 
around 2 %. 

Residential  investment,  a  key  growth  driver,  is 
expected to adjust to lower levels. After a peak in 
mid-2017 house prices declined in the second half 
of the year and have remained largely unchanged. 
The decline had a negative impact on sentiment in 
the construction sector and new housing starts are 
expected  to  fall  holding  back  investment  growth. 
In addition, investment in equipment is set to lose 
speed  as 
trade-related  uncertainty  weighs  on 
external  demand  and  adds  to  already  lacklustre 

7 

-8-6-4-202468-8-6-4-20246802030405060708091011121314151617181920% of potential GDPpps of real GDPInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth (y-o-y %)Output gap (rhs)forecast 
 
 
 
1. Economic situation and outlook 

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

could  have  a  dampening  effect  on  credit  growth 
and consumer spending (see Section 4.2.3). 

Private indebtedness 

Household debt continued to rise, increasing by 
5.5 %  year-on-year  in  December  2018.  While 
this is a continued gradual slowdown from its peak 
growth  rate  of  close  to  8 %  around  mid-2016,  it 
remains  well  above  nominal  income  growth  (see 
Section  4.2.3).  Overall,  household  debt  stood  at 
186 % of disposable income or about 88 % of GDP 
in  Q3  2018,  among  the  highest  levels  in  the  EU. 
Importantly, 
the  distribution  of  debt  among 
households is becoming increasingly uneven, with 
the fraction of new mortgage borrowers with very 
high  debt-to-disposable  income  ratios  above  e.g. 
600 %  growing  to  17.2 %  in  2017  (vs.  16.4 %  in 
2016, and about 12 % in 2013). 

Labour market 

The  Swedish 
labour  market  continues  to 
perform  well.  Sweden  has  one  of  the  highest 
employment rates in the EU (83.3 % in Q3 2018), 
and  employment  growth  is  set  to  remain  solid. 
Unemployment  has  been  below  the  EU  average 
and is expected to level out at 6.2 % in 2019-2020 
according  to  the  Commission’s  autumn  2018 
forecast.  Long-term  unemployment  remained  low 
at 1.2 % in 2017. Youth unemployment continued 
to decline and the proportion of young people not 
in employment, education or training decreased to 
6.2 % in 2017.  

further.  Labour 

At  the  same  time,  labour  shortages  and  skills 
mismatches prevent unemployment from falling 
force  participation 
much 
continued to increase in 2017 and 2018. However, 
labour  shortages  are  rising  despite  the  increase  in 
labour  supply.  The  Public  Employment  Service 
forecasts  a  continuing  shortage  of  labour  in  the 
coming  years  in  roughly  150  out  of  the  200 
professions  it  covers.  These  professions  include 
ones requiring higher levels of educations such as 
engineers,  teachers,  IT  specialists  and  persons 
working  in  the  health  sector.  Moreover,  the 
employment  rate  of  low-skilled  people  remains 
low,  which  indicates  potential  skills  mismatches 
(Graph  1.3).  Unemployment  is  therefore  set  to 
stabilise at around 6.2 % in 2019-2020. 

8 

(1) Forecasts for 2018-2020 are based on a no-policy-
change assumption 
(2)TFP: total factor productivity 
Source: European Commission (Autumn forecast 2018) 

Inflation and monetary policy 

Headline  inflation  is  not  yet  firmly  anchored 
but core inflation is set to increase gradually. In 
2018,  higher  import  prices  resulting  from  the 
depreciation of the Swedish krona, surging energy 
prices  and  a  pick-up  in  unprocessed  food  prices 
(due  to  unusually  dry  weather  in  2018)  pushed 
inflation  above  the  Riksbank  2 %  target  in  the 
second half of the year. As these temporary factors 
fade away, the harmonised consumer price index is 
expected  to  grow  at  1.7 %  in  2019  before  edging 
down  to  1.6 %  in  2020.  Core  inflation  (excluding 
food  and  energy)  is  set  to  increase  from  slightly 
above 1 % on average  in 2018 to around 1.5 % in 
2020. 

low 

rising, 

inflationary  pressures 

the 
With 
Riksbank    increased  its  repo  rate  in  late  2018. 
Monetary policy has remained accommodative for 
years  now,  as 
inflation  prompted  a 
postponement of rate hikes. The Riksbank had kept 
its  repo  rate  unchanged  at  -0.5 %  since  February 
2016.  In  December  2018,  the  Riksbank  raised  the 
repo rate by 0.25 percentage points and announced 
that  subject  to  inflation  prospects  rate  hikes  of 
about 0.25 percentage points once or twice a year 
could be expected. Such a gradual increase would 
keep  the  real  repo  rate  negative  for  the  next  two 
years.  While  in  the  past  the  low  nominal  interest 
rate  environment  was  one  factor  behind  the 
increase  in  household  debt  and  house  prices,  a 
gradual  reversal,  with  rising  debt  servicing  costs, 

012305060708091011121314151617181920pps of potential GDPCapital contributionTFP contributionLabour contributionPotential growth (y-o-y %)forecast 
 
1. Economic situation and outlook 

Graph 1.3: 

Labour shortages in the economy (1) 

Sweden  would  lead  to  a  decline  in  labour  force 
participation  of  around  six  percentage  points  in 
2015-2050.  

Graph 1.4: 

Relative change in working-age population 
due to increased inflows of asylum seekers 
between 2014 and 2017 in Europe (1, 2) 

(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 

Migration is the main factor driving the growth 
of  the  labour  force.  In  2016  net  migration  to 
Sweden  reached  over  117 000,  the  highest  on 
record. In 2017, however, it dropped to just below 
99 000.  This  was  linked  to  temporary  border 
controls  and  the  temporary  migration  act  of  2016 
which  the  new  government  intends  to  extend  by 
two  years  (until  the  end  of  2021)  to  examine  the 
future migration policy in a parliamentary inquiry. 
The  participation  rate  of  migrants  in  the  labour 
force increased by around 1.3 percentage points in 
2017  (OECD,  2018d).  The  OECD  estimates  that 
refugee  arrivals  will  have  a  positive  effect  on  the 
labour  force,  with  at  least  a  0.5 %  increase 
cumulatively between 2017 and 2020. In addition, 
the  net  positive  effect  on 
the  working-age 
population  may  reach  at  least  0.8 %  cumulatively 
between  2017  and  2020  (Graph  1.4) (4).  Without 
migration, the labour force and ultimately potential 
GDP  would  be  negatively  affected.  According  to 
(IMF) 
the 
(Hilgenstock,  2018),  a  no-migration  scenario  in 

International  Monetary 

Fund 

(4)  The  relative  change  in  working-age  population  is  the 
difference  between  the  estimated  refugee  working-age 
population, accounting for increased inflows since January 
2014,  and  the  counterfactual  (i.e.  assuming  that  asylum 
applications  in  2014-20  remain  equal  to  the  2011-13 
average),  divided  by  the  total  working-age  population  in 
December  2013.  Up  to  December  2017,  observed  data  on 
asylum applications and decisions are used; for 2018-20, it 
is assumed that asylum applications are either equal to the 
2011-13  average  or  to  the  2017  average,  generating  the 
December 2020 low-high range. 

9 

(1) EU-28 countries, Norway and Switzerland 
(2) See footnote 4 for details on the estimation methodology 
Sources: Eurostat, OECD estimates 

The  successful  integration  of  non-EU  migrants 
into the labour force is key to ensuring benefits 
to  long-term  growth  and  fiscal  sustainability. 
Migration  helps  maintain  the  population  and 
labour  force  growth  in  the  face  of  an  ageing 
population since it tends to be concentrated among 
younger and economically active age groups. Half 
of  those  who  immigrated  between  2006  and  2017 
have  post-secondary  education,  which  is  higher 
than among migrants who immigrated before 2006 
and  people  born 
in  Sweden.  Persons  who 
immigrated in the last twelve years have a younger 
age structure than the population aged 25-64 years 
as a whole, which can partly explain the high level 
of  education  compared  to  the  Swedish  population 
(Statistics  Sweden, 
2018c).  The  Swedish 
authorities  have  identified  finding jobs  or  training 
places  for  migrants  as  a  key  priority  and  have 
taken  steps  to  reduce  asymmetries  in  the  labour 
market between foreign born and native born (see 
Section 4.3.1). 

Inequality 

Inequality  and  poverty  levels  are  low.  The 
incomes of the richest 20 % of the population were 
around  4.3  times  higher  than  the  incomes  of  the 
poorest  20 %  in  2017.  The  distribution  of  market 
incomes  is  relatively  equal,  due  to  compressed 

012345Building and ConstructionEducation workComputer/ICTHealthcareTechnical and scientific workInstall., operation & maintenanceSocial workManufacturingAgriculture and forestryTransportHotel and restaurantService and safety workSales, Purchasing and MarketingAdministration, Economics and LawCulture, media and designIndex0,00,20,40,60,81,01,2%SEDecember 2020 (low-high range)December 2017 
 
                                                           
 
 
1. Economic situation and outlook 

Graph 1.6: 

Real Effective Exchange Rate based on unit 
labour costs 

wage  distribution.  In  addition,  taxes  and  transfers 
have  an  equalising  effect,  which  is  among  the 
largest  in  the  EU  (58.5 %  in  2016).  The  share  of 
people  at  risk  of  poverty  or  social  exclusion  is 
lower than the EU average. The share of people in 
severe material deprivation and the share of people 
living  in  low  work  intensity  households  have  not 
decreased despite rising employment. 

Competitiveness 

for 

In  2017, 

competitiveness. 

Contained  wage  growth  has  supported  the 
the 
economy’s 
industrial  sector,  exposed  to  foreign  competition, 
agreed  to  a  2.2 %  annual  increase  in  wages  for 
2017-2019.  Wage  growth 
the  economy 
remained  stable  averaging  around  2.4 %  in  2017-
2018  despite  a  tightening  labour  market  and 
expectations  of  rising  inflation.  Unit  labour  costs 
(ULC)  have  broadly  followed  trends  in  labour 
productivity  and  are  around  the  EU  average 
(Graph  1.5),  thus  safeguarding  competitiveness. 
Accordingly, 
real  effective 
the  ULC-based 
exchange  rate  depreciated  during  the  same  period 
(Graph 1.6). The new negotiation round for 2020-
2023  is  expected  to  result  in  moderate  wage 
increases,  which 
cost 
competitiveness.  Conversely,  nominal  unit  labour 
costs  are  expected  to  rise  by  1.8 %  in  2019  and 
1.3 % in 2020. 

preserve 

should 

Graph 1.5: 

Breakdown of rate of change of unit labour 
costs (ULC) 

Source: European Commission 

External position 

Despite  continued  current  account  surpluses, 
the net international investment position is only 
slightly  positive.  It  is  expected  that  the  current 
account  surplus  will  have  declined  from  3.6 %  in 
2017  to  an  estimated  3.2 %  of  GDP  in  2018.  The 
surplus largely reflects government and household 
savings  as  well  as  merchanting  activities  of 
multinational  enterprises (5).  However,  the  net 
international  investment  position  is  only  slightly 
positive,  well  below  the  sum  of  past  current 
to 
account  surpluses.  This 
persistent  net  portfolio 
in  debt 
securities, especially of non-financial corporations, 
but  may  partly  reflect  valuation  effects  and 
measurement  errors  which  suggest  that  the  net 
could  be 
investment  position 
international 
underestimated 
(European 
Commission, 2016a, pp. 13-14). 

is  primarily  due 
investment 

(Graph 

1.7) 

(5)  See European Commission (2018a). 

Source: European Commission 

10 

-6-4-202468030405060708091011121314151617181920Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC (EU average)forecast708090100110120130140150000102030405060708091011121314151617181999=100SEEuro area averageEU averageforecast 
 
 
 
                                                           
1. Economic situation and outlook 

Graph 1.7:  Net international investment position 

Source: European Commission 

Public finances 

The  fiscal  position  has  remained  strong.  At  the 
end  of  2017,  revenue  collection,  surprised  on  the 
upside, underpinned by solid economic growth. As 
a  result,  the  general  government  headline  surplus 
was 1.6 % of GDP in 2017, well above the budget 
initially  planned  for  2017,  implying  a  structural 
surplus of 1.4 % of GDP. As revenues are forecast 
to  have  reverted  to  more  normal  performance,  a 
smaller surplus of around 1 % of GDP is expected 
for  2018.  The  headline  surplus  should  decline  to 
0.8 % of GDP in 2020, as the economy slows.  

Public  debt  is  expected  to  continue  declining. 
Strong economic growth, primary budget surpluses 
and prudent fiscal management have brought about 
a  decline  in  the  general  government  gross debt  in 
recent years. This trend is set to continue with the 
debt-to-GDP  ratio  projected  to  fall  to  33.5 %  in 
2020,  significantly  below  the  reference  value  of 
60 %  of  GDP  agreed  in  the  Treaty  (see  also 
Section 4.1). 

11 

-100-50050100000102030405060708091011121314151617% of GDPReserve assetsNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet Int'l investment position (NIIP)Marketable debt (NIIP minus FDI and shares) 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators – Sweden (1), (2), (3) 

(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. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation. 
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise) 

12 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)3.80.52.82.72.12.21.31.7Potential growth (y-o-y)2.61.62.02.32.32.42.12.0Private consumption (y-o-y)3.01.42.42.92.2...Public consumption (y-o-y)0.61.41.73.60.0...Gross fixed capital formation (y-o-y)7.1-0.54.24.26.0...Exports of goods and services (y-o-y)7.60.93.33.03.2...Imports of goods and services (y-o-y) 7.41.63.84.34.8...Contribution to GDP growth:Domestic demand (y-o-y)3.10.92.53.22.4...Inventories (y-o-y)0.1-0.10.3-0.10.1...Net exports (y-o-y)0.6-0.20.0-0.4-0.5...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.60.71.11.11.00.70.6Capital accumulation (y-o-y)0.80.60.70.80.90.90.90.9Total factor productivity (y-o-y)1.30.30.60.40.40.40.50.6Output gap1.5-1.8-1.50.50.30.30.0-0.2Unemployment rate7.17.87.86.96.76.36.26.2GDP deflator (y-o-y)1.51.81.61.62.32.52.01.8Harmonised index of consumer prices (HICP, y-o-y)1.31.90.41.11.92.01.71.6Nominal compensation per employee (y-o-y)3.93.02.32.52.02.72.72.5Labour productivity (real, person employed, y-o-y)2.90.01.50.8-0.2...Unit labour costs (ULC, whole economy, y-o-y)1.03.00.81.72.22.01.81.3Real unit labour costs (y-o-y)-0.51.2-0.80.00.0-0.5-0.2-0.4Real effective exchange rate (ULC, y-o-y)-0.31.4-2.30.60.8-4.3-0.7-0.7Real effective exchange rate (HICP, y-o-y)-0.80.0-2.80.9-0.7-3.9-0.9-0.6Savings rate of households (net saving as percentage of net disposable income)7.012.315.516.015.1...Private credit flow, consolidated (% of GDP)12.77.95.67.513.1...Private sector debt, consolidated (% of GDP)154.5192.8192.8188.2194.4...of which household debt, consolidated (% of GDP)61.776.183.086.288.2...of which non-financial corporate debt, consolidated (% of GDP)92.8116.7109.8102.0106.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..1.01.11.1...Corporations, net lending (+) or net borrowing (-) (% of GDP)3.40.9-1.8-4.0-3.7-4.0-3.7-3.4Corporations, gross operating surplus (% of GDP)24.923.923.824.123.924.224.424.6Households, net lending (+) or net borrowing (-) (% of GDP)1.85.17.26.65.86.05.55.2Deflated house price index (y-o-y)9.71.38.37.54.6...Residential investment (% of GDP)3.83.64.05.15.7...Current account balance (% of GDP), balance of payments7.16.24.73.83.23.23.02.9Trade balance (% of GDP), balance of payments6.75.24.84.53.4...Terms of trade of goods and services (y-o-y)-0.5-0.10.40.5-0.6-0.9-0.5-0.2Capital account balance (% of GDP)-0.2-0.2-0.2-0.1-0.1...Net international investment position (% of GDP)-11.9-9.0-7.40.14.4...NIIP excluding non-defaultable instruments (% of GDP) (1)-21.5-22.4-20.1-12.2-7.3...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)123.3155.4165.2157.0165.8...Export performance vs. advanced countries (% change over 5 years)6.5-4.9-7.7-10.5-8.7...Export market share, goods and services (y-o-y)..-1.11.9-3.1...Net FDI flows (% of GDP)2.32.52.3-1.22.1...General government balance (% of GDP)1.90.0-0.91.11.51.10.90.8Structural budget balance (% of GDP)..-0.10.81.30.90.91.0General government gross debt (% of GDP)45.338.743.442.440.837.835.533.5Tax-to-GDP ratio (%) (3)46.343.843.444.844.944.544.344.2Tax rate for a single person earning the average wage (%)30.325.424.724.9....Tax rate for a single person earning 50% of the average wage (%)26.020.419.920.1....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

84 % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Sweden  have 
recorded  at  least  ‘some  progress’.(6)  16 %  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  in  implementing  housing  market 
and household debt related CSRs. 

Graph 2.1:  Overall multiannual implementation of  
2011-2018 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 
February 2019. 
Source: European Commission 

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

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.  

in 

the  country  has  received  a 
Since  2011, 
recommendation  each  year  related  to  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 

(6) For the assessment of other reforms implemented in the past, 

see in particular Section 4. 

house  price  growth  and  the  associated  risk  to  the 
broader economy and the financial system. 

The focus has mainly been on macro-prudential 
measures  and  steps  to  tackle  housing  supply 
bottlenecks. Macro-prudential measures include a 
loan-to-value  ceiling  of  85 %  for  mortgages  in 
2010,  raising  banks’  risk  weight  floors  for 
mortgages in 2013 and 2014, introducing a formal 
mortgage  amortisation  requirement  in  June  2016, 
followed  by  a  strengthened  amortisation  rule  for 
high-debt-to-income borrowers in March 2018 (see 
Section 4.2.3). Sweden also strengthened the legal 
mandate  of  the  macro-prudential  authority  in 
February  2018.  These  steps  have  improved  the 
resilience of the banking sector (see Section 4.2.1), 
but  have  not  been  able  to  rein  in  household  debt 
growth  (see  Section  4.2.3).  The  authorities  have 
also  introduced  measures  to  streamline  building 
and  planning  regulations  and  have  provided  some 
budgetary  support  to  municipalities  to  encourage 
more  construction.  While  this  has  resulted  in  a 
significant  pick-up  in  construction,  the  current 
level is still below anticipated demand, particularly 
in major cities (see Section 4.2.2).  

is 

its 

relevant 

limited (7)  progress 
in 
Sweden  has  made 
addressing 
country-specific 
2018 
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.  For  the  housing 
market,  Sweden  is  moving  forward  with  policy 
steps  to  promote  more  construction,  including  the 
gradual  implementation  of  the  ‘22-point  plan’  for 
the  housing  sector,  as  well  as  measures  to  boost 
foreign competition in the construction sector (see 
Section  4.2.3).  Additionally,  in  January  2019,  the 
new  government  announced  that  reforms  will  be 
prepared  to  make  the  rent-setting  system  more 
flexible.  There  are  also  plans  to  make  deferred 
capital gains taxes on sold properties in the owner-
interest-free.  However,  no 
occupancy  market 
progress  has  been  made  on  reforming  mortgage 

(7)  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 

13 

4%12%33%38%13%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
                                                           
2. Progress with country-specific recommendations 

interest  deductibility  or  recalibrating  recurrent 
property taxes.  

Table 2.1: 

Summary table on CSR assessment 

Source: European Commission 

14 

Sweden Overall assessment of progress  with 2018 CSRs: Limited CSR 1: Address risks related to high household debt by gradually reducing the tax deductibility of mortgage interest payments or increasing recurrent property taxes. Stimulate residential construction where shortages are most pressing, notably by removing structural obstacles to construction, 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  Some progress on stimulating residential construction  Limited progress on introducing more flexibility in setting rental prices and revising the design of the capital gains tax   
 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to 
fostering growth and competitiveness in Sweden 

Sweden continues to benefit from the European Structural and Investment Funds (ESI Funds) and 
can receive up to EUR 3.6 billion until 2020. This represents around 2.7 % of public investment1 over 
2014-2018.  By  31 December  2018,  around  64 %  had  been  allocated  to  projects.  This  has  helped  more 
than  40 000  companies  strengthen 
their  competitive  edge.  Examples  of  project  areas  are 
internationalisation, business development, incubation and new entrepreneurship. 

ESI Funds help address structural policy challenges. Programmes supported by ESI Funds are helping 
to  create  strong  innovation  environments,  clusters  and  accessibility  of  research  resources  for  industry. 
Sweden uses the ESI Funds to implement smart specialisation strategies in all eight regions by involving 
over 5 600 enterprises that will cooperate with research institutes to develop marketable products. EUR 
400 million supports the transition to a low-carbon economy. The European Regional Development Fund 
(ERDF) in Sweden has proven to be a very good example of how to use the funds for integration of third-
country  nationals.  The  focus  has  been  on  helping  migrants  start  businesses  or  get  jobs  in  the  business 
sector.  Dedicated  calls  for  proposals  are  used  for  the  implementation.  Several  projects  have  been 
approved and are progressing well. Individuals also receive support from the ESI Funds. EUR 808 million 
from  the  European  Social  Fund  (ESF)  are  used  to  strengthen  their  employability  through  skills 
development  and  training.  Following  the  recent  influx  of  refugees  and  immigrants  to  Sweden,  the  ESI 
Funds  have  helped  local  authorities  and  other  actors  to  provide  more  individually-adapted  training  and 
employability support. More than 110 000 persons have benefited from different ESF-funded projects. 

The  Commission  can  provide  tailor-made  technical  support  upon  a  Member  State’s  request  via  the 
Structural  Reform  Support  Programme  to  help  Member  States  implement  growth-sustaining  reforms  to 
address  challenges  identified  in  the  European  Semester  process  or  other  national  reforms.  Sweden,  for 
example,  has  started  receiving  support  for  the  implementation  of  the  corporate-income-tax  gap 
assessment methodology. 

EU funding contributes to mobilisation of private investment. Financial instruments are implemented 
through one National fund-in-fund (EUR 23.1 million to stimulate more private venture capital funds in 
early  stages,  have  closer  collaboration  with  the  private  sector  and  avoid  regional  limitations),  eight 
regional  venture  capital  funds  (EUR 74  million)  and  a  new  National  ‘green  fund’  for  early  stage 
investments  in  companies  promoting  the  transition  to  a  low-carbon  economy  (EUR 38.7  million).  In 
addition, Sweden is advancing the take-up of the European Fund for Strategic Investments (EFSI). The 
European  Investment  Bank  with  EFSI  backing,  approved  operations  with  an  overall  volume  of 
EUR 2.7 billion,  which  is  set  to  trigger  a  total  of  EUR 10.5  billion  in  additional  private  and  public 
investments. So far, 35 projects2 have been approved under the infrastructure and innovation window of 
the EFSI (EUR 2.4 billion in total financing, supporting EUR 9.2 billion in investments). Under the SME 
component,  11  agreements  with  intermediary  banks  have  been  approved  (EUR 330  million,  mobilising 
around EUR 1.2 billion of total investment). 9 398 SMEs and mid-cap companies are expected to benefit 
from this support. One notable example is ‘Handiscover’, a Swedish start-up dedicated to helping people 
with physical disabilities find and book suitable travel and accommodation. Handiscover secured a loan 
from Almi Företagspartner and is backed by the European Investment Fund.  

Funding  under  Horizon  2020,  the  Connecting  Europe  Facility  and  other  directly-managed  EU 
funds is additional to the ESI Funds. By the end of 2018, Sweden has signed agreements for 57 projects 
under  the  Connecting  Europe  Facility  with  Swedish  beneficiaries  receiving  EUR 298.1  million  in 
funding, and investing a total of EUR 709.7 million in these projects. Horizon 2020 contributed another 
EUR 1.26 billion. 

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 Among which 19 are multi-country projects. 

15 

 
 
 
 
  
 
  
 
3.  OVERALL FINDINGS REGARDING IMBALANCES, RISKS AND 

ADJUSTMENT ISSUES 

in-depth  review 

The  2019  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken for Sweden to assess the persistence 
or  unwinding  of  the  imbalances  (European 
Commission, 2018b). In winter 2018, Sweden was 
identified  as  having  macroeconomic  imbalances 
(European  Commission,  2018i).  The  imbalances 
identified  related  in  particular  to  elevated  house 
prices  coupled  with  a  continued  rise  in  household 
debt.  This  chapter  summarises  the  findings  of  the 
analyses in the context of the MIP in-depth review 
that  is  contained  in  various  sections  in  this 
report. (8) 

3.1. 

IMBALANCES AND THEIR GRAVITY 

lending, 

Private-sector  debt  stands  at  194 %  of  GDP, 
among  the  highest  in  Europe.  Both  households 
(88 %  of  GDP  as  of  Q3  2018)  and  non-financial 
corporations (111 % of GDP as of Q3 2018) have 
high  debt  levels  compared  to  other  EU  countries 
and are also above debt benchmarks developed by 
the  European  Commission.  Household  debt  is  a 
particular  source  of  concern.  Driven  primarily  by 
mortgage 
it  has  risen  rapidly  and 
persistently,  outpacing  GDP  growth  for  over  two 
decades 
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 
borrowers  with 
ratios, 
particularly  among  younger  households  and  those 
buying  properties  in  major  cities  (see  ‘Household 
debt developments’ in Section 4.2.3). 

large  debt-to-income 

now.  Although 

households 

Corporate  debt,  while  elevated,  is  matched  by 
high  equity  cushions  and  corporate  savings 
levels.  Despite  the  significant  stock  of  debt, 
financial  risks  remain  limited  overall  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,  still 

(8)  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. 

constitute  the  main  funding  source  for  non-
‘Corporate  debt 
financial  corporations 
developments’ in Section 4.2.3).  

(see 

Growing  household  debt  coupled  with  elevated 
house  prices  makes  the  Swedish  economy 
vulnerable to shocks. Swedish house prices have 
risen  steadily  for  almost two decades,  although  in 
autumn  2017  the  market  experienced  a  gradual 
decline followed by stabilisation over the course of 
2018.  Strong  fundamentals,  in  particular  robust 
disposable  income  and  population  growth,  can 
explain  part  of  Sweden’s  historical  house  price 
growth,  but  several  indicators  such  as  price-to-
income (affordability) and price-to-rent (dividend) 
ratios  suggest  that  house  prices  are  above  their 
historical  trend.  Distortive  taxation  and  structural 
supply-side  inefficiencies  in  the  housing  market 
contribute to this overvaluation (see Section 4.2.2).  

The  banking  sector  is  solid,  but  it  could  be 
vulnerable in the event of a potential abrupt fall 
in  real  estate  prices.  Banks’  assets  have 
performed  well  so  far  and  the  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’  exposure  to  household  mortgages.  Banks 
also  have  significant  exposure  to  the  commercial 
real  estate  sector.  Consequently,  in  a  severe 
housing  market  or  commercial  property  slump, 
these  vulnerabilities  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 
(see Section 4.2.1). 

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 
terms  as  of 
5.5 %  year-on-year 
December  2018.  This  represents  a  continued 
gradual  deceleration  from  its  peak  growth  rate  of 

in  nominal 

16 

 
 
                                                           
3. Overall findings regarding imbalances, risks and adjustment issues 

Domestic  bank  loans  remain  the  main  funding 
source  of  firms,  followed  by  international  bond 
markets  (see  ‘Corporate  debt  developments’  in 
Section  4.2.3).  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, 
while  being  supported  by  sufficient  capital 
buffers.  The  near-term  risks  of  household  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. 

a 

of 

virtually 
long  period 
Following 
uninterrupted  strong  growth,  house  prices  fell 
in  autumn  2017 and  stabilised  well  below  their 
peak.  Real  house  prices  have  more  than  tripled 
over the past two decades, significantly outpacing 
income  growth.  Unlike  most  European  countries, 
Sweden  had  no  major  adjustment  in  house  prices 
around  the  2008-2009  financial  crisis.  While  the 
2017  price  declines  were  significant  in  absolute 
terms,  real house prices  have  only  moved back  to 
roughly their end-2016 level. Valuation indicators 
continue  to  suggest  that  house  prices  remain  high 
relative  to  fundamentals.  Thus,  the  recent  episode 
of  market  weakness  should  not  detract  from  the 
broader  concerns  that  Sweden’s  elevated  house 
prices contribute to macroeconomic stability risks. 

steps 

Policy  action  focused  on  curbing  housing 
via  macro-prudential  measures, 
demand 
combined  with 
stimulate  new 
construction.  Since  2010,  Sweden  has  gradually 
introduced a number of macroprudential measures 
(see above), aimed at containing mortgage growth 
and  thus  housing  demand.  The  authorities  have 
also proceeded with the gradual implementation of 

to 

about  8 %  around  mid-2017,  but  remains  well 
above economic and income growth. The increase 
in mortgage lending is driven by the lagged effect 
of  house  price  rises  in  prior  years,  coupled  with 
structural  factors  favouring  (mortgage-financed) 
property investment, notably mortgage interest tax 
deductibility, variable rates and long maturities for 
mortgages. In light of the structural nature of some 
of  these  drivers,  it  appears  likely  that  household 
debt will continue to outpace income growth over 
the medium term. 

first 

introducing  a 

The  authorities  have  gradually  taken  some 
policy  action  to  curb  household  debt  growth. 
After 
formal  mortgage 
amortisation  requirement  in  2016,  in  March  2018 
Sweden  implemented  a  stricter  amortisation  rule 
specifically  targeting  borrowing  at  high-debt-to-
income levels. In addition, the Swedish Parliament 
(Riksdag)  strengthened  the  legal  mandate  of  the 
Financial 
authority, 
macro-prudential 
Supervisory  Authority  (Finansinspektionen).  The 
new  mandate  came  into  force  in  February  2018 
and  allows  the  authority  to  respond  in  a  more 
timely  manner,  using  a  wider  range  of  potential 
measures,  to  the  risks  associated  with  growing 
household  debt.  The  Financial  Supervisory 
Authority  has  also  further  raised  the  counter-
cyclical  capital  buffer  requirement  for  banks  to 
2.5 %; this will come in force in September 2019. 

the 

So  far,  however,  these  measures  have  had  a 
limited  impact  on  household  debt  growth,  and 
key  policy  gaps  remain.  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.  

Following  a  period  of  post-crisis  deleveraging, 
corporate  debt  growth  has  again  picked  up. 
Non-financial  corporate  debt  relative  to  GDP  fell 
by  about  25  percentage  points  between  2009  and 
2016. This has mostly been the result of ‘passive’ 
deleveraging,  with  positive  net  credit  flows  to 
firms  being  outweighed  by  growth  and  inflation. 
However, since early 2017, net corporate debt has 
again  started  outpacing  economic  growth,  due  to 
highly favourable credit conditions and overall still 
levels  among  companies. 
robust  confidence 

17 

 
3. Overall findings regarding imbalances, risks and adjustment issues 

the  ‘22-point  plan’  for  the  housing  market  and 
similar measures to stimulate more construction.  

Some  key  structural  distortions  in  the  housing 
market  have  not  yet  been  addressed.  In 
particular,  no  policy  action  has  been  taken  to 
reform the tax incentives for home ownership and 
mortgage  debt  (see  above). Similarly,  so  far  there 
have  been  no  concrete  policy  steps  to  liberalise 
tight  rental  market  regulations  and  revise  the 
capital tax on owner-occupied homes, although in 
January  2019  the  new  government  announced 
plans to introduce reforms in these areas, subject to 
preparatory 
‘Policy 
developments’ in Section 4.2.2). In addition, there 
remains  scope  to  further  tackle  the  lack  of  land 
available  for  development,  complex  planning  and 
building 
for 
municipalities  to  support  new  construction  and 
limited competition in the construction sector (see 
‘Supply-side issues’ in Section 4.2.2).  

inquiry  work 

regulations, 

incentives 

limited 

(see 

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  (see  ‘Risks 
and  policy  response’  in  Section  4.2.3).  Such  a 
trigger  deleveraging,  potentially 
shock  could 
lower 
to  harmful  adjustment,  with 
leading 
consumption  and  investment.  Although  house 
prices have stabilised well below their 2017 peak, 
they continue to appear overvalued. In the event of 
a large, disorderly downturn in the housing market, 
there  is  a  risk  of  negative  spillover  effects  acting 
on  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 

18 

 
3. Overall findings regarding imbalances, risks and adjustment issues 

Table 3.1: 

MIP assessment matrix (*) — Sweden 2019 

(Continued on the next page) 

19 

 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 well over 190 % of GDP. 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 186 % of disposable income and 88 % of GDP as of Q3 2018 (about 10 percentage points above the Commission's prudential benchmark, and 14 percentage points above the fundamental benchmark).  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 has grown at a nominal rate in the range of about 5 to 8 % per year since the start of this decade, significantly outpacing GDP growth. This trend continued in 2018, with household debt reaching over 186 % of disposable income as of Q3 2018. The Riksbank projects that household debt will rise to over 190 % of disposable income by 2021.  An enhanced legal framework for the macroprudential authority was made operational in February 2018, allowing the authority to respond in a more timely manner and use a wider range of measures to address the risks associated with growing household debt. In March 2018, a strengthened mortgage amortisation requirement for households borrowing more than 450 % of their gross income came into force, raising the mandatory amortisation rate for new borrowers in this category by 1 percentage point per annum.   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.     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.     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.  The enhanced legal framework for the macroprudential authority and the enhanced amortisation requirement (see above) contribute to strengthening the banking sector's resilience.    
 
 
 
 
3. Overall findings regarding imbalances, risks and adjustment issues 

Table (continued) 

(1) 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 gravity, developments and prospects, policy response. 
Source: European Commission 

20 

 Swedish banks serve 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). At the same time, bank's capital buffers have continued to grow, due to lower average risk weighting of bank assets. Additionally, in September 2018, the macroprudential authority announced that the countercyclical buffer rate for banks will rise from 2 to 2.5 percent from September 2019. This is intended to further strengthen banking sector resilience. Housing sector  (see Section 4.2.2) In spite of significant price declines in the autumn of 2017, Swedish house prices continue to appear significantly overvalued. Price-to-income and price-to-rent ratios were about 45-65 % above their long-term average as of end-2017. A model-based estimate suggests prices are about 12 % above fundamentally justified levels (but this partly reflects exceptionally low interest rates). These valuation gaps are among the highest in the EU.  High house prices are 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. Prior to the autumn 2017 correction, house prices had grown almost continuously over the last 20 years. After peaking at 12 % in 2015, real house price growth started tapering out, falling to 8 % in 2016 and 4.6 % in 2017. In 2018 and early 2019, house prices have broadly stabilised, remaining roughly flat to slightly higher. In spite of the autumn 2017 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 over the period of 2013-2017 years, but construction output has started to decline in 2018 in the wake of the late-2017 house price falls, with further weakness likely in the near-term. Even at its recent peak, new housing supply still fell short of overall projected needs. The Swedish authorities continue to gradually implement the "22-point plan" for the housing market, first 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 proceeded with a measure to promote foreign competition in the construction sector by making info on 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 have experienced a correction in the autumn 2017, followed by gradual stabilisation in 2018, but remain at levels that appear out of line with fundamentals.  Some measures have been taken in recent years to address rising household debt, especially in the area of macro-prudential policy. However, these measures have had limited impact so far in addressing underlying 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 
1.6 % of GDP and a structural surplus of 1.4 % of 
GDP  in  2017.  The  debt-to-GDP  ratio  is  expected 
to  decline  below  the  new  35 %  debt  anchor  by 
2020. With prudent fiscal policy in place, Sweden 
faces low fiscal sustainability risks in the medium 
to long term. 

4.1.1. 

Fiscal framework 

In 2019, revised rules came into force in Sweden 
to  further  strengthen  its  fiscal  framework.  The 
main  improvements  include  the  introduction  of  a 
new debt anchor and the strengthened mandate of 
the 
Policy  Council 
Fiscal 
(Finanspolitiska rådet) to monitor fiscal rules and 
evaluate  the  official  macro-forecasts  (European 
Commission, 2018a). 

independent 

Sweden  adopted  a  fiscal  framework  already  in 
1997.  In  response  to  the  economic  crisis  in  the 
early  1990s,  Sweden  introduced  a  comprehensive 
fiscal  framework,  with  broad  political  support, 
which substantially contributed to its effectiveness. 
The  core  elements  included  the  introduction  of 
numerical rules: (i) three-year expenditure ceilings 
binding  for  the  next  two  years,  (ii)  a  general 
government  surplus  target  and  (iii)  a  balanced-
budget  rule  at  the  local  level.  In  2007  an 
independent  Fiscal  Policy  Council  was  set-up  to 
assess  whether  the  government  had  achieved  its 
fiscal and economic policy objectives, in particular 
long-term  fiscal  sustainability  and  consistency 
with the surplus target, the expenditure ceiling and 
the economy’s cyclical position. 

The  Swedish  fiscal  framework  has  performed 
well. Using the Fiscal Rules and the Medium-term 
Budgetary Framework (MTBF) indices (European 
Commission,  2018d),  which  focus  exclusively  on 
design elements, Sweden was well-above the EU-
average  for  most  of  the  last  15  years  (Graph 
4.1.1)(9).  More  recently,  however,  national  fiscal 
frameworks in the EU – and euro area in particular 

(9)  These  findings  remain  valid  when  looking  at  alternative 
index.  See 

numerical 
https://www.imf.org/external/datamapper/fiscalrules/map/
map.htm for the IMF Fiscal Rules dataset, based on which 
the IMF index is calculated. 

indicators,  such  as 

the  IMF 

–  have  greatly  improved  due  to  EU  legislative 
initiatives.  While  this  pushed  up  the  EU  average, 
the  number  and  quality  of  fiscal  rules  in  Sweden 
were broadly unchanged and therefore the country 
appears  to  have  lost  ground  relative  to  its  peers. 
This will likely change as of 2019 when the recent 
reforms  partly  addressing  some  of  the  new  EU 
requirements  will  take  effect.  By  contrast,  the 
Swedish  medium-term  framework  remains  strong 
as the expenditure ceilings are binding for the first 
two  years  of  the  policy  horizon  and  not  revised 
yearly as it is the case in most Member States.  

Graph 4.1.1:  Swedish fiscal rules and MTBF and EU average 

Source: European Commission's Fiscal Governance 
Database. 

the 

fiscal 

Overall, 
framework  has  been 
successful  in  maintaining  budgetary  discipline 
and  long-term  fiscal  sustainability  in  Sweden. 
Based on  the European  Commission  estimates  for 
the  budgetary  impact  of  fiscal  rules  and  MTBFs 
(European Commission, 2018e), the Swedish fiscal 
framework is deemed to have contributed by about 
five  percentage  points  of  potential  GDP  in  the 
short-term  and  10  percentage  points  in  the  long-
term  (Graph  4.1.2)  to  fiscal  consolidation  of  the 
primary  budget  surplus 
in  cyclically-adjusted 
terms(10).  Government  debt  started  to  decline 

(10)  The  actual  budgetary 

impact  of 

the  Swedish  fiscal 
framework could be higher. First, the analysis only looks at 
two  elements  of  the  fiscal framework  (i.e. fiscal  rules  and 
MTBF), and excludes e.g. factors in budgetary procedures 
and  the  overall  quality  of  public  finance  among  others. 

21 

00,10,20,30,40,50,60,70,80,9024681012149092949698000204060810121416SE Fiscal rules indexEU Fiscal rules indexSE - MTBF index (rhs)EU - MTBF index (rhs) 
 
                                                           
 
                                                           
4.1. Public finances and taxation 

Graph 4.1.3:  Swedish fiscal rules index and government 

gross debt 

following the introduction of the fiscal framework 
(Graph 4.1.3). From its peak in 1996, government 
debt had declined by about 25 percentage points of 
potential  GDP  by  2016,  and  the  above  estimates 
suggest  that  up  to  half  of  this  decline  can  be 
attributed to the fiscal framework.  

Graph 4.1.2:  Impact of fiscal rules and MTBF on the 

cyclically-adjusted primary budget balance 

Source: European Commission calculations based on 
European Commission (2018e).  

Second, the estimates refer exclusively to the design of the 
framework  and  do  not  explicitly  include  elements  of 
compliance.  Given  the  strong  political  consensus  behind 
the Swedish framework, it might have seen higher rates of 
compliance  than  the  EU  average,  which  would  translate 
into higher impact of the framework than estimated here. 

Sources: European Commission's Fiscal Governance 
Database and Ameco 

4.1.2. 

Taxation developments 

The general level of taxation remains above the 
EU  average.  The  total  tax  burden  is  44.4 %  of 
GDP  compared  with  the  EU  average  39.0 %  of 
GDP.  The  overall  labour  tax  burden  is  also  high 
with the implicit tax rate at 40.4 % in 2017 above 
the EU average of 36.3 %. Low income earners at 
50 % of the average wage face a particular high tax 
wedge,  i.e.  gap  between  labour  costs  and  take-
home pay. 

The  Riksdag  rejected  the  2019  caretaker 
government  budget  bill  in  favour  of  a  slightly 
more  expansionary  proposal  submitted  by  the 
opposition.  The  Swedish  authorities  estimate  that 
the  adopted  2019  budget  implies  a  weakening  of 
public finances by about SEK 29 billion in relation 
to  2018.  Higher  expenditure  is  included  for 
defence, the police and the judiciary, while labour 
market  policies  and  environmental  policy  are 
subject  to  some  reductions.  Income  taxes  will  be 
cut  in  2019:  the  basic  income  tax  deduction  for 
persons  older  than  65  is  raised,  and  the  earned 
income  tax  deduction  is  expanded  in  combination 
with  an  increase  in  the  tax  threshold  for  state 
income  tax.  As  from  2020,  the  new  government 
intends to  abolish  the  five  percent  top  income  tax 
(värnskatt).  Looking  further  ahead,  it  aims  for  a 
broad 
Sweden's 
competitiveness  and  labour  market  participation 
rate through lowered income and corporate taxes. 

increasing 

reform 

tax 

22 

024681012short-termlong-term% of potential GDPMedium-term budgetary frameworkFiscal rules010203040506070800123456789109092949698000204060810121416in % of potential GDPStrength of fiscal rulesGovernment debt (rhs) 
 
 
                                                                                   
 
4.1. Public finances and taxation 

whereas the underlying level of need (12) is broadly 
in line with the EU average. 

(12)  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. 

Addressing  tax  incentives  could  help  mitigate 
the  build-up  of  household  indebtedness.  At 
present  there  are  no  concrete  plans  to revise  rules 
regarding the mortgage interest deductibility or the 
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 (11). 

4.1.3.  Debt  sustainability  analysis  and  fiscal 
risks 

Sweden’s  government  debt 
is  expected  to 
continue  declining  over  the  medium  term. 
Sound  fiscal  management  and  strong  economic 
performance under the Commission’s baseline no-
policy  change  scenario  is  projected  to  bring 
government  debt  close  to  16 %  of  GDP  in  2029 
from 37.8 % of GDP in 2018, well below the 60 % 
of  GDP  Treaty  reference  value.  The  outlook  for 
fiscal  sustainability  appears  sound  in  the  short, 
medium  and  long  term  (European  Commission 
(2019a and Annex B). 

Debt dynamics appear to be resilient to shocks. 
In  all  sensitivity  test  scenarios  government  debt 
remains on a downward trend. Debt-to-GDP at the 
end  of  the  projections  period  (2029)  in  these 
scenarios is moderately higher than the baseline. In 
the  worst  case  scenario,  based  on  a  shock  to  the 
exchange rate, gross public debt would reach 19 % 
of GDP in 2029.  

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 
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 53 % increase, similar to the EU average. The 
share  of  the  population  that  receives  long-term 
care  benefits  is  relatively  high  by  EU  standards, 

to 

(11)  The new government has, however, announced its intention 
to  abolish  the  interest  rate  payable  for  tax  deferral  of 
capital  gains  resulting  from  house  sales,  making  it  less 
costly to move houses. 

23 

 
                                                           
                                                           
4.2.  FINANCIAL SECTOR AND HOUSING MARKET 

4.2.1.  BANKING SECTOR (*) (13)  

Overview 

is 

The  Swedish  banking  sector 
large  and 
maintains strong profitability. The system’s total 
assets, including foreign banks activities, represent 
around  300 %  of  GDP.  Bank  profitability  still 
ranks among the highest in Europe with returns on 
equity averaging 9 %, helped by low funding costs 
and  high  cost  efficiency.  Favourable  economic 
conditions  translate  into  sustained  lending  to non-
financial  corporations  and  supported  income  from 
transaction fees. 

repayment 

Banks  remain  healthy  with  high-quality  assets. 
In  2018  the  average  non-performing  loan  ratio 
remained one of the lowest in the EU. Customers’ 
high 
strong 
capacity 
reimbursement culture are among the main reasons 
for limited defaults and provide a potential shock-
absorbing  buffer  to  Swedish  banks  in  the  case  of 
an economic slowdown. 

and 

a 

Banks  have  a  high  exposure  to  the  real  estate 
sector. Almost 90 % of household lending consists 
of  mortgages  while 
commercial  property, 
including  tenant-owner  associations,  represents 
55 % of lending to corporations. Developments on 
the  real  estate  market  therefore  have  a  major 
impact  on 
financial  position  of  banks 
the 
(Finansinspektionen, 2018c). 

Swedish  banks  rely  to  a 
large  extent  on 
wholesale funding. About 50 % of their loan book 
is  funded  by  domestic  deposits.  The  main 
additional funding source is the wholesale funding 
market,  often  accessed  with  covered  bond 
issuances backed by residential mortgages.  

New players have recently entered the Swedish 
mortgage  markets.  These  are  either  loan  brokers 
that  connect  borrowers  with  lenders,  or  non-bank 
lenders that grant mortgages to create and manage 
investment  products  on  behalf  of  institutional 
they  are 
investors.  Although 
managing  are  small,  they  are  competing  with 
banks 
their 
importance  could  increase.  This  could  be  positive 

for  mortgage 

the  volumes 

customers 

and 

for  financial  stability  if  they  use  more  stable 
funding  sources  than  banks.  However,  the  new 
business  models  remain  untested  in  terms  of 
sudden changes in economic conditions and could 
complicate  macro-prudential  policy 
(Sveriges 
Riksbank, 2018a). 

the  Nordea  group  moved 

The  structure  of  the  Swedish  banking  sector 
changed  as  Nordea  relocated  to  Finland.  In 
October  2018 
its 
headquarter  to  Helsinki.  Although  the  move  has 
left  Nordea’s  business  operations 
in  Sweden 
largely  unaffected,  it  had  important  implications 
for supervisory responsibilities (see ‘Key risks and 
policy responses’ below). 

risk-weight-floor  on 

The  calculation  of  banks’  risk-weighted  assets, 
and  with  it  Swedish  banks’  capital  ratios,  has 
changed.  The  Financial  Supervisory  Authority 
(Finansinspektionen)  revised  the  modalities  for 
residential 
imposing  a 
mortgages  for  banks  using  internal  risk  models  to 
be  applied  as  of  end  2018(14).  With  this  revision, 
the  Authority  intends  to  maintain  a  level  playing 
field  among  banks  in  the  domestic  market  for 
residential  mortgages.  Due  largely  to  this  change, 
the average Tier 1 ratio under the new rules will be 
substantially lower than the latest available official 
figure  (22.6 %  in  Q2  2018,  see  Table  4.2.1).  The 
revision  brings  the  calculation  of  banks’  capital 
ratios  closer  to  prevailing  practices  in  most  EU 
Member  States.  However,  even  following  these 
changes, the capital ratios of Swedish banks would 
remain relatively high compared to the EU average 
of 16.2 % (15). 

requirements 

(14)  The  measure  shifts  bank  capital 

for 
residential  mortgages  from  the  ’pillar  2’  to  the  ‘pillar  1’. 
The  absolute  amount  of  capital  required  does  not  change 
overall,  but  as  only  ‘pillar  1’  requirements  contribute  to 
risk  weighted  assets,  the  bank  capital  ratios  are  reduced. 
For further details, see European Commission (2018j). 
(15)  This is to a large extent due to the extensive use of internal 
rating-based  models  which  incorporate  low  historical 
defaults on large parts of the lending portfolio. 

(13)  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). 

24 

 
 
                                                           
                                                           
4.2. Financial sector and housing market 

their 

increased  sharply  the  past  years,  and  a  large 
proportion  of 
lending  has  commercial 
property  as  collateral.  So  far  commercial  real 
estate  companies  have  benefited  from  rising  real 
estate  prices  and  rental  income.  A  change  in  this 
trend  –  due  to  a  cooling  economy  for  example  – 
could  affect  incomes,  credit  quality  and  (in  an 
extreme  scenario)  even  financial  stability  in  the 
event of a sudden market correction (given the size 
of the commercial property market in Sweden and 
its  historic  sensitivity  to  macro-financial  shocks) 
(Finansinspektionen, 2018c). 

Nordea’s  move  has  reduced 
the  Swedish 
authorities’  control  and  oversight  of  the  bank. 
While  Nordea’s  business  operations  in  Sweden 
remain  basically  unchanged,  the  responsibility  for 
the  supervision  and  resolution  has  moved  to  the 
European  Central  Bank  and  Finnish  supervisors 
(16).  Against  this  backdrop,  in  2017  the  Swedish 
government launched a comprehensive analysis of 
the  implications  of  joining  the  Banking  Union, 
whose results are expected in November 2019. 

in 

current 

differences 

banking 
The 
rules/regulations  across 
the  Nordic-Baltic 
region  have  resulted  in  increased  cooperation. 
Recent  developments,  such  as  those related  to  the 
risk weight floor for residential mortgages and the 
fact that large financial institutions often operate in 
other countries via branches, have made it apparent 
that there is a need of coordination between macro-
the 
prudential  authorities.  Supervisors 
various  countries  are  aware  of  potential  spillover 
risks in the event of acute financial systemic stress 
and 
legal 
the  existing  differences 
frameworks must be taken into account (17). They 
are therefore already cooperating closely to enable 
an effective response when needed. 

from 

that 

in 

The  Financial  Supervisory  Authority  adopted 
to 
additional  macro-prudential  measures 

(16)  For  details  see  European  Commission  (2018a)  and  the 
article  'Consequences  for  financial  stability  of  Nordea’s 
relocation to Finland’ in Sveriges Riksbank (2018b). 
(17)  For  example,  there  are  differences  in  the  way  bank 
resolution  might  be  applied  within  and  outside  the  euro 
area  (see  Art.  44.8  of  the  Bank  Recovery  and  Resolution 
Directive).  Similarly,  the  risk-weight  floor  for  residential 
mortgages  can  apply  also  to  Nordea’s  branch  active  in 
Sweden  only  after  reciprocation  of  the  measure  by  the 
Finnish  macro-prudential  authority.  Since  reciprocation  is 
voluntary  it  requires  coordination  by  authorities  on  an  ad 
hoc basis.  

Table 4.2.1: 

Financial soundness indicators, all banks in 
Sweden 

(*) European Central Bank aggregated balance sheet: 
loans excl. to government and Monetary Financial 
Institutions (MFI) / deposits excl. from government and MFI 
(**) For comparability only annual values are presented 
Source: European Central Bank 

The  major  Swedish  banks  showed  resilience  in 
the 2018 stress test conducted by the European 
Banking Authority (EBA). Banks would have the 
ability  to  withstand  a  severe  recession  combined 
with falling real estate prices used in the exercise. 
Such  a  scenario  had  a  limited  impact  on  bank 
capital  as  the  Common  Equity  Tier  1  would  be 
reduced  between  2.7  and  3.3  percentage  points 
(European Banking Authority, 2018). 

Key risks and policy responses 

Banks’ high exposure to the housing market is a 
key  risk.  Households  remain  vulnerable  to  an 
adjustment  in  the  housing  market  and  an  increase 
in  interest  rates.  Since  about  70 %  of  household 
mortgages  have  been  taken  at  variable  interest 
rates, an increase would result in higher payments, 
lower  consumption  and  potentially  substantial 
repercussions  for  the  overall  economy  and  the 
financial system (see Section 4.2.3). This was also 
highlighted  by  the  Riksbank  (Sveriges  Riksbank, 
2018a)  and  the  Financial  Supervisory  Authority 
(Finansinspektionen, 2018c). 

funding  costs  and 

A  rise  in  interest  rates  could  also  result  in 
higher 
liquidity  risks. 
Swedish  banks  rely  on  wholesale  funding  often 
held  by  international  financial  institutions.  This 
reliance  makes  the  system  vulnerable  because 
international  wholesale  funding  is  much  more 
responsive to changes in interest rates compared to 
domestic  deposits.  Moreover,  it  can  also  quickly 
dry up should conditions of financial stress occur, 
creating  a 
liquidity  risk  for  Swedish  banks 
(Finansinspektionen, 2018c). 

Risks related to a strong commercial real estate 
market  have  become  more  prominent.  Banks’ 
lending  to  the  commercial  real  estate  sector  has 

25 

 
 
 
 
 
                                                           
4.2. Financial sector and housing market 

Graph 4.2.1:  House prices by market segment (nominal) 

Source: Valueguard HOX house price index 

Fundamental-model-based 

While  house  prices  remain  below  their  peak, 
valuation  indicators  still  suggest  that  they  are 
overvalued.  Fundamental  drivers,  in  particular 
income  growth  and 
strong  population  and 
increasing  urbanisation,  supported  house  price 
growth  in  previous  years  (European  Commission, 
2016a),  but  cannot  fully  explain  the  current  high 
estimates 
levels. 
suggest  that  the  housing  market  is  overvalued  by 
around  12 % (18)  as  of  end-2017  (Graph  4.2.2). 
Other valuation indicators like price-to-income and 
price-to-rent  ratios  (measures  of  affordability  and 
return-on-investment  of  owner-occupied  houses) 
point to a sizeable valuation gap of about 45 % and 
65 % respectively above their long-term averages. 
These  estimated  valuation  gaps  are  among  the 
highest  in  the  EU.  While  such  indicators  are 
inevitably  subject  to  some  modelling  uncertainty, 
they  do  underscore  that  the  Swedish  housing 
market is vulnerable. 

(18)  This  model-based  valuation  gap  estimate  may  appear 
relatively  small  in  comparison  with  the  valuation  metrics 
based  on  price-to-income  and  price-to-rent 
ratios. 
However, this is largely due to impact in the model of the 
current  historically  low  level  of  mortgage  interest  rates, 
which 
rapidly  and 
significantly. 

itself  could  potentially  change 

this 

mitigate  risks  posed  by  increasing  household 
indebtedness.  A  stricter  amortisation  requirement 
for  new  mortgage  borrowers  with  high  debt-to-
income  (DTI)  levels  came  into  force  in  March 
2018.  Under 
requirement,  households 
obtaining  a  mortgage  with  an  overall  debt  level 
over 450 % of gross income (roughly equivalent to 
income)  must 
630 %  of  after-tax  disposable 
amortise the mortgage principal by one percentage 
point  per  year.  This  applies  on  top  of  the  already 
existing amortisation rule introduced in 2016. This 
brings the overall amortisation rate to a maximum 
of 3 % per year for households with very high DTI 
levels  and  loan-to-value  rates  higher  than  70 %. 
From 2019 macro-prudential measures specifically 
applying to mortgages will apply also to new non-
bank mortgage brokers. As of 19 September 2019, 
the  countercyclical  capital  buffer  for  banks  will 
also  be  raised  from  2  to  2.5 %  against  the 
background  of  continued  high  credit  growth  and 
(Finansinspektionen, 
risk 
elevated 
2018d).  

systemic 

4.2.2.  HOUSING MARKET (*) 

Housing market developments 

slowed  notably 

Following  a  sharp  adjustment  in  late  2017, 
house  prices  have  broadly  stabilised.  After  two 
decades of largely uninterrupted price growth,  the 
housing  market 
in  2017, 
culminating  in  a  nominal  price  fall  in  the  autumn 
of  close  to  10 %  on  average.  This  decline  was 
probably  triggered  by  a  sharp  rise  in  new-built 
supply  in  specific  market  segments,  notably high-
end  apartments  in  Stockholm  (Sveriges  Riksbank, 
2018a;  European  Commission,  2018a).  Since 
2018,  prices  have  broadly  held  steady  (Graph 
4.2.1).  As of December  2018,  they  stood at  about 
7 %  below  their  2017  highs.  Transaction  volumes 
have overall remained weak compared to 2016 and 
early  2017,  and  have  fallen  somewhat  over  the 
course  of  2018.  The  recent  stabilisation  and 
structural  factors  supporting  house  prices  (see 
below)  point  to  broadly  steady  prices  in  the  near-
term.  However,  the  continued  supply  overhang  in 
higher-priced  Stockholm  apartments  represents  a 
significant downside risk.  

26 

90100110120130140150160170180190Jan-2012Jan-2013Jan-2014Jan-2015Jan-2016Jan-2017Jan-2018Index: Jan 2012=100Overall housing marketSingle-family housesApartmentsStockholm apartments 
 
                                                           
4.2. Financial sector and housing market 

Graph 4.2.2:  Estimated house price valuation gaps based 

on different indicators (1) 

the  benchmark  interest  rate  in  December  2018,  it 
remains  negative,  as  it  has  been  for  over  3  years 
now  (see  Section  1).  While  low  interest  rates 
naturally act as a tailwind for the property market, 
in Sweden this 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  remained 
low,  even  as  house  prices  and  debt  levels  have 
continued to climb. 

tax  system 

investment)  are  not 

taxed. 
local  property 

favours  owner-
The  Swedish 
occupied  housing  over  other 
investments, 
particularly  when  financed  by  mortgage  debt. 
Under  the  dual  income  tax  system,  returns  from 
financial  investments  are  normally  taxed  at  a  flat 
capital  income  rate  of  30 %.  However,  imputed 
rents (the effective return to homeowners on their 
Instead, 
housing 
fee 
property  owners  pay  a 
(kommunal  fastighetsavgift).  This  fee  is capped  at 
a  low  ceiling(19),  resulting  in  a  highly  favourable 
tax 
housing 
compared to other investments, and low overall tax 
revenues  from  property  by  international  standards 
(Graph  4.2.3).  Additionally, 
interest  paid  on 
mortgages  is  generally  deductible  at  the  30 % 
capital  income  rate  (20),  providing  an  effective 
subsidy  for  mortgage  debt.  This  further  favours 
(debt-financed)  home  ownership,  both  over  other 
investment  opportunities  and  over  rental  housing, 
for  which  the  overall  tax  burden  is  considerably 
higher  (Statens  Offentliga  Utredningar  (SOU), 
2014). 

owner-occupied 

treatment 

of 

(19)  The nominal tax rate of the local property fee is 0.75 % of 
assessed  value  for  most  houses  and  0.3 %  for  apartments, 
but the tax is capped at a relatively low level (as of 2018, 
SEK 7 812  and  SEK 1 337  per  year  for  single-family 
houses and apartments respectively). In practice, therefore, 
most  owners  pay  a  flat  fee  that  does  not  scale  up  with 
property value or imputed rent level. 

(20)  If  mortgage  interest  exceeds  available  capital  income,  the 
excess is applied as a credit against the labour income tax 
liability,  at  a  credit  rate  of  30 %  for  losses  up  to 
SEK 100 000  (EUR 10 561)  and  21 %  above  this  amount. 
Sweden  is  one  of  the  very  few  EU  countries  where  this 
mortgage  interest  tax  deduction  is  not  capped  at  a  fixed 
amount. 

(1) Price-to-income and price-to-rent gaps are based on the 
percentage difference between these indicators and their 
long-term average (1998-2017) 
(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) 
(3) Overall valuation gap is the average of the price-to-
income, price-to-rent and model-based gap estimates. 
Source: European Commission calculations 

in 

than 

tripled, 

other  EU 

The  recent  housing  market  weakness  has  only 
made a modest dent in a long-standing upwards 
house price trend. After bottoming out following 
the banking crisis in the early 1990s, house prices 
have grown steeply and persistently. In real terms, 
they  have  more 
significantly 
outpacing  income  growth  as  well  as  house  price 
(European 
rises 
Commission,  2018a).  While 
the  2017  price 
declines  were  significant  in  absolute  terms,  real 
house  prices  have  only  moved  back  to  roughly 
their  end-2016  level.  Thus,  the  recent  market 
weakness  should  not  detract  from  the  broader 
concerns that Sweden’s elevated high house prices 
contribute  to  macroeconomic  stability  risks  (see 
Sections  3,  4.2.1  and  4.2.3)  and  also  have 
implications for social equality (see ‘Inequality’ in 
Section 1). 

countries 

Demand-side issues 

Not  only  low  mortgage  rates,  but  several 
structural  features  of  the  Swedish  mortgage 
market  have  boosted  housing  demand. 
Monetary  policy  in  Sweden  has  been  highly 
accommodative. Although the Riksbank has raised 

27 

-60-40-200204060809698000204060810121416% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap 
 
                                                           
4.2. Financial sector and housing market 

Graph 4.2.3:  Revenues from property taxes 

Graph 4.2.4:  Housing starts, including net conversions, 

versus projected need 

Source: OECD 

Source: Statistics Sweden (historical data until 2017); 
Boverket (estimates for 2018 and 2019, and projected need) 

in 

New  housing  construction  slowed  significantly 
in  2018,  and  appears  set  for  further  near-term 
falls. The late-2017 house price declines combined 
with  an  ongoing  overhang  of  unsold  new-built 
Stockholm  apartments  have  had  a  notable  impact 
the  construction  sector  and 
on  sentiment 
expectations  for  future  building  activity  (Graph 
4.2.5).  New  housing  starts  fell  significantly  in 
2018 — by an estimated 20 % across Sweden as a 
whole,  and  about  35 %  in  Stockholm  —  with 
further  declines  projected  in  2019  (Graph  4.2.4). 
As  a  result,  the  recent  housing  market  weakness 
may  exacerbate  the  long-standing  supply  shortage 
even  further.  This  underscores  the  importance  of 
to  new  housing 
tackling 
construction. 

remaining  barriers 

tax 

the 

incentives 

Reforming 
for  home 
ownership and  mortgage debt  could  contribute 
to reducing inequality and benefit job creation. 
The impact of such tax reforms would be broadly 
progressive,  as  households  benefiting  the  most 
from  low  recurrent  property  taxes  and  generous 
mortgage  interest  deductibility  tend  to  be  the 
higher-income  ones  (Finanspolitiska  rådet,  2016). 
Moreover, the fiscal room created by such reforms 
could  be  used to  ease the  labour  tax  burden in  an 
appropriately  targeted  way,  thus  facilitating  job 
creation  and  further  supporting  social  equality 
(European Commission, 2018a). 

Supply-side issues 

One  of  the  key  drivers  of  Sweden’s  elevated 
house price level is a structural undersupply of 
dwellings.  Following  the  early-1990s  banking 
crisis,  residential  construction  activity  in  Sweden 
was  muted  for  a  prolonged  period,  in  spite  of 
strong  population  growth  and  rapid  house  price 
rises 
(European  Commission,  2018a).  More 
recently, new housing construction has accelerated 
notably and annual housing starts more than tripled 
from  their  2012  low  to  a  recent  peak  of  about 
64 000 in 2017 (Graph 4.2.4). However, even after 
this strong upswing, new housing supply failed to 
reach  projected  near-term  needs,  estimated  at 
about  90 000  new  homes  per  year  for  2018-2020. 
Additionally,  some  of 
the  new  construction 
appears  to  attract  limited  demand  (Katinic,  G., 
2018),  and  may  thus  have  little  immediate  effect 
on the broader housing shortage. 

28 

012345ATSEDEIEPTFINLDKESITELBELUUKFROECD% of GDP2017200001020304050607080901000809101112131415161718E19E20ThousandsNet conversionNew constructionProj. need '18-'20 
 
 
 
 
 
4.2. Financial sector and housing market 

Graph 4.2.5:  Construction sentiment: overall confidence 
indicator and expectations component (1) 

financial risks for construction projects and causes 
delays in new supply. Rigidities in the construction 
sector  have  weighed  on  productivity  growth  and 
restricted  competition (23),  raising  construction 
costs  in  Sweden  to  among  the  highest  in  the  EU 
(European Commission, 2018a). 

Increasing residential construction costs appear 
to  be  partially  driven  by  building  materials. 
Costs  for  new  residential  buildings  in  Sweden 
grew strongly in recent years, from an already high 
level (European Commission, 2018a). This further 
rise was mainly driven by building materials costs, 
for  which  Sweden  has  the  highest  increase  in  the 
EU  since  2015  (Graph  4.2.6).  Other  factors 
contributing to high building costs are wide profit 
margins  among  developers  (Konkurrensverket, 
2018)  and  weak  productivity  growth 
the 
construction 
(European  Commission, 
2018a). 

sector 

in 

Graph 4.2.6:  Labour and material cost evolution in new 

residential construction (total % rise between 
2015-2018Q2; not annualised) 

Source: European Commission 

(23)  Competition is hampered by barriers to entry for small and 
foreign  firms,  like  complex  planning  regulations  that 
favour  well-connected  established  companies,  and  by  the 
ability  of  large  developers  to  control  land  resources 
(European  Commission,  2017a).  Additionally, 
large 
construction  companies  offering  turnkey  solutions  can  be 
advantaged  when  resources  within  the  municipal  housing 
companies  are  limited,  as  tendering  to  large  developers 
allows  the  latter  to  outsource  project  coordination  and 
control (Konkurrensverket, 2018). This is likely one factor 
explaining the relatively low number of bids in tenders for 
public  housing  projects  (3.3  in  2015-2017,  versus  4.1  in 
2009-2013).  

(1) Seasonally adjusted 
Source: National Institute of Economic Research 
(Konjunkturinstitutet); European Commission 

Structural bottlenecks are constraining housing 
supply and raising construction costs. There is a 
lack of developable land, partly driven by the fact 
that  a  large  share  of  buildable  land  is  owned  by 
municipalities, which can have financial incentives 
for making it available in a piecemeal fashion over 
time rather than when it is needed most (European 
Commission,  2015)(21).  Despite  some 
recent 
reforms,  zoning  and  building  regulations  overall 
remain  relatively  cumbersome  and  complex.  In 
particular,  the  interpretation  of  building  rules 
some 
vary 
continues 
municipalities (22),  creating  a  fragmented  market 
that  reduces  efficiency  and  increases  uncertainty 
for 
(European 
Commission,  2016).  Additionally,  the  total  time 
required to complete land acquisition and planning 
processes can be considerably longer than in other 
raises 
countries 

(Emanuelsson,  2015).  This 

construction 

companies 

between 

to 

(21)  Incentives  to  delay  construction  can  also  play  a  role  for 
privately-owned  land,  but  in  that  case  it  is  possible  to 
address this through targeted policy measures if needed. In 
addition,  unlike  private-sector  developers,  municipalities 
may  experience  pressure 
to  postpone  building  on 
local 
developable 
opposition  to  new  construction  or  because  of  the  cost  of 
new infrastructure to support more homes. 

indefinitely,  e.g.  because  of 

land 

(22)  This  was  highlighted  as  a  major  problem  by  the  National 
Competition  Authority 
In 
particular,  some  municipalities  impose  special  technical 
requirements  that  go  beyond  those  specified  by  national 
building 
regarding  energy 
for  example 
performance of buildings or materials. 

(Konkurrensverket,  2018). 

regulations, 

29 

-60-40-20020406080IndexConstruction confidence indicatorSentiment component: building activity expectationsEU-28BGCZDKDEEEELESFRITLVLTHUMTNLATPTROSIFISE-2024681012-1001020304050Materials cost rise (%)Labour cost rise, % 
 
                                                           
 
                                                           
Barriers to efficient usage of the housing stock 

Sweden’s  tightly  regulated  rental  market  can 
create  lock-in  and  ‘insider-outsider’  effects. 
Sweden’s  rental  market  has  some  of  the  strongest 
tenant  protection  rules  in  the  EU  (European 
Commission,  2017a).  Rents  are  mostly  set  in 
collective-bargaining-style negotiations (24), which 
tend to result in below-market rent levels in urban 
areas (European Commission, 2018a). This creates 
large demand/supply imbalances and long waiting 
lists to obtain rental accommodation (Graph 4.2.7). 
As  a  result,  sitting  tenants  can  have  a  strong 
financial  incentive  not  to  move,  even  if  their 
accommodation  is  no  longer  fully  suited  to  their 
needs  (25)  (Katinic,  2018).  Conversely,  new 
entrants,  such  as  students,  young  households  and 
recent  immigrants,  face  difficulties  in  getting  a 
foothold  on  the  rental  market,  thus  creating  an 
insider/outsider  effect.  Indirectly,  the  latter  also 
contributes  to  high  house  prices  in  the  owner-
occupier market, as no access to rental housing can 
push  households  to  purchase  their  own  home 
(Geng, 2018). 

(24)  These annual negotiations are generally based on a ‘utility 
value’  (bruksvärde)  framework,  intended  to  reflect  the 
objective  quality  of  the  accommodations  and  tenant 
preferences. It also incorporates the location of a property, 
but  in  practice  this  has  significantly  less  impact  on 
negotiated  rents  compared  to  a  market-based  rent-setting 
system  (Donner  et  al.,  2017).  Discussions  are  ongoing 
between the main negotiating parties (representing tenants, 
municipal housing companies and private-sector landlords) 
on how to improve the system. This could result in annual 
rent  adjustments  which  are  better  aligned  with  landlords’ 
costs  and  economic  growth,  and  in  some  cases  with  the 
location  component  receiving  somewhat  greater  weight  in 
setting  rents.  A  related  Stockholm-specific  negotiation 
initiative was completed in December 2018, and adopted a 
more  systematic  rent-setting  framework  (Stockholmshyra) 
for 60 000 apartments (to be phased in from 2020), with a 
greater role for location and accommodation quality. Such 
changes,  while  welcome,  remain  rather  incremental  and 
will hardly address the significant gap between market and 
negotiated rents in major cities. 

(25)  There is an exchange system in place that allows tenants to 
swap apartments by mutual agreement. However, this only 
partly  mitigates  lock-in  effects,  because  it  requires  direct 
matching  between  tenants  moving  in  opposite  directions. 
Moreover,  it  does  not  prevent  insider/outsider  effects,  as 
only those who already have a primary tenancy qualify. It 
can  also  lead  to  abuse,  whereby  tenancies  in  attractive 
locations  are  exchanged 
in  return  for  unauthorised 
payments. 

4.2. Financial sector and housing market 

Graph 4.2.7:  Time on waiting list before obtaining primary 
tenancy in greater Stockholm 
(distribution by number of years) 

Source: Stockholm Housing Agency (Bostadsförmedlingen) 

The  gap  between  negotiated  rents  and  market 
rents  has 
impaired  rental  housing  supply, 
particularly  in  major  cities.  Below-market  rent 
levels  combined  with  high  land  prices  create 
financial  incentives  to  favour  construction  of 
owner-occupancy 
rental 
housing 
apartments (26).  This  situation  also  encourages 
conversion  of  rental  units  into  owner-occupied 
homes, thus further aggravating the rental housing 
shortage.  Historically,  this  has  been  particularly 
pronounced  in  major  urban  areas:  for  example,  in 
Stockholm,  for  every  new  rental  apartment  built, 
three  were  converted  into  owner-occupied  units 
over the 1990s and 2000s (Emanuelsson, 2015). 

over 

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 
rental 
market  dynamism.  Furthermore, 
regulations combined with a shortage of affordable 
rental housing can exacerbate inequality and social 
problems.  This  particularly  affects  lower-income 

tight 

(26)  This  is  mitigated  somewhat  by  the  possibility  of  using  a 
special  system  of  ‘presumption  rents’  (presumtionshyra) 
for newly constructed housing, which exempts the property 
from the utility value framework for a period of 15 years. 
However,  this  system  has  some  significant  drawbacks  as 
well  and  doesn't  fully  resolve  uncertainty  for  developers 
(European  Commission,  2018a;  see  footnote  23 
in 
particular).  

30 

051015202530354045% of total Years on waiting list20102017 
                                                           
 
                                                           
4.2. Financial sector and housing market 

help  free  up  underused  family  dwellings  from  the 
existing housing stock and improve overall supply-
demand matching in the owner-occupier market. 

Policy developments 

including 

Demand-side  policy  action 
in  the  housing 
market  has  been  focused  on  using  macro-
prudential measures to curb mortgage lending. 
Since  2010,  Sweden  has  gradually  introduced  a 
number  of  measures, 
loan-to-value 
limits,  adjusting  banks’  risk-weight  floors,  and 
introducing  a  binding  mortgage  amortisation 
requirement  in  June  2016  (see  Section  4.2.3  for 
details) to contain mortgage debt growth (and thus 
housing  demand).  A  more  stringent  amortisation 
rule for borrowers with high debt-to-income ratios 
came  in  force  in  March  2018  (also  discussed  in 
Section 4.2.3). 

The  implementation  of  the  ‘22-point  plan’  for 
the  housing  market  continues.  The  plan, 
originally proposed in June 2016, contains a range 
of  measures  —  mostly  rather  incremental  in 
nature — which aim to increase the land available 
for  development, 
reduce  construction  costs, 
shorten  planning  process  lead  times  and  address 
some  specific  inefficiencies  in  the  rental  market. 
Some  parts  of  the  plan,  particularly  those  which 
concern  reducing  costs  and  lead  times  for  new 
construction,  have  been  broadly  completed.  For 
other elements, including a review of building and 
planning  regulations  and  measures  to  make  more 
developable  land  available,  public  inquiries  and 
other  preparatory  steps  are  still  ongoing.  More 
time  is  required  before  these  proposals  can  be 
finalised, 
it  remains  uncertain 
whether  they  will  result  in  actionable  conclusions 
and ultimately successful implementation.  

therefore,  and 

Sweden is taking steps to boost participation of 
foreign companies in the construction industry. 
In  June  2018,  the  National  Board  of  Housing, 
Building and Planning (Boverket) finalised the first 
phase  of  an  effort  to  facilitate  entry  of  foreign 
construction firms  in the Swedish market in order 
to  promote  competition  and  lower  residential 
construction  costs.  It  set  up  an  online  portal  (30) 
with  detailed  English-language  guidance 
for 
translations  of 
foreign  developers, 
building  regulations  and  practical  information  on 

including 

(30)  http://www.buildinginsweden.se. 

households, and can contribute to a relatively high 
degree of overcrowding among socially vulnerable 
groups (OECD, 2017b). While reform of Sweden’s 
significant 
rental  market  may 
redistributive  and  social  consequences,  this  could 
be managed by a combination of tax measures and 
targeted subsidies (Donner et al., 2017). 

also  have 

The  role  of  ‘social  contracts’  in  public  housing 
policy 
is  gradually  growing.  The  need  for 
affordable  rental  housing  is  linked  to  broader 
questions  concerning  optimal  use  of  the  available 
housing stock. Sweden does not have a designated 
social 
housing 
sector. 
companies (27)  own  around  20 %  of  the  housing 
stock.  Additionally,  municipalities  can  offer 
‘social contracts’ (28) to assist the most vulnerable 
groups  in  society.  Although  numbers  are  still  low 
(roughly 30 500), such social contracts are gaining 
in importance, especially in urban areas. 

housing 

Public 

Capital gains taxes on housing transactions can 
create  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 
increased 
realised).  As  house  prices  have 
that 
significantly 
households  which  have  owned  their  home  for  a 
long  time  can  face  prohibitively  high  moving 
costs (29).  In  practice,  this  tends  to  particularly 
affect  elderly  households  living  in  large  single-
family  houses  and  looking  to  relocate  to  a 
conveniently-located apartment. Reforming capital 
gains taxation to eliminate this lock-in effect could 

in  Sweden, 

this  means 

(27)  Public housing companies are owned by municipalities, but 
generally operate on standard commercial terms. Their aim 
is to offer good housing at reasonable prices for everyone, 
regardless  of  income  or  social  background  within  the 
regular negotiations-based rental market framework. 
(28)  Generally,  for  this  purpose  municipalities  rent  apartments 
from  housing  companies  (both  private  and  public),  and  in 
turn sublet them to people who are unable to get access to 
the  ordinary  housing  market  (often  with  some  embedded 
economic  support  component).  Over 
time,  with  a 
favourable  record  the  tenants  may  take  over  the  rental 
contract directly. In 2018, according to the National Board 
of  Housing,  Building  and  Planning  (Boverket)  there  were 
23 772  such  contracts  across  Sweden.  In  addition, 
municipalities own 6 752 dwellings to provide housing for 
vulnerable households. 

(29)  It is possible to defer 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. 

31 

 
                                                           
                                                           
4.2. Financial sector and housing market 

Graph 4.2.8:  Household debt evolution (indexed, 2005=100) 

Source: European Commission  

Debt levels vary considerably between different 
borrower  subgroups.  The  aggregate  debt  level 
across  all  Swedish  households  (including  those 
without  any  debt)  stands  at  about  186 %  of 
disposable  income  (as  of  Q3  2018) (31).  For 
households  with  a  mortgage,  the  average  debt-to-
income  (DTI)  ratio  is  over  340 %  (Blom  et  al., 
2017. Among this group, those who took out their 
mortgages  more  recently  generally  have  higher 
debt  levels:  the  average  DTI  ratio  for  new 
borrowers in 2017 is estimated at 411 %. There are 
also significant regional differences in debt levels, 
with average DTI ratios highest for those living in 
major  cities,  notably  Stockholm  (Ölcer  et  al, 
2017).  Younger  and  lower-income  households 
with a mortgage tend to face particularly high debt 
incomes 
service 
European 
(Finansinspektionen, 
Commission, 2018a). 

to 
2018b; 

relative 

costs 

their 

high 

debt-to-income 

The  share  of  new  mortgage  borrowers  with 
ratios 
particularly 
continues  to  rise.  The  share  of  newly-mortgaged 
households  facing  an  overall  debt  burden  over 
450 %  of  their  disposable  income  has  roughly 
doubled since 2011, and is now approaching 40 % 
(Graph 4.2.9). Over one in six new borrowers has a 

(31)  This  includes  only  direct  borrowing  by  households.  Many 
owner-occupiers  living  in  tenant-owned  apartments  also 
indirectly  bear  the  debt  burden  of  their  tenant-owner 
association (European Commission, 2018a). Including this 
debt  raises  the  aggregate  debt-to-income  ratio  by  20 
percentage points (Sveriges Riksbank, 2018b).  

the  Swedish  construction  sector.  The  web  portal 
will  gradually  be  expanded  further,  and  Boverket 
will 
obstacles 
encountered by foreign operators and which could 
be addressed by targeted policy measures.  

investigate 

additional 

also 

intend  to 

in  January  2019, 

The  Swedish  authorities 
initiate 
inquiries  into  possible  reforms  to  improve 
mobility  in  the  housing  market.  As  part  of  its 
policy  statement 
the  new 
government  announced  plans  to  introduce  a  more 
flexible  rent-setting  system  for  newly  constructed 
housing, and to allow location to play a larger role 
in  adjusting  rents  within  the  negotiation-based 
system for existing housing. Additionally, deferred 
capital gains taxes on sold properties in the owner-
occupancy  market  could  be  made  interest-free. 
Such reforms can potentially help address some of 
the barriers to efficient usage of Sweden’s housing 
stock  (see  above),  and  incentivise  more  rental 
housing  construction.  However,  these  plans  are 
subject  to  significant  preparatory  inquiry  work  to 
assess 
detailed 
and 
implementation  proposals.  It  therefore  remains 
unclear  what  form  these  measures  will  ultimately 
take and how impactful they will be. 

feasibility 

develop 

4.2.3.  PRIVATE INDEBTEDNESS (*) 

Household debt developments 

Household  indebtedness  has  continued  to  rise 
rapidly from an already elevated level. Swedish 
household  debt  has  been  on  a  persistent  upward 
trajectory  since  the  early  2000s,  significantly 
outpacing  debt  growth  in  peer  countries  (Graph 
4.2.8).  In  most  economies  with  relatively  high 
household  indebtedness,  debt  growth  tapered  out 
after 2008, but in Sweden debt levels continued to 
grow  apace.  This  pattern  endured  in  2018,  with 
household  debt  climbing  by  5.5 %  in  nominal 
terms.  While  this  is  a  deceleration  from  its  peak 
year-on-year increase of about 7.8 % in mid-2016, 
it  remains  one  of  the  fastest  growth  rates  in  the 
EU. It also continues to outstrip household income 
and overall economic growth. Household debt also 
and 
stands 
prudential 
fundamental 
benchmark 
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. 

levels,  suggesting 

above 

32 

8010012014016018020022024005060708091011121314151617Index, 2005=100SwedenDenmarkFinlandNetherlandsUnited KingdomEU average 
 
                                                           
4.2. Financial sector and housing market 

debt-to-disposable-income ratio over 600 %. While 
mortgaged  households,  including  those  with  high 
DTI  ratios,  generally  have  relatively  healthy 
income  surpluses  at  the  current  juncture  (see 
subsection ‘Risks’ below), such high debt burdens 
can make them vulnerable to shocks. 

Graph 4.2.9:  Share of new mortgage borrowers by debt-to-

disposable-income ratio 

Source: Finansinspektionen 

Drivers of household debt growth 

Mortgage  lending  growth  is  linked  to  the  long 
period  of  steep  house  price  growth  in  Sweden. 
House price rises (see Section 4.2.1) and mortgage 
debt  growth  are  mutually  reinforcing:  a  strong 
housing market enables larger mortgage loans, as it 
increases  the  value  of  the  underlying  collateral, 
and  growing  mortgage  debt  levels  raise  demand 
for  houses  while  supply  is  limited,  thus  putting 
upwards  pressure  on  prices.  Even  when  house 
prices remain  broadly stable at  a  high  level  (as  in 
2018), overall mortgage debt still tends to increase 
(albeit  at  a  slower  rate).  This  is  due  to  natural 
turnover  in  the  housing  market (32)  and  growth  of 
the  overall  housing  stock  (Emanuelsson  et  al., 
2018).  

In  Sweden,  this  dynamic  is  exacerbated  by 
structural factors that lower debt service costs. 
As discussed in Section 4.2.2, there are strong tax 

(32)  Since  the  outstanding  mortgage  on  an  existing  home 
(typically acquired many years ago at a much lower price) 
will generally be far smaller than the mortgage needed by a 
new  buyer  now,  the  overall  debt  load  tends  to  increase  as 
houses change ownership. 

and 

institutional 

incentives for purchasing owner-occupied housing, 
especially  when  financed  with  a  mortgage.  In 
to  a  combination  of  borrower 
addition,  due 
conditions(33), 
preferences 
mortgages  are  mostly  variable-rate  in  Sweden. 
This  reduces  current  debt  service  costs,  but  also 
shifts  risks  related  to  future  rate  rises  to  the 
household  sector.  Finally,  Swedish  mortgage 
contracts  have  long  maturities  compared  to  other 
EU  countries,  generally  accompanied  by  low 
amortisation  (i.e.  capital  repayment)  requirements 
(Graph  4.2.10).  This  further  amplifies  the  impact 
interest  rates  on  debt  service  costs 
of 
(European Commission, 2017a). 

low 

Graph 4.2.10: Amortisation rate for mortgages 

Source: Finansinspektionen; European Commission 
calculations (based on Hypostat data on typical mortgage 
maturities for different EU countries) 

increase 

The  recent  rapid 
in  unsecured 
borrowing  has  limited  impact  on  financial 
stability.  Mortgage  debt  is  over  80 %  of  total 
household borrowing, and has been the key driver 
of 
in  overall  household 
indebtedness. Unsecured borrowing and household 
loans  with  other  collateral  (e.g.  cars)  have 

the  persistent 

rise 

(33)  In  particular,  Swedish  mortgage  contracts  can  make  it 
expensive  to  redeem  a  fixed-rate  mortgage  prematurely. 
Redemption  requires  the  borrower  to  pay  a  lump  sum 
compensation  charge  to  the  lender  for  forgone  interest 
payments,  based  on  the  differential  between  the  initial 
fixed  rate  and  currently  prevailing  interest  rates  (if  the 
latter  are 
lower).  This  can  create  disincentives  for 
borrowers to opt for longer fixation periods, particularly for 
households  who  see  a  significant  likelihood  that  the 
mortgage  may  need  to  be  redeemed  early  (e.g.  because  of 
plans to move after a few years) (Holmberg et al., 2015).  

33 

30035040045005101520253035404511121314151617Average DTI, %Share of borrowers by DTI, %Share of new borrowers with DTI > 450%Share of new borrowers with DTI > 600%Overall average DTI for new borrowers (rhs)12345121314151617% of loan amount / yearOther EU countries (typical range)Sweden 
 
                                                           
 
                                                           
grown 

comparatively 

historically 
slowly. 
However,  since  mid-2016,  unsecured  borrowing 
has  accelerated  (Graph  4.2.11)  due  in  part  to 
technological  and  institutional  changes  (34)  and 
consumer  credit  banks  offering 
increasingly 
competitive  interest  rates  (Van  Santen,  2017). 
Tighter mortgage regulations combined with rising 
house  prices  may  also  have  shifted  some 
borrowing  towards  unsecured  loans (35),  although 
hard  data  on  this  is  limited  (Finansinspektionen, 
2018a).  Overall,  unsecured  borrowing  remains 
under  5 %  of  GDP,  similar  to  the  EU  average 
(European  Commission,  2017a),  with  currently 
limited implications for financial stability. 

(34)  These include consumer credit firms developing a stronger 
online  presence,  a  growing  use  of  partnerships  with 
intermediaries  to  offer  packaged  financing  deals  for 
purchases,  and  the  emergence  of  niche  banks  specifically 
focusing on unsecured lending (Van Santen, 2017). 

(in 

the 

cannot 

generally 

restrictions 

requirement 

requirements) 

(35)  In particular because the timing of the pick-up in unsecured 
the 
introduction  of 
borrowing  coincides  with 
amortisation 
in  2016.  Such  borrower 
behaviour  can  be  difficult  to  rationalise,  as  recently 
particular, 
introduced  mortgage 
amortisation 
be 
circumvented  by  resorting  to  unsecured  loans,  since  the 
latter  also  need  to  be  amortised  (and  have  much  higher 
interest  rates  and  shorter  maturities).  Nevertheless,  in 
specific  cases  a  combination  of  a  mortgage  and  an 
unsecured  loan  can  reduce  initial  debt  service  costs  (e.g., 
because it allows the mortgage amount to be limited to just 
below the threshold that triggers a higher amortisation rate; 
see  Van  Santen,  2017).  Some  households  might  use 
unsecured borrowing to circumvent the 85 % loan-to-value 
cap applicable to mortgages; introduced already in 2010, it 
could have become increasingly binding over time as house 
prices continued to rise.  

4.2. Financial sector and housing market 

Graph 4.2.11: Year-on-year growth rate in mortgages and 
unsecured loans to households 

Source: Statistics Sweden, Riksbank (Financial Markets 
Statistics) 

Risks and policy response 

to  meet 

Growing  household  debt  coupled  with  elevated 
house  prices  makes  the  Swedish  economy 
vulnerable to shocks. If incomes were to fall due 
to  an  external  shock  to  the  economy,  or  if  there 
was  a  sharp  rise  in  mortgage  risk  premiums  —
 triggered,  for  instance,  by  a  renewed  housing 
market  downturn  or  by  higher  bank  funding  costs 
as  perceptions  about  their  riskiness  worsen  —
highly-leveraged  households  may  need  to  rapidly 
reduce  consumption 
their  mortgage 
payments. This would reduce demand and increase 
uncertainty,  potentially  weighing  on  growth  and 
employment 
impairing 
thus 
households’ debt service ability. At the same time, 
overall  credit  availability  may  shrink,  as  falling 
collateral  values  make  banks  more  cautious  about 
new lending. Ultimately, this could lead to a self-
reinforcing deleveraging process with a significant 
line  with 
broader  macroeconomic 
historical  developments  in  other  countries  facing 
similar  imbalances  (OECD,  2017a;  Crowe  et  al., 
2011). 

impact, 

further 

and 

in 

Risks  are  partly  mitigated  by  households’ 
robust  payment  ability  and  financial  wealth. 
Households have relatively high income surpluses 
after  mortgage  service  costs  and  day-to-day 
expenses,  of  roughly  40 %  of  disposable  income 
2018b). 
on 
is  also 
Households’  strong  payment  ability 

(Finansinspektionen, 

average 

34 

024681012141618%Unsecured loansMortgages 
                                                           
 
reflected  in  a  very  low  share  of  non-performing 
household  loans  (see  Section  4.2.1).  Additionally, 
households have a high savings rate and significant 
financial  wealth,  estimated  at  roughly  three  times 
their liabilities. 

towards 

higher-income 

to  near-subsistence 

However,  this  strong  overall  financial  position 
would likely provide only limited cushioning in 
a  disorderly  deleveraging  scenario.  Income 
surpluses are high on average, but they are heavily 
skewed 
households 
(European  Commission,  2018a).  Moreover,  they 
assume  that  households  are  able  to  reduce  their 
spending 
levels.  Thus, 
although most households may be able to continue 
servicing their debt even in a downturn, this would 
likely  require  a  very  considerable  consumption 
reduction  with  major  macroeconomic  knock-on 
effects.  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.  Moreover,  most  non-housing 
assets are exposed to market risks (Graph 4.2.12), 
and  would  likely  fall  in  value  in  an  economic 
downturn. Thus, rather than cushioning the impact 
of a housing market fall, this could further amplify 
it, by weighing on consumption via wealth effects.  

Graph 4.2.12: Household financial assets (*) and stock 

market index 

(*) Excludes assets representing an interest in owner-
occupied property (in particular shares in tenant-owner 
associations) 
Source: Statistics Sweden 

4.2. Financial sector and housing market 

include 

Sweden  has  mainly  relied  on  macro-prudential 
measures  to  address  the  risks  related  to 
household  debt  growth.  These 
the 
introduction  of  a  loan-to-value  (LTV)  ceiling  of 
85 %  for  mortgages  in  2010,  gradual  increases  in 
banks’  risk-weight  floors  for  mortgages  in  2013 
and  2014,  a 
formal  mortgage  amortisation 
requirement  in  2016,  and  an  enhanced  overall 
macro-prudential  framework  in  February  2018. 
Additionally,  in  September  2018,  the  macro-
prudential  authority  decided  to  further  raise  the 
countercyclical  capital  buffer  for  banks  from 
September  2019,  as  a  broad  measure  to  improve 
financial  sector  resilience  (see  Section  4.2.1). 
While  welcome  steps  forward,  these  measures 
have  not  meaningfully  curbed 
the  continued 
growth in household debt (European Commission, 
2018a).  

In  March  2018,  a  strengthened  amortisation 
rule  for  new  mortgage  borrowers  with  high 
debt-to-income 
into  force  (see 
levels  came 
Section 4.2.1). While there is insufficient data for a 
detailed impact assessment at this stage, the initial 
effect  of  this  new  measure  seems  to  be  rather 
muted,  in  line  with  ex  ante  analysis  (European 
Commission, 2018a). There have likely been some 
changes 
individual  borrower  behaviour, 
particularly  in  higher-priced  segments  of  the 
housing  market,  but  there  appears  to  have  been 
little immediate impact on overall house prices and 
household  debt  developments.  Nevertheless,  if 
house price growth resumes, this additional macro-
prudential  policy  step 
to  become 
increasingly  binding  over  time,  and  can  thus  help 
contain  mortgage  borrowing  at  excessive  DTI 
levels. 

likely 

in 

is 

Corporate debt developments 

Following  a  period  of  post-crisis  deleveraging, 
corporate  debt  growth  has  again  picked  up  in 
recent  years.  After  the  financial  crisis,  Swedish 
non-financial  corporations  gradually  reduced  their 
consolidated corporate debt from a peak of 125 % 
of GDP in 2009 to just over 100 % by 2016 (Graph 
4.2.13).  This  was  mostly  driven  by  ‘passive’ 
deleveraging,  with  net  credit  flows  to  Swedish 
firms  positive,  but  outweighed  by  economic 
growth  and 
inflation  (European  Commission, 
2018a).  However,  since  early  2017,  net  corporate 
debt has started outpacing economic growth again 
due  to  highly  favourable  credit  conditions  and 
levels  among 
overall  still  robust  confidence 

35 

010020030040050060070002.0004.0006.0008.00010.00012.00014.00009Q112Q115Q118Q1Indexbn SEKCurrency and depositsOther assetsInsurance & pensionShares and fundsOMX stock market index (RHS) 
 
4.2. Financial sector and housing market 

companies. As of Q3 2018, consolidated corporate 
debt  stood  at  over  111  %  of  GDP  —  well  above 
the EU average of about 80 %. 

estate  sector  (to  which  banks  have  a  concentrated 
exposure,  see  Section  4.2.1),  Sweden  ’s  relatively 
high  corporate  debt  level  does  not  appear  to  raise 
financial stability concerns. 

Graph 4.2.13: Breakdown of corporate debt by funding 

source 

Graph 4.2.14: Leverage indicators for non-financial 

corporations 

Source: Statistics Sweden 

(*) Last 4 quarters 
Source: European Commission 

the 

sector, 

corporate 

Domestic loans remain the main funding source 
for 
followed  by 
international  bond  markets.  Domestic  lending 
(mostly  from  banks)  to  firms  has  been  broadly 
stable  at  about  60 %  of  GDP  since  the  financial 
crisis  (Graph  4.2.13).  Larger  corporations  have 
further increased the use of the bond market as an 
additional  funding  source,  with  its  contribution 
growing from 11 % of GDP pre-crisis to over 20 % 
in  2018.  Lending  from  abroad  contracted  sharply 
around 2013, driven by  a  reduction  in  intra-group 
borrowing  in  response  to  tax  reforms  (European 
Commission,  2016a);  since  then,  it  has  remained 
roughly flat at about 25% of GDP.  

Overall,  despite  high  corporate  debt  levels, 
firms generally seem to have a healthy financial 
position  with  limited  risks  of  financial  distress. 
Sweden’s  corporate-debt-to-GDP  ratio  is  high 
compared  to  other  EU  countries.  However,  other 
leverage  indicators  show  that  financial  risks  are 
overall  limited.  Firms  have  significant  equity 
cushions, with a debt-to-equity ratio that is already 
at  a  quite  low  level  (around  42 %  as  of  Q2  2018, 
compared  to  about  60 %  on  average  for  EU 
countries) and continues to fall (Graph  4.2.14). In 
addition,  gross  corporate  savings  remain  at  a 
the 
healthy  13 %  of  GDP,  suggesting 
corporate sector is sufficiently profitable to be able 
to reduce its debt level quickly if needed. Overall, 
with the possible exception of the commercial real 

that 

36 

0408012016006Q308Q310Q312Q314Q316Q318Q3% of GDPDebt between domestic firmsLoans from abroad (incl. inter-company)Debt securitiesDomestic loansCorporate debt, consolidated020406080100120140%Debt / GDP, consolidatedDebt / equityGross savings / GDPDebt / financial assets, consolidated 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET AND MIGRATION 

Favourable  economic  conditions  keep 
the 
Swedish  labour  market  strong.  Employment 
grew from an already high level of 81.8 % in 2017 
during the first three quarters of 2018 and is likely 
to increase further, albeit more slowly. In parallel, 
unemployment  has  fallen  but  is  now  forecast  to 
level  out  at  around  6 %  due  to  skills  mismatch 
(Graph  4.3.1).  An  increasing  number  of  workers 
do not have the qualifications required to fill open 
positions,  where  almost  exclusively  high-skilled 
labour  is  necessary.  High  entry  wages  and  a 
compressed  wage  structure  also  imply  challenges 
for  those  further  from  the  labour  market  (OECD, 
2017b;  Calmfors  et  al,  2018).  Despite  those 
the 
challenges,  Sweden  performs  well  on 
indicators of the Social Scoreboard supporting the 
European Pillar of Social Rights (4.3.1). 

Graph 4.3.1:  Activity, employment and unemployment 

rates 

People  with  low  levels  of  skills  face  difficulties 
in finding employment. The disparity between the 
employment  rates  of  low-,  medium-,  and  high-
skilled  workers  increased  at  the  time  of  the 
financial  crisis  in 2008  and has  remained high. In 
Q3-2018,  the  employment  rate  of  the  low-skilled 
was 64.8 % vs. 90.4 % for people aged 25-64 years 
with at least two years of tertiary education. What 
is more, their unemployment rate (age 25-64 years) 
at  15.9 %  in  Q3-2018)  was  9.2  percentage  points 
higher than in Q3 2008 (Graph 4.3.2). Meanwhile, 
unemployment 
tertiary 
education and stood at 3.6%, 0.3 percentage points 
in Q3-2018. (Arbetsförmedlingen, 2018b). Persons 
with  disabilities  are  also  at  a  disadvantage.  Their 
employment  level  is  above  the  EU  average,  and 
the  gap  in  the  employment  rate  is  more  narrow 
(15.9 percentage  points  vs.  25.8 percentage  points 
for  the  EU).  However,  their  unemployment  levels 
remain higher (9 % vs. 7 % for the population as a 
whole in 2017) (Statistics Sweden, 2017).  

for  people  with 

fell 

Graph 4.3.2:  Unemployment rate by educational 

attainment 

Source: European Commission 

Labour  shortages  are  increasing  in  specific 
sectors and regions. Sweden has the third highest 
labour  shortage  index  in  the  EU  and  employers 
perceive  the  lack  of  qualified  staff  as  the  main 
obstacle  to  growth.  The  number  of  vacancies  has 
been  growing  since  2015  in  all  counties,  but 
employment  growth  has  been  concentrated  in  the 
local  and 
wider  metropolitan  areas,  whereas 
regional  labour  markets  risk  being  drained  of 
qualified 
(Svenskt  Näringsliv,  2018; 
labour 
Arbetsförmedlingen, 2018b). 

Source: European Commission 

Securing  adequate  skills  for  an  advanced 
economy like Sweden remains a challenge. Nine 
out  of  ten  jobs  in  Sweden  require  basic  digital 
skills  and  77 %  of  16-74  year  olds  have  basic  or 
above  basic  digital  skills.  However, 
labour 
shortages  exist  in  areas  such  as  cybersecurity, 
artificial 
intelligence,  and  high  performance 
computing.  

37 

012345678910455055606570758085900102030405060708091011121314151617% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-640246810121416180102030405060708091011121314151617% of labour force 20-64High skilledMedium skilledLow skilled 
 
 
 
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 is designed as a compass for a renewed process of upward convergence 
towards better working and living conditions in the European Union.1 It sets out twenty essential principles 
and rights in the areas of equal opportunities and access to the labour market; fair working conditions; and 
social protection and inclusion. 

SOCIAL SCOREBOARD FOR SWEDEN 

Early leavers from education and 
training (% of population aged 18-24) 

Gender employment gap 

Income quintile ratio (S80/S20) 

Risk of poverty or social exclusion 
(%) 

Youth NEET  
(% of total population aged 15-24) 

Employment rate  
(% of population aged 20-64) 

Unemployment rate  
(% of population aged 15-74) 

Long-term unemployment rate  
(% of population aged 15-74) 

GDHI per capita growth 

Net earnings of a full-time single 
worker earning AW 

Impact of social transfers (other than 
pensions) on poverty reduction 

Children aged less than 3 years in 
formal childcare 

Self-reported unmet need for 
medical care 

On average 

Best 
performer 
Better than 
average 

Better than 
average 

Best 
performer 

Best 
performer 

On average 

Better than 
average 

Better than 
average 

Better than 
average 

Better than 
average 

Best 
performer  

On average 

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p

Individuals’ level of digital skills 

Best 
performer 
Member States are classified according to a  statistical methodology agreed with the 
EMCO and SPC Committees. The methodology looks jointly at levels and changes of 
the indicators in comparison with the respective EU averages and classifies Member 
States  in  seven  categories  (from  “best  performers”  to  “critical  situations”)  For 
instance, a country can be flagged as “better than average” if the level of indicator is 
close  to  the  EU  average,  but  it  is  improving  fast.  For  methodological  details  please 
consult the draft Joint Employment Report 2019, COM (2018) 761 final. 
NEET: not in employment, education or training 
GDHI: gross disposable household income  

Sweden  performs  well  on  most  indicators 
of  the  Social  Scoreboard  supporting  the 
European  Pillar  of  Social  Rights.  The 
employment rate is among the highest and the 
gender employment  gap is  among the lowest 
in  the  EU. The share  of young people  not in 
education,  employment  or  training  is  well 
below  the  EU  average.  The  good  overall 
results  reflect  Sweden's  advanced  welfare 
model  with  an  active  labour  market  policy, 
robust  social  protection  system,  and  long-
standing and well-established social dialogue. 
Yet  the  promotion  of  the  labour  market 
participation  of  the  low  skilled  and  foreign-
born,  and  among  them  women,  remains  a 
policy challenge.  

the  share  of  early 

While Sweden’s early school leaving rate is 
relatively  low,  students  born  abroad  are 
more  likely  to  leave  school  early.  Since 
2014, 
leavers  from 
education  and  training  has  been  increasing, 
along  with  the  rise  of  influence  of  socio-
economic background on student educational 
performance.  Tailor-made  support  to  early 
school  leavers  does  in  part  address  this 
challenge. 

services 

education 

Sweden  implements  policies  to  make  the 
inclusive  and 
labour  market  more 
encourage 
training. 
and 
Focusing  on  the  young  and  newly  arrived, 
the 
public 
employment 
municipalities  work  closely 
to 
address  the  specific  needs  of  each  individual 
job-seeker.  This 
also 
successfully been used in ESF projects where 
focus is on matching the needs of employers 
and  young  job-seekers  (e.g.  "UNGKOMP" 
and "Ung Framtid"). 

and 
together 

approach 

has 

1 The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council and 
the 
https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

Commission. 

European 

Long-term  unemployment  remains  among  the 
lowest  in  the  EU.  It  was  1.2 %  in  2017,  well 
below  the  EU  average  of  3.4 %.  The  long-term 
unemployed, however, have not benefited from the 
general increase in employment. According to the 
Public  Employment  Service,  their  number  might 
increase since people with low levels of education 

and migrants risk not being integrated in the labour 
market (Arbetsförmedlingen, 2018b). 

Growth  in  the  Swedish  labour  force  is  mainly 
due  to  immigration.  Policies  in  this  domain  are 
primarily  guided  by  humanitarian  concerns.  The 
number  of  asylum  applications  peaked  in  2015  at 

38 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3. Labour market, education and social policies 

this group remained well below that of native-born 
women  (65.8 %  vs.  85.2 %)  and  of  foreign-born 
men (74.5 %) (Arbetsförmedlingen, 2018b).  

Graph 4.3.3:  Employment rate by citizenship 

Source: European Commission 

labour 

The  government  has taken  several  measures  to 
make  the  labour  market  more  inclusive  and 
stimulate 
supply.  The  number  of 
professions and participants covered by fast-tracks 
(snabbspår)  continue  to  increase:  40  professions 
are now covered and since 2016, more than 7 500 
people have had intensive training to quickly enter 
the labour market. During Q1-2018, an average of 
1 350  persons  participated  every  month,  up  from 
1 200  in  2017.  To  encourage  more  women  to 
participate,  distance  education  is  now  possible  in 
are 
some 
fast-tracks 
complemented  with 
job-tracks,  directly 
local 
addressing  the  needs  of  the  local  labour  market. 
Another  scheme,  to  be  further  implemented  is  the 
entry  agreement  (etableringsjobb),  which  aims  at 
helping  newly  arrived  migrants  and  long-term 
unemployed  to  become  established  in  the  labour 
market. The  measure  closely  follows  proposals  of 
social partners. (36) 

fast-tracks.  National 

Vocational  education  and  training  are  being 
strengthened  to  meet  the  future  needs  of  the 
labour  market.  The  employability  of  vocational 
graduates in Sweden remains high. In 2017 87.3 % 
of  them  found  employment  within  3  years  of 

(36)  Entry agreements combine work with the possibility for the 
worker  to  take  part  in  training  courses  as  agreed  on  with 
the employer. An entry agreement should generally be able 
to  lead  to  a  permanent,  full-time  position.  The  employer's 
total  payroll  expenses  are  limited  and  the  worker  receives 
an individual state benefit for no more than two years. 

162 450.  Since  then  numbers  have  fallen  back  to 
pre-2011  levels  of  roughly  25 000  people  a  year. 
The  non-EU  born  now  account  for  12.4 %  of  the 
population, constituting the second highest share in 
the EU and well above the average of 7.2 %. Even 
though numbers have fallen, successful integration 
of non-EU born into society and the labour market 
remains an important challenge. 

Foreign-born  have  been  instrumental  in  filling 
vacancies  but  their  employment  rate  remains 
low.  In  2017,  75 000  out  of  the  94 000  newly 
created  jobs  went  to  foreign-born  persons.  In 
several sectors such as private services, education, 
care  and  health  services,  foreign-born  represented 
90 %  of  the  job  growth  in  2017,  and  virtually  all 
industry,  agriculture  and  forestry 
growth 
(Arbetsförmedlingen,  2018a).  Their  employment 
rate  grew  by  more  than  one  percentage  point, 
which  is  nearly  twice  as  high  as  the  increase  for 
native  born.  However,  the  employment  rate  of 
non-EU  migrants  remains  markedly  lower  than 
those  of  Swedish  nationals  and  citizens  of  other 
EU Member States (Graph 4.3.3). 

in 

Efforts  to  bring  recently  arrived  non-EU 
migrants into work have born fruit. Most of the 
newly  arrived  migrants  are  eligible  to  join  the 
introduction programme  (etableringsprogrammet), 
which  typically  lasts  for  two  years  and  combines 
language classes with job training and advice. The 
programme,  combined  with  a  good  economy  and 
the  introduction  of  more  jobs,  has  led  to  a 
shortening  of  the  time  needed  to  find  work. 
Among  the  refugees  received  between  2008  and 
2015,  the  employment  rate  one  year  after  arrival 
increased  by  approximately  eight  percentage 
points between 2008 and 2015 (Statistics Sweden, 
2016).  The  new  government  wants  to  increase  its 
effectiveness  and 
further  boosting  Swedish 
language 
skills  of  participants.  Traineeship 
opportunities should also be included and the link 
between 
receiving 
allowances should be strengthened. 

active  participation 

and 

Foreign-born  women  get  a  particular  focus  as 
their  employment  rate  is  relatively  low.  Since 
2017, the Public Employment Service specifically 
targets  foreign-born  women,  and  in  March  2018 
the  government  tasked  the  Agency  for  Economic 
and  Regional  Growth  (Tillväxtverket)  to  facilitate 
foreign-born  women's  contacts  and  networking 
with  employers.  In  2018,  the  employment  rate  of 

39 

203040506070809005060708091011121314151617% of population 20-64NationalsEU mobile citizensThird countries 
 
                                                           
4.3. Labour market, education and social policies 

graduation, which is well above the EU average of 
74.8 %.  However,  the  participation  rate  remains 
lower  than  the  EU  average  (36.6 %  vs  49.0 %  of 
all pupils in upper secondary education). To make 
upper secondary vocational education and training 
more attractive, several measures have been taken, 
including  the  creation  of  an  apprenticeship  centre 
for 
within 
Education,  and  national  and  regional  coordinators 
to  assist  schools  in  their  collaboration  with  local 
enterprises (Cedefop, 2018). 

the  Swedish  National  Agency 

appropriate  services  as  businesses  and  institutions 
increasingly  assume  that  everyone  is  online  and 
develop  services  accordingly.  One  example  is  the 
fast  transition  towards  a  cashless  society:  1.5 
million  out  of  roughly  8.2  million  Swedes  above 
the age of 15 years do not have a mobile BankID, 
which  enables  citizens  to  access  online  banking 
and public services.  

Graph 4.3.4:  At-risk-of-poverty or social exclusion rate and 

its components 

is  high 

learning 

in  adult 

in 
Participation 
Sweden.  The  high  share  of  adult  learning  applies 
to all demographic groups (European Commission, 
2018f).  The  percentage  of  adults  in  lifelong 
learning  and  training  was  30.4 %  in  2017,  well 
above the 'Education and Training' target of 15 %. 
The share of low-qualified persons participating in 
lifelong 
(20.5 %)  and  unemployed 
(45.3 %) is already well above EU average (4.3 % 
and  10.1 %  respectively).  Sweden  continues  to 
prioritise  training  for  the  low-skilled  with  a 
particular 
regional 
cooperation  to  better  meet  labour  market  needs. 
The new government intends to use targeted forms 
of  training  and  an  increased  allowance  for  these 
participants to support faster employment. 

strengthening 

focus  on 

training 

4.3.2.  SOCIAL POLICIES AND HEALTHCARE 

Poverty  remains  low  but  varies  across  groups. 
The  share  of  people  at  risk  of  poverty  or  social 
exclusion  (17.7 %  in  2017)  is  below  the  EU 
average (22.5 %). However, educational and social 
backgrounds have  a  marked impact  on  the risk of 
low-skilled  parents  and 
poverty.  Children  of 
people  with  a  migrant  background  have  a  higher 
risk  than  other  groups.  In-work  poverty  increased 
among  single  parents  (from  15.7 %  in  2016  to 
21.1 %  in  2017)  and  the  low  skilled  have  an  in-
work  poverty  rate  of  12.8 %,  substantially  above 
the  risk  for  medium-  and  high-skilled  workers 
(6.6 % and 4.7 % respectively).  

Sweden  is  advanced  in  the  use  of  digital 
services, but certain groups risk exclusion. 98 % 
of Swedes are connected to the internet and a large 
majority are online every day. However, the group 
of  non-users  (more  likely  to  be  low-income 
households, elderly and/or people with intellectual 
disability)  might  face  a  risk  of  not  getting 

Source: European Commission 

Sweden  has  a  well-performing  health  system, 
and remains among the Member States with the 
highest  spending  on  health  (approx.  10.9 % 
GDP).  The  share  of  public  spending  for  health 
care is one of the highest in EU (with more than a 
quarter  allocated  to  long-term  care).  Swedish 
people  have  the  fifth-highest  life  expectancy  in 
Europe and amenable mortality (i.e. ratio of deaths 
that  could  have  been  avoided  through  optimal 
quality  health  care)  is  below  most  other  EU 
countries.  More  than  75 %  of  the  population 
reports  being  in good health,  compared  to  the  EU 
average of 67 % (OECD, 2018b).  

the  health  care  sector 

is 
While  overall 
accessible,  waiting  times  are  an  issue  and 
regional  differences  exist.  Waiting  times  vary, 
explaining  unmet  health  needs  in  less  densely 
populated or remote regions (Isaksson et al. 2016). 
Sustained measures are being taken specifically to 
shorten  queues.  National  guidelines  and  regional 
care programmes for different diagnoses have been 
put in place to tackle regional discrepancies in the 
quality  of  care.  The  difference  between  high-  and 
low-income groups in terms of access to healthcare 
is  among  the  lowest  in  the  EU.  However,  many 

40 

0246810121416182005060708091011121314151617% of populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity households 
 
4.3. Labour market, education and social policies 

risk  factors  are  more  pronounced  among  low-
income groups, such as overweight and obesity. 

for  a  more  comprehensive  curriculum  for  fast 
learners. 

Graph 4.3.5:  Proportion of low achievers in OECD PISA 

(2015) 

Despite a relatively high number of doctors and 
nurses,  challenges  persist  in  finding  the  best 
mix  of  medical  staff.  The  number  of  doctors  is 
above  the  EU  average  but  the  share  of  general 
practitioners (less than 20 %) is lower than in most 
EU  countries  (OECD,  2018b)  and  this  has  a 
negative  impact  on  the  continuity  of  care  (37). 
Coordination,  especially  with  regard  to  person-
centred care and IT systems, could be improved in 
order  to  make  the  most  efficient  use  of  staff 
resources  (OECD,  2017c).  To  ensure  an  adequate 
level  of  nursing,  both  in  terms  of  numbers  and 
skills,  the  government  has  invested  in  education 
and  provided  resources  to  expand  the  workforce 
(SEK 3 billion). 

fully 

is  not 

The long-term care sector offers good coverage, 
efficient.  Sweden  has 
but 
comprehensive  arrangements  for  the  elderly  and 
the  dependent  population,  allocating  more  than  a 
quarter  of  all  health  spending  to  long-term  care. 
There  is  room  to  improve  the  flexibility  of  the 
system  to  better  respond  to  people’s  expectations 
and to ensure better coordination of person-centred 
care (OECD, 2017c).  

4.3.3.  EDUCATION 

to 

Basic  skills  of  the  younger  generation  have 
improved.  According 
the  OECD’s  2015 
Programme  for  International  Student  Assessment 
(PISA)  survey,  student  performance  improved 
significantly in mathematics and reading compared 
to  2012,  and  remained  broadly  stable  in  science. 
The  proportion  of  low  achievers  is  now  close  to 
the  EU  average  in  all  three  core  subjects  but  still 
higher  than  in  other  Nordic  countries  (Graph 
4.3.5). The negative trend in performance was also 
reversed  in  the  2015  Trends  in  International 
Mathematics  and  Science  Study,  an  international 
survey  of  eighth-graders  (aged  13-14)  and  in  the 
2016  Progress  in  International  Reading  Literacy 
Study  of  fourth-graders  (age  10).  The  new 
government  intends  to  extend  primary  school  by 
one year to ten years and has also presented plans 

(37)  30 %  of  all  Swedish  primary  care  consultations  are 

provided by ’rental doctors’ from staffing agencies 

Source: OECD 

are 

Demographic 
putting 
developments 
pressure on the school system. Between 2010 and 
2016,  the  number  of  pupils  in  compulsory  school 
increased by 16 %, from 886 000 to over 1 million. 
The trend is set to continue in the next decade due 
both to the large number of newly arrived students 
in recent years, and to an increase in the number of 
Swedish-born children. One in three children born 
in the next 10 years is expected to have a foreign-
born  mother  and  one  in  four  students  in  upper 
secondary  education  to  be  foreign-born  (Statistics 
Sweden,  2018b).  It 
that 
is 
investment in school infrastructure evolves in line 
with the needs. 

therefore  crucial 

The  growing  teacher  shortage  is  a  major 
concern. Over 10 000 compulsory school teacher, 
one  in  ten,  are  due  to  retire  in  the  next  five  years 
(Swedish  Teachers’  Union,  2018).  Due 
to 
demographic  developments,  92  000  teachers  and 
pre-school  teachers  would  need  to  be  examined, 
equivalent  to  77  000  full-time  positions,  in  the 
coming  5  years  to  meet  the  growing  demand.  By 
2031,  227  000  teachers  and  pre-school  teachers 
would  be  needed,  however,  based  on  current 
patterns, only about 145 000 will graduate, leading 
to  a  shortage  of  over  80  000  teachers.  (National 
Agency  for  Education,  2017).  As  already  more 
than  one  in  ten  new  university  students  enters 
teacher  training,  other  options  to  explore  could 
include  faster  employment  of  teachers  with  a 
foreign  qualification,  employing  retired  teachers, 

41 

0%5%10%15%20%25%SEEU averageDKFIScienceReadingMaths 
                                                           
 
and  more  effective  use  of  distance  education 
(Swedish  Association  of  Local  Authorities  and 
Regions, 2018b).  

despite 

teachers 

increasingly 

(National  Agency 

is 
A  high  and  rising  share  of 
unqualified, 
strict 
requirements (38). In 2017/2018, close to 30 % of 
teachers in compulsory schools and 20 % in upper 
secondary schools taught without a formal teacher 
training  qualification 
for 
Education, 2018a). Among those under the age of 
29  the  share  was  as  high  as  53 %  (Swedish 
Teachers' Union, 2018). To address the challenge, 
bridging  teacher  education  programmes  target 
academics who already fulfil the requirement for a 
specific  school  subject.  The  new  government 
intends  to  reform  the  teacher  training  education 
using  higher  entry  requirements  and  additional 
resources. 

Sweden  is  among  the  EU  countries  that  in 
relative  terms  spend  most  on  education,  and 
expenditure has been rising. General government 
expenditure on education was among the highest in 
the  EU  in  2016,  as  a  proportion  both  of  GDP 
(6.6 %) 
total  general  government 
expenditure  (13.4 %).  Education  expenditure,  at 
constant  prices,  increased  by  19 %  in  2013-17. 
in 
Expenditure  per  pupil 
compulsory  schools,  by  14 %,  and  in  upper 
secondary  schools,  by  11 %  (Statistics  Sweden, 
2018a). 

increased  most 

and  of 

The organisation and financing of education up 
to upper secondary level is decentralised, but a 
wide  range  of  central  government  grants 
increases  complexity.  Funding  follows  the  pupil 
school 
and  municipalities  and 
providers  are  required  to  account  not  only  for  the 
number  of  students  enrolled  but  also  their  needs 
based on socio-economic background (39). In 2017, 
in 
the 
education  was  SEK  15 billion  (EUR  1.46 billion). 

total  central  government 

independent 

investment 

(38)  Since 2011, teachers should be ‘accredited’ in the subjects 
they teach and since autumn 2016 unqualified teachers can 
teach, but cannot have a permanent employment contract or 
grade pupils. 

(39)  There  are  variations  between  municipalities  in  how  they 
allocate  resources  (OECD,  2016  and  Swedish  Agency  for 
Public Management, 2016), and only six in ten compulsory 
municipality  schools  say  that  they  do  take  pupils'  migrant 
and  parental  background  into  account  in  their  funding 
formula  (Swedish  Association  of  Local  Authorities  and 
Regions (SALAR), 2018a). 

4.3. Labour market, education and social policies 

This  represented  about  15 %  of  school  funding, 
allocated  in  the  form  of  over  70  different  grants. 
Merging  the  range  of  grants  could  be  a  way  to 
improve  efficiency  and  flexibility  at  local  level 
(National Audit Office, 2017).  

Sweden spends more on tertiary education than 
the EU average but the allocation per full-time 
student  has  continuously  decreased.  Total 
expenditure  in  this  area  corresponds  to  1.5 %  of 
GDP,  with  the  largest  proportion  of  funding 
(80 %)  coming  from  public  sources  (Swedish 
Higher  Education Authority,  2018) (40).  However, 
funding has been falling in relative terms, because 
since  1993  the  budget  allocation  is  linked  to 
productivity  developments  in  the  private  sector. 
The  effect  of  the  reduction  is  cumulative  and  has 
become  considerable  (41).  A  government  inquiry 
published  on  1  February 2019  proposes  a  broader 
reform  of  the  governance  and  financing  of  higher 
education  (Statens  Offentliga  Utredningar  (SOU), 
2019:6). 

The  tertiary  education  attainment  rate  is  at  an 
all-time high and the employment rate of recent 
graduates  is  among  the  highest  in  the  EU.  In 
2017,  91.7 %  of  graduates  aged  20-34  were 
employed,  above  the  EU  average  of  84.9 %  (42). 
Programmes  in  health  and  engineering,  which 
guarantee  practically  full  employment,  are  the 
most  preferred  options 
the 
proportion  of  graduates  in  the  other  science, 
technology, engineering and maths (STEM) fields 
— natural sciences, mathematics and statistics, and 
information and communications technology (ICT) 
—  is  at  or  below  the  EU  average  (Graph  4.3.6). 
Although  the  number  of  students  graduating  in 

(43).  However, 

(40)  The  total  expenditure  on  the  higher  education  sector 
includes  research,  the  costs  of  government  managing 
agencies and study support to students. 

(41)  The  mechanism  assumes  that  the  higher  education  sector 
follows productivity developments of the private sector, so 
that  roughly  1-2 %  of  the  budget  allocation  is  deducted 
from  the  yearly  price-  and  wage  indexation.  However, 
productivity  developments  differ  substantially  between 
the  Swedish  Association  of 
sectors.  According 
University  Teachers  and  Researchers 
the 
mechanism has had the result that between 1994 and 2016, 
the  salary-related 
the  price-  and  wage 
indexation would have been almost 60 % higher had it not 
been related to private sector productivity increases (SULF, 
2018). 

increase  of 

(SULF), 

to 

(42)  People aged 20-34 who left tertiary education between one 

and three years before the reference year. 

(43)  In  2016,  18.3 %  of  students  graduated  in  engineering  and 

22.2 % in health and welfare.    

42 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

tests  digitised  by  2022  (European  Commission, 
2018c). 

secondary 

There  is  a  large  and  increasing  educational 
performance  gap  between  foreign-born  and 
native-born  students.  The  transition  between 
compulsory  and  upper 
schooling 
continues  to  be  a  hurdle  for  many  foreign-born 
students.  At  the  end  of  compulsory  schooling  (at 
age  16),  half  of  students  who  migrated  after  the 
age of seven do not qualify for an upper secondary 
‘national  programme’.  This  very  high  proportion 
compares  to  less  than  9.2 %  for  native  students. 
The  figure  jumps  to  71.6 %  among  those  who 
arrive in the last 4 years of compulsory schooling 
(National Agency for Education, 2018b). A higher 
proportion  of  recent  migrants  are  older  and  those 
who  migrated  after 
the  age  of  seven  have 
increasingly  come  from  countries  with  weaker 
school systems. 

Socio-economic  background  has  a  growing 
impact  on  students’  performance  (European 
Commission,  2018a).  The  place  of  residence  and 
increased  sorting  of  pupils  between  schools  since 
the  1990s,  have  also  contributed  to  growing 
inequalities.  Other  factors  such  as  class  size  or 
teachers’  formal  qualifications  seem  to  be  less 
important (Grönqvist et al., 2017).  

Sweden’s  early  school  leaving  rate  is  relatively 
low but students born abroad are more likely to 
leave  school  early.  The  overall  rate  is  below  the 
EU  average  (7.7 %  as  compared  with  10.6 %  in 
2017), but it has increased since 2014 and there is 
a growing difference between native-born students 
(6.2 %)  and  those  born  abroad  (15.5 %).  Since  1 
January  2015,  municipalities  are  required  to  keep 
records of people under the age of 20 who have not 
completed  upper  secondary  school  and  are  not  in 
education  or  training,  and  to  provide  them  with 
tailor-made  support.  Over  100 000  young  people 
(58  %  of  them  men  and  one-third  newly  arrived) 
were  registered  and  eligible  to  benefit  from  such 
support 
'introductory 
2017/2018.  The 
programme'  at  upper  secondary  level  is  the  most 
common  measure  offered  by  municipalities, 
designed  to  help  students  bridge  the  gap  to  the 
labour  market  or  further  education  (National 
Agency for Education, 2018). 

in 

STEM subjects increased by 130 % from 33 000 in 
1996 to 77 000 in 2015, there is an unmet demand, 
in particular for engineers. Since a high proportion 
of  international  students  study  a  STEM  subject 
(44),  recruiting  and  retaining  them  could  help 
bridge  the  gap  between  supply  and  demand. 
Increasing  government  grants 
fee-paying 
foreign  students  and  having  private  companies 
fund more study grants and offer work placements 
could 
students 
(Wikström  et  al,  2018  and  Statens  Offentliga 
Utredningar  (SOU),  2018).  To  ensure  that  upper 
secondary  school  graduates  are  well  equipped  to 
study  STEM  options,  a  national  digitisation 
strategy is being put in place. 

attract  more 

international 

for 

Graph 4.3.6:  Proportion of graduates by programme 

orientation (2016) 

Source: European Commission 

The  National  Digitisation  Strategy  for  the 
school  system  aims  to  enable  all  children  to 
develop  adequate  digital  skills  by  2022.  Among 
16-24  year-olds  the  proportion  with  at  least  basic 
digital  skills  is  89.5 %.  The  digitisation  strategy 
for  compulsory  and  upper  secondary  schools 
focuses  on  understanding  digital  tools  and  media, 
digitisation’s  impact  on  society  and  individuals, 
ensuring  critical  and 
responsible  behaviour, 
problem  solving  and  translating  ideas  into  action 
using  digital  technology,  including  programming 
(government, 2017). A revised curriculum entered 
into  force  on  1  July  2018.  The  Swedish  National 
Agency  for  Education  has  carried  out  the  first 
digital  national  tests  with  the  aim  of  having  all 

(44)  In  2015,  close  to  31 000  international  students  started  a 
STEM  degree  in  Sweden,  29 %  of  all  students  in  these 
programmes. 

43 

0%5%10%15%20%25%EU averageSEDEDKATITInformation and Communication TechnologiesNatural sciences, mathematics and statisticsHealth and welfareEngineering, manufacturing and construction 
 
                                                           
4.3. Labour market, education and social policies 

4.3.4.  INVESTMENT NEEDS 

Looking  across  the  labour  market,  education 
and  social  policies,  it  results  that  continued 
investments  are 
important.  To  maintain 
Sweden’s  productivity  and  long-term  inclusive 
growth,  priorities  are  addressing  skills  needs, 
education and training, and social inclusion. Skills 
shortages  and  mismatches  are  among  the  main 
obstacles  to  business  investment,  pointing  to  the 
need  to  invest  more  in  training  of  unused  and 
underused  labour  potential.   Using  the  full  labour 
potential  also requires  matching  investment  in  the 
social integration of recently arrived migrants. 

44 

 
4.4.   COMPETITIVENESS REFORMS AND INVESTMENT 

4.4.1.  PRODUCTIVITY AND INVESTMENT 

Graph 4.4.1:  Cumulative export market share loss since 

2007 for Sweden and selected peer countries 

Productivity Developments 

Productivity  in  Sweden  has  stagnated  over  the 
past decade. As discussed in Section 1, total factor 
productivity growth has remained well below rates 
seen in the pre-crisis period, thus weighing on the 
economy’s output potential. This may partly be an 
indication of diminishing  returns  on  technological 
investments,  combined  with  a  slower  pace  of 
development 
and 
the 
communications  technologies  (ICT)  sector  since 
2007. It is also linked to a structural compositional 
shift  towards  the  labour-intensive  services  sector, 
which  on  average  has  lower  productivity  than  the 
industrial sector. 

information 

in 

for  many 

industrialised 

Sweden  has  experienced  a  secular  decline  in 
export  market  share.  Sweden’s  share  of  world 
exports  has  been  steadily  falling  since  the  2000s, 
broadly  in  line  with  peer  countries  (Graph  4.4.1). 
The  main  driver  for  this  is  the  integration  of 
emerging  economies  into  global  supply  chains, 
which has resulted in world trade outpacing export 
growth 
countries 
(European  Commission, 
2018a).  Therefore, 
Sweden’s  declining  export  market  share  does  not 
suggest  a  competitiveness  issue.  Direct metrics  of 
cost  competitiveness  confirm  this:  Sweden’s  real 
effective  exchange  rate  has  depreciated  by  about 
4 %  over  the  past  three  years  (mainly  reflecting  a 
weakening  krona),  and  unit  labour  costs  have 
evolved broadly in line with the euro area. Sweden 
also 
non-cost 
competitiveness, 
including  via  an  attractive 
business  environment  (see  Section  4.4.4)  and 
innovation  performance 
strong 
(discussed 
‘Research, 
heading 
innovation and digitisation’ below).   

research  and 
under 

does  well 

terms 

the 

of 

in 

Source: European Commission 

Investment 

Investment continued its upward trend in 2017 
but  stagnated  in  2018.  Particularly  since  2013, 
the take-up of investment levels after the crisis was 
much faster in Sweden than in the EU as a whole 
(Graph  4.4.2).  This  was  largely  driven  by  higher 
investment  in  dwellings  and  ICT.  Investment  in 
intellectual  property  products,  which  accounts  for 
a  quarter  of 
(European 
Commission,  2018a),  is  still  at  a  high  level  in 
Sweden.  However,  its  share  of  total  investment 
decreased  from  28.0 %  to  24.9 %  in  2010-2017 
(EU average: 19.3 % in 2017). 

investment 

total 

survey 

Eurobarometer 

Investment and economic conditions for private 
companies  are  positive  overall.  According  to  a 
recent 
(European 
Commission, 2018f), Sweden has the third highest 
share  of  companies  that  are  able  to  make  all  the 
desired  investments  (Sweden:  35 %,  EU  average: 
21 %), after Germany and Denmark and only 6 % 
of  Swedish  companies  are  not  able  to  make  any 
investment  at  all  (EU  average:  12 %).  The 
generally  good  economic  situation  in  Sweden 
seems  to  help  companies  in  their  investment 
decisions.  51 %  of  Swedish  companies  –  as 
compared with 28 % in the EU – say that demand 
conditions were no obstacle to investment.  

45 

-45-40-35-30-25-20-15-10-5050708091011121314151617Rate of change compared to 2007 (%)SwedenGermanyDenmarkNetherlandsFinland 
 
 
 
4.4. Competitiveness reforms and investment 

Graph 4.4.2:  Gross fixed capital formation (% of GDP) 

Investment in transport infrastructure 

in 

investment 

Sustained 
transport 
infrastructure is set to continue for the next 10 
years. The government has  announced substantial 
funding  for  the  upcoming  ten-year  period.  An 
investment  of  SEK 700 billion  (EUR 66 billion) 
has  been  committed  through  the  national  plan  for 
infrastructure  2018-2029  adopted  in  June  2018. 
This is SEK 100 billion more than for the previous 
period.  It  contains  major  investments  to  develop 
the  railway  system  and  increase  capacity,  as  well 
as  multiplied  investments  in  fairways  and  locks 
compared  with  the  preceding  plan  (e.g.  funds  for 
the important deepening of the fairways at the Port 
of  Gothenburg).  These 
the 
objective  of  reducing  transport  costs,  increasing 
maritime safety and reducing emissions, since they 
promote  the  switch  of  goods  transport  from  roads 
to railways and shipping. 

investments  have 

Research, innovation and digitisation 

Sweden  remains  one  of  Europe’s  most 
innovative  economies.  Sweden  has  consistently 
been  one  of  the  top-performing  countries  in  the 
European  Innovation  Scoreboard (45),  both 
in 
investment(46)  and  outcomes 
terms  of  R&D 
(European  Commission,  2018a).  Overall, 
the 
country  benefits  from  an  excellent  science  base, 
highly 
and 
human 
internationally  competitive  and  innovative  large 
companies, both in the manufacturing and services 
sector.  

resources 

qualified 

of 

levels 

framework 

investment, 
Maintaining  high 
favourable 
conditions  and  a 
broader innovation base are key to securing this 
leading  position.  Sweden’s  innovation  model  has 
traditionally  relied  on  a  limited  number  of  large 
globally  active 
technology  companies.  The 
internationalisation of these companies against the 
backdrop  of  mergers  and  acquisitions  has, 
however,  led  in  some  cases  to  headquarters 
moving abroad. Research and innovation activities 
of  these  companies  have  also  become  more 
internationally  mobile.  In 
is 
essential for Sweden to create an environment that 

this  context, 

it 

(45)  Available at: 

http://ec.europa.eu/docsroom/documents/33147 

(46)  Sweden  has  the  highest  R&D  intensity  in  the  EU,  3.33 % 

of GDP in 2017, up from 3.27 % in 2016. 

Source: European Commission 

the 

Most companies in Sweden report that they are 
able to invest according to their needs. In 2017, 
only  14 %  of  firms  reported  a  too  low  amount  of 
investment  over 
three  years.  While 
last 
replacement  of  existing  buildings,  machinery, 
equipment  and  information  technology  is  still  the 
most  important  investment  purpose,  the  share  of 
firms  investing  in  new  products  or  services  is 
above  the  EU  average  and  continues  to  increase. 
Some companies perceive a lack of available staff 
as a principal investment barrier  – independent of 
sector  or  firm  size  (European  Investment  Bank, 
2018). 

investment 

Boosting  investment  in  new  housing,  education 
and  skills,  and  maintaining 
in 
transport  infrastructure  and  R&D  can  further 
the  Swedish  economy.  Regarding 
enhance 
housing  investment,  a  structural  undersupply  of 
dwellings remains despite a significant increase in 
new  construction  (see  Section  4.2).  Moreover, 
building  activity  is  set  to  slow  in  the  wake  of  the 
late-2017  house  price  falls.  Concerning 
the 
educational  system,  demographic  developments 
will  lead  to  an  increase  of  the  numbers  of  pupils, 
exacerbating  the  present  shortage  of  teachers. 
Investing  in  education  and  skills  will  thus  be  key 
to  help  boost  productivity  growth  and  to  address 
the  skills  mismatch  experienced  in  some  parts  of 
the  labour  market  (see  Section  4.3).  In  addition, 
there is a need to maintain investment in transport 
infrastructure and R&D at high levels, as discussed 
below. 

46 

1819202122232425262708Q108Q309Q109Q310Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q3% of GDPEU averageSE 
 
                                                           
4.4. Competitiveness reforms and investment 

Swedish businesses are embracing digitisation and 
actively  using  digital  technologies  to  improve 
efficiency, productivity and sales. However, SMEs 
overall  somewhat  lag  behind  large  companies  in 
this area. To develop innovation capacity in SMEs, 
the  authorities  promote  projects  that  validate 
technology and business concepts, as well as some 
industry-specific  innovation-enhancing  measures, 
such  as 
industry’s 
reducing 
emissions of greenhouse gases. 

the  processing 

nurtures  the  innovation  potential  of  SMEs  and 
start-ups. 

The  economy’s  innovation  capacity  could  be 
further  improved  by  increased  collaboration 
between  academia  and  SMEs.  The  share  of 
public  R&D  financed  by  the  business  sector  (an 
important  indicator  of  public-private  cooperation) 
has declined since 2011, with Sweden now ranked 
below 
the  EU  average.  While  Sweden  still 
performs  well  on  the  share  of  public-private  co-
publications,  notably 
in  engineering  science, 
performance has considerably declined in this area 
too.  Against  this  backdrop,  there  is  room  for 
boosting  knowledge  transfer  via  joint  projects,  a 
better  matching  of  the  specialisation  of  the  public 
science base to that of the private sector, exchange 
of  staff  between  firms  and  universities  and  for 
more  university  spinoffs  to  turn  research  results 
into  new  products  and  services  (Tillväxtanalys, 
2014)  

There are emerging bottlenecks in the supply of 
high-skilled human resources. Ensuring a supply 
of specialist human capital is vital to support R&D 
investment as well as digitisation (see chapter 4.3). 
This concerns in particular science and engineering 
graduates, as well as workers with advanced digital 
skills.  

Recent  policy  initiatives  are  addressing  these 
key  challenges.  The  Research  Bill  2017-2020 
provides  additional  financial  resources  to  support 
both  basic  and  applied  research  as  well  as  human 
resources  development,  notably  within  higher 
education.  The  bill  furthermore  launches  six  new 
10-year  research  programmes.  Academia-business 
Innovation 
promoted 
cooperation 
is 
Partnership Programmes (47).  

via 

Sweden’s  Smart  Industry  Strategy  recognises 
the  need  to  enhance  digitisation  of  SMEs(48). 

(47)  Specific  partnership  programmes 

include 

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

(48)  Smart  industry  –  a  strategy  for  new  industrialisation  for 
https://www.government.se/information-

Sweden. 
material/2016/04/smart-industry---a-strategy-for-new-
industrialisation-for-sweden/ . 

47 

 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.4. Competitiveness reforms and 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 the EU average. Private 
investment is set to grow at a lower but still robust pace, as residential investment adjusts 
to lower levels due to lagged effects of 2017 housing market weakness. Public investment 
in housing, healthcare and education infrastructure is set to remain overall robust in 2019.  

Assessment of barriers to investment and ongoing reforms 

Barriers to investment in Sweden are overall low (European Commission, 2018a). Some 
reforms were adopted in public procurement (see Section 4.4.3), research and innovation 
(see  Section  4.4.1)  and  construction  investment.  However,  scope  remains  for  further 
measures, particularly on tackling barriers to construction (see Section 4.2.2). 

Several institutions promote access to finance for early-stage companies and SMEs. For 
example,  Norrlandsfonden,  an  independent  trust  fund,  supports  the  development  of 
companies in Norrbotten, Västerbotten, Västernorrland, Jämtland and Gävleborg (yearly 
lending  volume of around SEK 300  million). ALMI Företagspartner AB provides loans 
and  venture  capital,  while  Saminvest,  a  fund  set  up  by  the  government  in  2016,  makes 
private equity available and develops the market. It manages assets worth SEK 5 billion. 

Selected barriers to investment and priority actions underway 

1. Cooperation between academia and business could be further enhanced, particularly for 
SMEs.  Initiatives  such  as  the  Innovation  Partnership  Programme  (see  Section  4.4.1) 
could, over time, help promote increased collaboration. 

2.  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  contributed  to  a  significant  pick-up  in  residential  investment  between  2013  and 
2017, but some key structural bottlenecks remain (see Section 4.2.2).  

48 

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, skills, lifelong learning EnergyTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
4.4.2. 
SERVICES SECTOR 

SINGLE  MARKET 

INTEGRATION  AND 

Energy system 

Sweden  benefits 
from  a  dynamic  and 
competitive  energy  wholesale  market.  This  is 
supported  by  full  liberalisation  of  the  wholesale 
electricity  market 
good 
connectivity  to  both  the  Nordic  market  and  other 
European  countries.  Sweden  also  has  a  well-
functioning,  albeit  small  gas  market,  which  is 
supplied by one route from Denmark. 

combined  with 

Market  concentration  of  power  generation  is 
below the EU average and has been falling over 
the  last  decade,  ensuring  competitive  pricing. 
Wholesale  electricity  prices  are  among  the  lowest 
in 
to 
unpredictable price swings driven by hydrological 
importance  of 
to 
developments,  due 
hydropower 
in  Sweden’s  overall  generation 
capacity.   

the  EU.  However, 

they  are  subject 

the 

retail 

liberalised 

electricity  market 

remains 
The 
competitive due to a large number of suppliers. 
For  a  mature  market  (the  Swedish  electricity 
market  was 
in  1996),  consumers’ 
supplier  switching  rates  are  healthy,  approaching 
10 %  per  year  in  2016  due  to  strong  competition 
among suppliers, which limits their pricing power. 
As  a  result,  retail  electricity  price  developments 
tend  to  be  mainly  driven  by  wholesale  prices  and 
network  charges.  Smart  meters  also  support 
competition and should also facilitate the uptake of 
new  energy  services,  such  as  demand  response 
aggregation. 

Sweden  is  well  above  its  2020  target  for 
renewables  in  gross  final  energy  consumption. 
With a share of 53.8 % in 2016, Sweden is already 
outperforming its 2020 target of 49 %. The country 
intends  to  continue  to  mobilise  investments  to 
achieve  the  2030  EU  Renewable  Energy  Source  
target of 32 %. 

Sweden  submitted  its  draft  integrated National 
Energy  and  Climate  Plan  in  June  2018.  In  the 
Plan,  to  be  adopted  by  31 December  2019  in  line 
with  the  Regulation  on  the  Governance  of  the 

4.4. Competitiveness reforms and investment 

Energy  Union  and  Climate  Action (49),  Sweden 
will  provide  an  overview  of  its  investment  needs 
until  2030  for  the  different  dimensions  of  the 
Energy Union, including renewable energy, energy 
efficiency,  security  of  supply,  and  climate 
mitigation  and  adaptation.  The 
information 
provided,  including  in  the  draft  plan  submitted  in 
the 
June  2018,  will 
identification  and  assessment  of  energy  and 
climate-related investment needs for Sweden. 

further  contribute 

to 

Climate Policy 

Sweden’s climate policy has been successful and 
remains  ambitious.  Between  1990  and  2015  the 
country’s greenhouse gas (GHG) emissions fell by 
25.1 %,  while  its  GDP  per  capita  increased  by 
29 %. It is fully on course to meet its EU 2020 and 
2030 emission targets, and has set national targets 
that  go  well  beyond  these (50).  Sweden  aims  to 
achieve  net  zero  emissions  of  GHG  by  2045  and 
have negative emissions thereafter. This long-term 
objective will require significant additional efforts 
to  reduce  emissions  in  all  main  sectors  of  the 
economy. 

These  ambitions  are  enshrined  in  Sweden’s 
Climate Act, which includes regular monitoring 
and  policy  assessment  provisions.  The  Riksdag 
adopted  the  Act  in  2017,  setting  out  the  national 
climate  policy 
to 
framework. 
establishing specific emissions reduction goals, the 
Act  requires  the  government  to  provide  a  climate 
report alongside its annual budget bill. This report 
assesses  the  need  of  additional  policies  and 

In  addition 

(49)  Regulation  (EU)  2018/1999  of  the  European  Parliament 
and  of  the  Council  of  11  December  2018  on  the 
Governance  of  the  Energy  Union  and  Climate  Action, 
amending  Regulations  (EC)  No  663/2009  and  (EC)  No 
715/2009  of  the  European  Parliament  and  of  the  Council, 
Directives  94/22/EC,  98/70/EC,  2009/31/EC,  2009/73/EC, 
2010/31/EU, 2012/27/EU and 2013/30/EU of the European 
the  Council,  Council  Directives 
Parliament  and  of 
2009/119/EC and (EU) 2015/652 and repealing Regulation 
(EU)  No  525/2013  of  the  European  Parliament  and  of  the 
Council. 

(50)  Sweden’s  GHG  emissions  outside  the  EU  Emissions 
Trading System (ETS) are projected to decline by 32 % by 
2020, thus exceeding its EU target by 15 percentage points. 
The 2017 Climate Act sets a target for Sweden’s non-ETS 
GHG  emissions  in  2030  at  63 %  below  1990  emissions. 
This goal is more ambitious than Sweden’s 2030 emissions 
reduction  target  of  40 %  below  2005  as  laid  down  in  the 
EU’s  Effort  Sharing  Regulation.  An  additional  national 
target is set for the transport sector, where emissions from 
domestic  transport  are  to  be  reduced  by  at  least  70 %  by 
2030 compared with 2010. 

49 

 
                                                           
measures  to  achieve  the  long-term  target.  Every 
fourth  year,  the  government  presents  a  climate 
action  plan  specifying  planned  measures  in  more 
detail.  The  Act  also  establishes  a  Climate  Policy 
Advisory Board (Klimatpolitiskt råd) that monitors 
the  progress  of  Sweden’s 
climate  policy 
independently of the government.  

In  order  to  meet  its  2030  emissions  reduction 
targets,  Sweden  is  focusing  on  measures  in  the 
transport sector. Transport emissions account for 
a third of total GHG emissions and more than half 
of  emissions  in  sectors  outside  the  EU  Emissions 
Trading  System  (ETS).  Measures  to  cut  GHG 
emissions in this sector include incentives for low-
emission  vehicles  and  fuels.  For  instance,  in  July 
2018,  a  bonus/malus  system  was  introduced  that 
makes  it  more  attractive  to  purchase  new  plug-in 
hybrids 
2020, 
municipalities  can  introduce  three  different  kinds 
of  low-emission  zones,  one  of  which  only  allows 
purely electric cars, fuel cell cars and low-emission 
gas  cars.  High  standards  are  also  set  for  heavy 
vehicles. 

electric 

From 

cars. 

and 

Environmental Taxation 

Environmental tax revenues as a share of GDP 
have  been  falling  since  2010  and  are  relatively 
low  compared  to  other  Member  States.  This 
decline is partially due to the intended behavioural 
impact  of  taxes,  and  an  increased  substitution  to 
biofuels in the transport sector.  

increase 

environmental 

The  recent  phasing  out  of  exemptions  and 
reductions  in  tax  rates  for  carbon  and  energy 
should 
revenues. 
Discounts in the carbon tax on heating fuels in the 
non-ETS sectors have been progressively reduced, 
and  ultimately  largely  abolished  in  2018.    Since 
2017,  taxes  on  petrol  and  diesel  are  subject  to  an 
annual increase of two percentage points on top of 
consumer  price  inflation.  Substantial  progress  has 
also been made in reducing the ‘diesel differential’ 
(difference  in  price  of  diesel  versus  petrol)  by 
gradually adjusting the respective excise tax rates. 
However, some tax exemptions remain in place for 
fossil  fuel  use,  e.g.  in  motor  vehicles,  domestic 
shipping  and  aviation,  agriculture,  and  various 
industrial sectors (OECD, 2018a).  

4.4. Competitiveness reforms and investment 

4.4.3.  REGIONAL DIMENSION AND 

INFRASTRUCTURE 

Regional Differences 

Sweden’s regions have high levels of prosperity, 
but  recently  growth  has  been  concentrated  in 
urban  areas.  GDP  per  head  was  above  the  EU 
average  in  all  Swedish  regions  except  North 
Middle  Sweden  (99 %  of 
the  EU  average). 
However,  there  is  a  growing  concentration  of 
economic  activity  in  larger  city  regions.  The 
metropolitan  areas  account  for  49  %  of  national 
GDP and 41 % of employment. Between 2000 and 
2016, 
three  Swedish  metropolitan  areas 
Stockholm,  Gothenburg  and  Malmö  generated  62 
% of national GDP growth, with Stockholm alone 
being  responsible  for  44  %  (OECD,  2018c), 
thereby slightly widening regional divergence. 

the 

on 

economic 

additional  high-skilled 
increasing 

the 
Regional  development  depends 
endowment of skills and sectoral specialisation. 
Regions  with  a  more  diversified  tradable  sector 
performed  relatively  well,  whereas  those  with  a 
manufacturing  profile  had  a  more  subdued 
development  (Tillväxtverket,  2018).  In  addition, 
regions  with  an  initial  high  share  of  graduates 
indivuduals, 
attracted 
performance 
further 
(Tillväxtanalys,  2018).  Because  of  this  tendency 
towards  agglomeration,  middle-income  regions 
risk  falling  behind  in  productivity  and  growth. 
investment  rates  were 
Over  2010-2015 
significantly below the Swedish average (18-20 % 
of  GDP  vs.  23 %  for  Sweden  as  a  whole).  This 
lower  level  has  repercussions  on  infrastructure, 
R&D 
innovation 
performance (52).  Some  commodity-based  regions 
like  the  Northern  Sparsely  Populated  Areas  are 
particularly  vulnerable  to  shifts  in  global  demand 
and  competition.  They  also  face  the  problem  of 
achieving critical mass for their specialisations and 
difficulties in connecting to markets. 

investments (51) 

their 

and 

Sweden  has  developed  Smart  Specialisation 
foster  regional  development. 
strategies 
Eighteen  out  of  21  counties  have  already  put  in 

to 

(51)  R&D expenditure in 2015 was below 1.5 % of GDP, while 

other Swedish regions had 3-4 %. 

(52)  The Regional Innovation Scoreboard level ranges from 102 
(North  Central  Sweden)  to  165  (Stockholm,  the  most 
innovative region in the EU), with the EU average equal to 
100 (European Commission, 2017b). 

50 

 
                                                           
4.4. Competitiveness reforms and investment 

Broadband 

to  broadband  of  at 

is  among  the  best  performers 

Sweden 
in 
providing  access  to  ultrafast  broadband,  but 
reaching  its  2020  target  could  be  a  challenge. 
End users have good accessibility in terms of both 
fixed  and  mobile  broadband.  The  government’s 
target is that 95 % of all households and businesses 
least 
will  have  access 
100 Mbit/s  by  2020.  Currently,  coverage  of  this 
speed  category  is  73 %  (European  Commission, 
2018c).  However,  the  Swedish  Post  and  Telecom 
Authority  (Post-  och  Telestyrelsen)  predicts  that 
only 87-90 % will be covered by 2020. This is due 
to  greater  cost  uncertainty  associated  with  laying 
fibre  optic  cables  in  sparsely  populated  areas 
(Post-  och  Telestyrelsen,  2018).  Although  the 
Authority  expects  everyone  to  have  access  to  at 
least  30  Mbit/s  by  2020,  it  called  on  the  public 
sector 
in  sparsely 
populated  areas  so  that  households  and  business 
there  can  benefit  from  digitisation  and  related 
business opportunities. 

investments 

facilitate 

to 

4.4.4.   INSTITUTIONAL QUALITY AND 

GOVERNANCE 

Business Environment 

opportunities. 

Sweden  continues  to  have  a  high-quality  and 
competitive  business  environment.  The  country 
stands  out  in  public  administration,  access  to 
finance, innovation and ability of SMEs to exploit 
international 
overall 
administrative  burden  for  companies  is  low  and 
SMEs  appreciate  the  stability  of  the  regulatory 
environment.  As  part  of  the  national  export 
strategy, coordination of export support services is 
offered at regional level to SMEs wishing to export 
their  goods  and  services  (European  Commission, 
2018g). 

The 

The  ongoing  digitisation  of  the  public  sector 
benefits  Swedish  businesses.  Through  the  e-
business portal www.verksamt.se over 45 different 
government agencies provide information, targeted 
support and enable e.g. company registrations and 
tax  calculation.  A  new  agency 
for  digital 
government  will  develop,  coordinate  and  support 
public  sector  digitisation  at  both  central  and  local 
level.  The  agency  was  set  up  in  September  2018 
with a budget of SEK 98.5 million for 2019. 

resources. 

Innovation 

Investments 

Strategies 
is 
aim 

place  Smart  Specialisation  strategies  (Research 
for 
and 
Smart 
Specialisation).  The 
to  mobilise 
stakeholders  to  identify  priority  areas  with  the 
greatest potential for innovation and growth based 
on the regions comparative advantage and existing 
assets  and 
the 
European  Regional  Development  Fund  already 
support 
the  current 
programming  period,  in  particular  within  research 
and innovation with a special focus on SMEs. This 
support is expected to continue in the next period. 
In  order  to  reach  full  effect,  the  Research  and 
Innovation  Strategies  for  Smart  Specialisation 
system  would  profit  from  politically-anchored 
regional  strategies  and  better  coordination  with 
national level priorities.  

these  strategies  within 

from 

Transport Sector 

in 

13th 

ranks 

investment 

Transport  infrastructure  could  contribute  to 
improved trade, mobility and regional cohesion. 
Among  EU  Member  States,  Swedish  transport 
infrastructure 
the  Global 
Competitiveness Report (World Economic Forum, 
2018) with railroad infrastructure at only 25th. The 
additional 
the 
government  (see  Section  4.4.1)  aims  to  upgrade 
the  different  transport  modes  (railway,  road  and 
ship),  thereby  facilitating  interconnections  across 
regions  and  fostering  trade,  labour  mobility  and 
economic  integration.  In  addition,  the  intended 
shift  of  traffic  from  road  to  rail  and  maritime 
modes should reduce the environmental impact of 
transport. 

envisaged 

by 

The  expansion  of  the  high-speed  rail  network 
could  support  labour  market  connectivity  and 
new residential developments. The national plan 
for  infrastructure  for  2018-2029  contains  three 
routes  for  high-speed  trains.  The  objective  is  to 
better  connect  Stockholm,  Gothenburg  and 
Malmö.  Expansion  is envisaged  to  take place at  a 
pace  allowed  by  the  economy  and  in  a  cost-
effective  manner. 
the  National 
Negotiation  on  Housing  and  Infrastructure  has 
agreed  a  framework  with  municipalities  of  the 
three  metropolitan 
central 
government  co-financing  of  investments  in  public 
transport and cycling. In total, municipalities have 
committed  to  building  193 130  housing  units,  in 
particular  between Uppsala  and  the  county border 
with Stockholm.  

In  parallel, 

regions 

about 

51 

 
4.4. Competitiveness reforms and investment 

overall 
procurement. 

level 

of 

irregularities 

in 

public 

Companies  have  good  access  to  finance.  The 
2018 survey on the access to finance of enterprises 
(SAFE)  shows  that  access  to  finance  is  the  most 
important concern for only 7 % of Swedish SMEs 
(2017:  9 %)  (European  Commission,  2018h). 
Venture capital is sufficiently available and several 
private and public funds are active on the market. 
Access  to  public  financial  support  has  further 
improved  and  fewer  SMEs  report  difficulties 
(European Commission, 2018g).  

Some  specific  challenges  remain  for  Swedish 
companies.  According  to  the  2018  survey  on  the 
access  to  finance  of  enterprises,  the  three  most 
important  issues  for  SMEs  are  customers,  the 
availability of skilled labour (see chapter 4.3) and 
costs of production or labour. In addition, the slow 
processing  times  of  work  permit  extensions  for 
highly-skilled non-EU professionals also continues 
to  pose  a  challenge  (European  Commission, 
2018g).  

The  female  entrepreneurship  rate  in  Sweden  is 
rather  low.  The  currently  good  labour  market 
conditions  might  contribute  to  a  general  lack  of 
people  wanting 
to  start  a  business.  While 
entrepreneurship  framework  conditions  are  good 
and  entrepreneurs  have  a  high  status  (European 
Commission, 2018g), women are underrepresented 
on  private 
among 
company  boards 
entrepreneurs. Both the shares of Swedish women 
who  are  self-employed  with  employees  (1.6 %) 
and the share of own-account workers (3.8 %) are 
among  the  lowest  in  the  OECD.  Fostering  female 
entrepreneurship 
levelling  out 
is  crucial 
differences (OECD, 2017b).  

and 

to 

Public Procurement  

system 

The  public  procurement 
is  well 
functioning and its transparency has improved. 
The  proportion  of  contract  award  notices  without 
information on the contract value has significantly 
decreased after a number of years(53). This should 
have a very positive impact on identifying possible 
unjustified  modifications  of  contracts  and  on 
verifying 
the  appropriateness  of  prices  paid. 
However, problems remain in a few specific areas: 
in  particular,  professionalisation  of  public 
procurers  in  the  municipalities  could  reduce  the 

(53)  From 87 % in 2015 to 3 % in 2018 (against 2 % on average 

across the European Economic Area).  

52 

 
                                                           
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (54) 

2018 country-specific recommendations (CSRs)  

CSR  1:  Address  risks  related  to  high  household 
debt  by  gradually  reducing  the  tax  deductibility  of 
mortgage  interest  payments  or  increasing  recurrent 
property  taxes.  Stimulate  residential  construction 
where shortages are most pressing, in particular by 
removing  structural  obstacles  to  construction,  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 high household debt by 
gradually  reducing  the  tax  deductibility  of 
mortgage 
increasing 
interest  payments  or 
recurrent property taxes.  

  Stimulate 

residential 

construction  where 
shortages  are  most  pressing,  in  particular  by 
removing structural obstacles to construction,  

Sweden has made Limited Progress in addressing 
CSR 1  

  No  Progress.  No  measures  have  been 
fiscal 

to  adjust 

relevant 

the 

announced 
incentives.  

  Some Progress. Sweden is continuing with the 
gradual implementation of the ‘22-point plan’ to 
increase  residential  construction  and  improve 
the  efficiency  of  the  housing  sector.  The 
authorities  have  also  proceeded  with  an 
initiative  to  raise  participation  of  foreign  firms 
in the Swedish construction sector, including by 

(54)  The following categories are used to assess progress in implementing the 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: 
-  
-   presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, non-

announced certain measures but these address the CSR only to a limited extent; and/or 

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. 

53 

 
 
                                                           
 
 
 
 
 
A. Overview Table 

setting  up  an  online  portal  with  English-
language info on Swedish building and planning 
regulations.  

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

including 

Europe 2020 (national targets and progress)  

  Limited  Progress. 

In  January  2019, 

the 
Swedish authorities announced that reforms will 
be  prepared  to  make  the  rent-setting  system 
more  flexible.  There  are  also  plans  to  make 
deferred capital gains taxes on sold properties in 
the owner-occupancy market interest-free. 

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

Employment  rate  (%)  in  Q3  2018:  82.5 %  (2016: 
81.2%; 2015: 80.4 %; 2014: 80.0 %; 2013: 79.8 %) 

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 
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. 

solid  with 

remains 

R&D target: 4 % of GDP 

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

In  2017,  R&D  intensity  in  Sweden  was  3.33%  of 
GDP  composed  of  71%  private  investment  (2.35% 
of  GDP)  and  29%  public  investment  (0.98%  of 
GDP). 

Limited  progress  towards  the  target.  While  public 
R&D intensity declined slightly over the 2010-2017 
period,  business  expenditure  on  R&D  as  a 
percentage  of  GDP  increased  by  0.02  percentage 
points per year over the same period, resulting in a 
0.12    pp  increase  in  total  R&D  intensity.  Sweden 
will  reach  its  national  target  for  2020  only  if  the 
intensity  can  be 
stagnation 
overcome  and  if  the  increase  in  business  R&D 
intensity can be accelerated. 

in  public  R&D 

Between 2005 and 2017, Sweden's GHG emissions 
in  the  non-ETS  sectors  fell  by  25  %.  They  are 
projected to decline by 32 % overall by 2020, thus 
overachieving  the  national  target  by  15  percentage 
points. 

2020  Renewable  energy  target:  49 %  of  final  At  54,5 %,  Sweden  has  already  exceeded  its  2020 

54 

 
A. Overview Table 

energy consumption 

target. 

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

primary 

target 

in 

Early school leaving target: below 7 %  

Tertiary education target: 45-50 %  

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. 

Sweden's primary energy consumption in 2017 was 
of 46.1 Mtoe, a decrease compared to 46.9 Mtoe in 
2016.  Final  energy  consumption  in  2017  reached 
32.6 Mtoe, a slight increase compared to 2016. 

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 2017: 7.7  % (2016: 7.4  %; 2015: 7 %; 
2014: 6.7 %; 2013: 7.1 %). 

The rate is above the 7 % target. 

Tertiary educational attainment (share of population 
30-34  having  successfully  completed 
tertiary 
education)  in  2017:  51.3 %  (2016:  51  %;  2015: 
50.2 %; 2014: 49.9 %; 2013: 48.3 %). 

The target of 45-50 % has been achieved. 

The corresponding indicator has reached 11.4 % in 
from  national 
2017,  according 
authorities  (2016:  12.0 %;  2015:  12.4 %;  2014: 
12.6 %; 2013: 12.7 %). 

feedback 

to 

The  target  has  been  reached  and  the  trend  remains 
good. 

55 

 
 
 
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

56 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio40.837.835.533.531.429.327.225.223.221.219.317.415.6Changes in the ratio (-1+2+3)-1.5-3.0-2.3-2.1-2.1-2.1-2.1-2.0-2.0-2.0-2.0-1.9-1.8of which(1) Primary balance (1.1+1.2+1.3)1.91.31.21.21.21.21.31.31.41.41.41.41.3(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.71.21.21.31.31.31.31.31.41.41.41.41.3(1.1.1) Structural primary balance (bef. CoA)1.71.21.21.31.31.31.31.31.31.31.31.31.3(1.1.2) Cost of ageing0.10.10.20.20.20.30.30.30.4(1.1.3) Others (taxes and property incomes)0.10.10.20.20.30.40.40.50.5(1.2) Cyclical component0.20.20.0-0.1-0.10.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.4-1.6-1.1-0.9-0.9-0.8-0.8-0.7-0.6-0.6-0.5-0.5-0.4(2.1) Interest expenditure0.40.30.30.30.30.30.30.30.30.30.30.20.2(2.2) Growth effect-0.9-0.9-0.6-0.6-0.6-0.6-0.5-0.5-0.4-0.4-0.4-0.3-0.3(2.3) Inflation effect-0.9-1.0-0.7-0.6-0.6-0.6-0.6-0.5-0.5-0.5-0.4-0.4-0.3(3) Stock-flow adjustments1.80.00.00.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.SE - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -SEBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario0102030405020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -SEp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -SEBaselineHistorical SPB scenarioSGP scenario0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -SEBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2029)15.611.716.916.016.3Debt peak year20182018201820182018Percentile rank34.0%28.0%Probability debt higher1.1%Dif. between percentiles11.3LOWLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.2)(S1 = -4.6)S2LOW(S2 = 1.1)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2018. 
(3) Quarterly values are annualised. 
(*) Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); European 
Central Bank (all other indicators). 

57 

201320142015201620172018Total assets of the banking sector (% of GDP)1)278,5288,1285,4284,3292,6301,3Share of assets of the five largest banks (% of total assets)58,358,557,856,358,2-Foreign ownership of banking system (% of total assets)2)6,26,97,28,27,36,3Financial soundness indicators:2)              - non-performing loans (% of total loans)-1,31,31,21,31,3              - capital adequacy ratio (%)12,322,224,126,325,925,9              - return on equity (%)3)11,111,811,211,910,912,7Bank loans to the private sector (year-on-year % change)1)3,05,14,47,37,05,9Lending for house purchase (year-on-year % change)1)5,46,48,57,67,35,9Loan to deposit ratio2)-161,8177,8178,0172,7160,0Central Bank liquidity as % of liabilities1)0,00,00,00,00,00,0Private debt (% of GDP)195,4194,7188,3188,2194,4-Gross external debt (% of GDP)2) - public18,721,920,316,914,611,7    - private55,555,453,550,149,950,4Long-term interest rate spread versus Bund (basis points)*55,155,322,345,033,325,3Credit default swap spreads for sovereign securities (5-year)*14,39,99,514,210,96,9 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(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) Long-term unemployed are people who have been unemployed for at least 12 months. 
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019. 
(5) 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). 
(6) Average of first three quarters of 2018 for the employment rate, long-term unemployment rate and gender employment 
gap. Data for unemployment rate is seasonally adjusted (annual series, for EE, EL, HU, IT and UK data based on first three 
quarters of 2018). 
Source: Eurostat 

58 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)7.16.77.07.47.7:Gender employment gap (pps)5.04.64.23.84.04.3Income inequality, measured as quintile share ratio (S80/S20)4.04.24.14.34.3:At-risk-of-poverty or social exclusion rate1 (AROPE)18.318.218.618.317.7:Young people neither in employment nor in education and training (% of population aged 15-24)7.57.26.76.56.2:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)79.880.080.581.281.882.5Unemployment rate2 (15-74 years)8.07.97.46.96.76.3Long-term unemployment rate3 (as % of active population)1.41.41.51.31.21.2Gross disposable income of households in real terms per capita4 (Index 2008=100) 109.6111.6113.3115.9116.6:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)24988256122589225992::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)1.52.31.81.5::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction544.648.045.345.846.1:Children aged less than 3 years in formal childcare55.056.864.051.052.7:Self-reported unmet need for medical care2.11.71.31.61.4: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) 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. 
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(4) Average of first three quarters of 2018. Data for youth unemployment rate is seasonally adjusted (annual series, for EE, EL, 
HU, IT and UK data based on first three quarters of 2018).       
Source: Eurostat, OECD 

59 

Labour market indicators201320142015201620172018 4Activity rate (15-64)81.181.581.782.182.5:Employment in current job by durationFrom 0 to 11 months17.217.818.318.919.5:From 12 to 23 months9.910.010.010.711.8:From 24 to 59 months16.517.617.317.117.1:60 months or over55.753.953.652.650.9:Employment growth* (% change from previous year)1.01.41.51.92.31.8Employment rate of women(% of female population aged 20-64)77.277.678.379.279.880.3Employment rate of men (% of male population aged 20-64)82.282.282.583.083.884.6Employment rate of older workers* (% of population aged 55-64)73.674.074.575.576.477.7Part-time employment* (% of total employment, aged 15-64)24.724.524.323.923.322.9Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)16.316.816.616.116.115.8Participation in activation labour market policies(per 100 persons wanting to work)39.540.642.141.0::Transition rate from temporary to permanent employment(3-year average)40.840.038.437.737.7:Youth unemployment rate (% active population aged 15-24)23.622.920.418.917.816.8Gender gap in part-time employment24.924.423.122.621.320.7Gender pay gap1 (in undadjusted form)14.613.814.013.312.6:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)28.429.229.429.630.4:Underachievement in education2::20.8:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)48.349.950.251.051.3:Variation in performance explained by students' socio-economic status3::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 

60 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7.37.57.57.57.5:Disability3.63.63.53.33.2:Old age and survivors12.613.112.812.612.6:Family/children3.03.13.13.03.0:Unemployment1.21.31.11.01.0:Housing0.50.50.50.40.4:Social exclusion n.e.c.0.70.70.80.91.4:Total28.929.729.228.829.0:of which: means-tested benefits0.80.80.80.70.7: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)15.415.515.515.515.2:Children at risk of poverty or social exclusion (% of people aged 0-17)*19.420.220.519.819.919.4At-risk-of-poverty  rate1 (% of total population)15.216.015.616.316.215.8In-work at-risk-of-poverty rate (% of persons employed)7.27.67.78.06.76.9Severe material deprivation rate2  (% of total population)1.81.91.01.10.81.1Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan0.80.50.50.50.50.8Tenant, rent at market price3.74.15.06.86.76.1Proportion of people living in low work intensity households4 (% of people aged 0-59)8.19.49.08.78.58.8Poverty thresholds, expressed in national currency at constant prices*116749118780119560122901124757125922Healthy life years (at the age of 65)Females:13.816.716.816.6:Males:12.915.215.715.1:Aggregate replacement ratio for pensions5 (at the age of 65)0.60.60.60.60.60.6Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::67.769.872.275.5GINI coefficient before taxes and transfers*43.643.944.744.248.248.2GINI coefficient after taxes and transfers*24.824.925.425.227.628.0 
 
 
 
 
 
 
 
 
 
 
Table C.5: 

Product market performance and policy indicators 

C. Standard Tables 

(1) Value added in constant prices divided by the number of persons employed. 
(2) Compensation of employees in current prices divided by value added in constant prices. 
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology. 
(4) 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 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know. 
(5) Percentage population aged 15-64 having completed tertiary education. 
(6) Percentage population aged 20-24 having attained at least upper secondary education. 
(7) 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 
(8) 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). 

61 

Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry-2.570.310.93-0.622.941.63Labour productivity growth in construction-7.57-4.610.362.67-0.781.00Labour productivity growth in market services0.942.593.106.501.22-0.12Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry5.821.481.752.130.950.75ULC growth in construction11.416.941.970.406.09-0.41ULC growth in market services2.25-0.42-0.65-2.281.552.23Business environment201220132014201520162017Time needed to enforce contracts3 (days)476483483483483483Time needed to start a business3 (days)16.016.016.07.07.07.0Outcome of applications by SMEs for bank loans4:0.570.710.380.360.45Research and innovation201220132014201520162017R&D intensity3.283.303.143.263.273.33General government expenditure on education as % of GDP6.506.606.606.506.60:Employed people with tertiary education and/or people employed in science and technology as % of total employment515254555657Population having completed tertiary education5303133343536Young people with upper secondary education6868687878786Trade balance of high technology products as % of GDP-0.140.09-0.07-0.11-0.08-0.21Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall1.501.611.52OECD PMR7, retail0.720.600.60OECD PMR7, professional services0.770.550.55OECD PMR7, network industries82.302.201.87 
 
 
 
 
 
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 (Europe 2020-2030)(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 use in industry (in kgoe) divided by gross value added of industry, including construction 
(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 use in transport sector including international aviation, (in kgoe) divided by transport 
industry gross value added (in 2010 EUR) 
Transport carbon intensity: GHG emissions in transport sector divided by gross value added of the transport activities   
Energy  import  dependency:  net  energy  imports  divided  by  gross  inland  energy  consumption  plus  consumption  of 
international maritime bunkers    
Aggregated supplier concentration index:  Herfindahl-Hirschman index for net imports of crude oil and NGL, natural gas and 
hard coal. Smaller values indicate larger diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl-Hirschman index of the main energy products in the gross inland consumption of 
energy 
* 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); Eurostat (all other indicators) 

62 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.130.130.120.110.120.11Carbon intensity kg / €0.150.140.140.130.13-Resource intensity (reciprocal of resource productivity)kg / €0.560.570.560.540.530.54Waste intensity kg / €0.41-0.43-0.34-Energy balance of trade % GDP-1.7-1.5-1.3-0.9-0.8-0.9Weighting of energy in HICP%11.6811.0110.699.648.668.81Difference between energy price change and inflation %-3.9-0.4-2.5-4.11.42.2Real unit of energy cost% of value added12.011.110.310.510.8-Ratio of environmental taxes to labour taxesratio0.100.090.090.090.09-Environmental taxes% GDP2.42.42.22.22.22.2Sectoral Industry energy intensity kgoe / € 0.120.120.120.120.12-Real unit energy cost for manufacturing industry excl. refining% of value added13.913.612.713.113.5-Share of energy-intensive industries in the economy% GDP9.108.568.478.128.00-Electricity prices for medium-sized industrial users€ / kWh0.080.080.070.060.060.06Gas prices for medium-sized industrial users€ / kWh0.050.060.050.040.040.04Public R&D for energy % GDP0.040.030.040.030.040.03Public R&D for environmental protection% GDP0.020.020.020.010.010.01Municipal waste recycling rate%47.348.749.948.048.946.8Share of GHG emissions covered by ETS*%34.736.335.932.937.7-Transport energy intensitykgoe / €0.420.420.420.410.430.45Transport carbon intensitykg / €0.950.920.900.870.82-Security of energy supplyEnergy import dependency%29.832.531.928.931.926.4Aggregated supplier concentration indexHHI16.316.621.820.421.9-Diversification of energy mixHHI0.320.300.320.340.310.33 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR SWEDEN 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027 of 2  May 2018 (COM (2018) 321),  this Annex D(55)  presents  the   preliminary  Commission 
services views on priority investment areas and framework conditions for effective delivery for the 2021-
2027 Cohesion Policy. These priority investment areas are derived from the broader context of investment 
bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.  This  Annex  provides  the 
basis  for  a  dialogue  between  Sweden  and  the  Commission  services  in  view  of  the  programming  of  the 
cohesion policy funds (European Regional Development Fund and European Social Fund Plus). 

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

In order to reach its ambitious national target for research and development expenditure of 4% of GDP 
and secure its position as European leader in innovation, Sweden needs to make a continuous effort to 
broaden  the  innovation  base  and  maintain  high  level  of  investments  in  research  and  development. 
Regional  differences  in  terms  of  innovation  performance  and  competitiveness  are  accentuated. 
Investment  needs(56)  have  therefore  been  identified  to  further  enhance  research  and  innovation 
capacities and the uptake of advanced technologies, and in particular to: 
• 

encourage  the  development  and  implementation  of  tailor-made  smart  specialisation  systems  at 
regional (programme) and national level. Promote further international and regional cooperation to 
exchange knowledge and achieve critical mass for the specialisations; thereby particularly focusing 
on  the  3  middle-income  regions  (Småland  and  the  Islands,  Central  Norrland  and  North  Middle 
Sweden) and the Northern Sparsely Populated Areas in order to support them to catch up and scale 
up  their  investments.  Promote  the  coordination  between  the  smart  specialisation  strategies  and 
national Innovation Partnership Programmes and other relevant strategies (notably the EU strategy 
for the Baltic Sea Region) and other (non-) European countries; 
further  encourage  regional  growth  processes  and  promote  research  and  innovation  capacities, 
supporting existing cluster and network structures, strengthening the business competitiveness and 
the  business  uptake  of  advanced 
the 
competitiveness  and  innovation  gaps  particularly  in  the  middle-income  regions  and  Northern 
Sparsely Populated Areas;  
strengthen links, cooperation and knowledge transfer between academia and business and promote a 
more  active  involvement  of  universities  in  projects.  Support  marketable  and  market-oriented 
research  and  development  and  raise  business  awareness  of  upcoming  scientific  developments. 
Support  the  establishment  of  living  labs  and  test-beds  and  eco-systems  that  bring  together  the 
demand  and  supply  side  ensuring  a  better  uptake  of  innovation  in  small  and  medium-sized 
enterprises;  
support pilot lines, early product validation, technology transfer and the building of capacities in the 
development  and  provision  of  key  digital  technologies,  artificial  intelligence,  cybersecurity,  high 
performance computing and in particular in the area of digital skills and deep tech. 

thereby  contributing 

to  diminishing 

technologies; 

• 

• 

 

The  potential  of  Swedish  small  and  medium-sized  enterprises  and  innovative  start-ups  is  not  fully 
exploited,  there  is  a  low  proportion  of  SMEs  with  new-to-market/new-to-firm  innovations  and  the 
proportion of Swedish female entrepreneurs is among the lowest in the OECD area. Investment needs in 
research  and  innovation  are  identified  to  further  enhance  growth  and  competiveness  of  small  and 
medium-sized enterprises, and in particular to: 
• 

promote  continuous  Entrepreneurial  Discovery  Processes  through  strengthened  entrepreneurial 
ecosystems and the sustained engagement of small and medium-sized enterprises in these processes; 
support Project Development Labs;  
encourage female entrepreneurship including in the Northern Sparsely Populated Areas in order to 
reach the full potential of the economy and support small and medium-sized enterprises that employ 

• 

(55)  This Annex is to be considered in conjunction with the EC Proposal for a Regulation of the European Parliament and of the 
Council on the European Regional Development Fund and on the Cohesion Fund COM(2018) 372 and the EC Proposal for a 
Regulation of the European Parliament and of the Council on the European Social Fund Plus COM(2018) 382, in particular as 
regards the requirements for thematic concentration and urban earmarking outlined in these proposals. 

(56)  The intensity of needs is classified in three categories in a descending order - high priority needs, priority needs, needs. 

63 

 
 
 
                                                           
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Sweden 

• 

• 

third-country nationals and other vulnerable groups for the cause of integration; 
promote  the  creation  of  new  firms,  growth  of  start-ups/scale-ups,  accelerators,  as  well  as  new 
business  models  and  increase  the  proportion  of  small  and  medium-sized  enterprises  with  new-to-
market  and  new-to-firm  innovations  by  giving  support  to  product,  organisational  and  marketing 
innovations.  Stimulate  the  uptake  on  enabling  technologies,  eco  innovation  and  green-  and  blue-
tech  sector  technology,  as  well  as  the  acceleration  of  market  access  and  internationalisation, 
especially in Northern Sparsely Populated Areas; 
support  the  development  of  regional,  interregional,  and  international  networks  to  disseminate 
knowledge, create partnerships, and promote further innovation and global value chains.  

Despite the fact that Sweden is characterised by a highly skilled labour force, it lacks Informations and 
Communications  Technology  specialists.    Employment  in  high-tech  sectors  is above  EU  level  only  in 
the  three  large-city-regions;  the  skills  gap  figures  among  the  top  barriers  to  growth  for  companies. 
Therefore, investment needs have been identified to develop skills for smart specialisation, industrial 
transition and entrepreneurship, in synergy with lifelong learning actions under Policy Objective 4; 
and in particular to:  
• 

promote  innovation  management  in  small  and  medium-sized  enterprises  and  support  vocational 
education  and  training  and  reskilling  in  smart  specialization  areas  within  firms;  building  the 
necessary administrative capacity, including in smart cities in cooperation with peers in the Baltic 
Sea Region, with a particular attention to digital skills and the need to address industrial transition; 
promote  skills  development  for  higher  education  and  research  institutions  to  increase  the 
commercial  viability  and  market  relevance  and  uptake  of  their  research  projects  as  well  as  their 
capacities to take part in interactive and open innovation processes, including across borders;   
strengthen  the  capacity  of  small  and  medium-sized  enterprises  to  adapt  to  digital/technological 
transformation  and  increase  their  Informations  and  Communications  Technology  uptake,  support 
the automation of work/processes;  
encourage the development of novel applications and the diffusion of digital and other key enabling 
technologies through extra-regional networks of digital innovation hubs and living labs. 

• 

• 

• 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights  

Sweden’s  education  system  generally  functions  well  but  a  sufficient  response  to  current  and  future 
labour  market  needs  must be  ensured given increasing  skills  shortages,  including  as  regards  advanced 
digital skills. Investment needs have therefore been identified to improve the effectiveness and labour 
market  relevance  of  education  and  training;  to  promote  lifelong  learning,  notably  flexible 
upskilling and reskilling, taking into account digital skills, better anticipate change and new skills 
requirements, facilitate career transitions and promote professional mobility, and in particular to: 
• 

enhance  the  labour  market  relevance  of  higher  education  programmes,  with  synergies  with  the 
Erasmus programme; 
build flexible pathways between sectors of education and training and between education and work; 
build  vocational  education  and  training  providers’  capacity  to  respond  to  the  needs  of  employers 
and  local  innovation  ecosystems,  in  synergy  with  actions  under  Policy  Objective  1  and  smart 
specialisation strategies; 
implement comprehensive lifelong learning strategies;  
upgrade adult population's basic skills and create new opportunities for low-skilled adults; 
support innovative policy actions and experimentation. 

• 
• 

• 
• 
• 

Differences in educational outcomes and employment between foreign-born and native students persist. 
Investment needs have therefore been identified  to promote the socio-economic integration of third 
country  nationals,  including  through  inclusive  education  and  training;  to  foster  active  inclusion 
and to improve employability of persons at a disadvantage, particularly through: 
•  measures  to  improve  access  to,  and  inclusiveness  of,  education  and  training,  and  basic  skill 

attainment of all students; 

•  measures to prevent early school leaving;  

64 

 
 
  
 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Sweden 

• 

• 
• 

• 

development  and  deployment  of  innovative  and  effective  teaching  methods  and  technologies  that 
deliver high-quality educational content tailored to disadvantaged learners; 
integrated pathways to employment, notably for persons with disabilities; 
awareness-raising and engagement with local communities, civil society and social partners to fight 
discrimination; 
social innovation and social experimentation in the field. 

Factors for effective delivery of Cohesion policy 

• 
• 

• 

• 

administrative capacity of authorities to support and implement smart specialisation strategies;  
broader use of financial instruments and/or contributions to Sweden's compartment under InvestEU 
for revenue-generating and cost-saving activities; 
build on the lessons learnt in North Middle Sweden during the implementation of the Commission 
pilot  project  on  industrial  transition,  in  particular  about  the  impact  of  new  technologies, 
decarbonisation and the promotion of inclusive growth;  
social dialogue and social partners' capacity. 

65 

 
 
 
 
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