COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Sweden, economic situation, housing policy, labour market, macroeconomics, money laundering, public finance, structural adjustment, sustainable development, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 526 final  COMMISSION STAFF WORKING DOCUMENT Country Report Sweden 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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(2020) 150}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

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

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.   Competitiveness, reforms and investment 

4.5.  Environmental sustainability 

Annex A: Overview table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Sweden 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Financial soundness indicators (1) 

Summary table on CSR assessments (*) 

MIP assessment matrix (*) - Sweden 2019 

Key economic and financial indicators - Sweden 

Table 1.1: 
Table 2.1: 
Table 3.1: 
Table 4.2.1: 
Table 4.4.1:  Contributions to productivity growth in the business sector 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 

Product market performance and policy indicators 

Labour market and education indicators 

Headline Social Scoreboard indicators 

Social inclusion and health indicators 

Financial market indicators 

1 

4 

8 

14 

18 

23 

23 

26 

37 

45 

56 

60 

64 

65 

71 

73 

78 

13 
15 
21 
27 
46 
65 
66 
67 
68 
69 

 
 
 
Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1:  Output gap, real GDP growth and its components (1) (2) 

Graph 1.2: 

Contributions to potential growth (1) 

Graph 1.3: 

Share of employees working in elementary occupation, 2nd quarter of 2019 

Graph 1.4: 

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

Graph 1.5: 

Labour productivity and wage growth, 2011-2017 

Graph 1.6: 

Breakdown of Net International Investment Position by sectors 

Graph 2.1:  Overall multiannual implementation of 2011 - 2019 country-specific recommendations 

to date (1) (2) (3) 

Graph 4.1.1:  Swedish fiscal rules index and government gross debt 

Graph 4.2.1:  Common Equity Tier 1 capital ratios (%) 

Graph 4.2.2:  House prices by market segment (nominal) 

Graph 4.2.3:  Estimated house price valuation gaps based on different indicators (1) (2) (3) 

Graph 4.2.4:  New housing construction and estimated need 

Graph 4.2.5:  Household dwellings by type 

Graph 4.2.6: 

Types of tenure and vacancy rates 

Graph 4.2.7:  Household debt evolution (indexed, 2005 = 100) 

Graph 4.2.8:  Maturity of mortgages and interest rates 

Graph 4.2.9:  Household saving ratio, adjusted for net pension contributions and capital formation 

Graph 4.2.10:  Leverage, Non-Financial Corporations 

Graph 4.3.1:  Employment rate by educational attainment 

Graph 4.3.2:  Employment rate by citizenship 

Graph 4.3.3:  At-risk-of-poverty or social exclusion rate and its components (AROP, SMD, LWI) 

Graph 4.4.1:  Labour productivity in the business sector in SEK per hour worked 

Graph 4.4.2:  Labour productivity and hours worked by sector 2001-2018 - changes between 2001 

and 2018 (1) 

Graph 4.4.3: 

Investment as share of GDP by institutional sector - EU 28 and Sweden 

Graph 4.4.4: 

Investment in intangible capital assets 

Graph 4.4.5:  Business birth rates 

Graph 4.5.1: 

The ten EU countries with the lowest greenhouse gas emissions in 2017 

Graph 4.5.2:  Greenhouse gas emissions, carbon taxes and economic growth 

Graph 4.5.3:  Share of renewable sources in final energy consumption, 2017 

Graph 4.5.4:  Final energy consumption (Mtoe(1)) 

Graph 4.5.5:  Carbon dioxide emissions/gross value added (g/SEK) 

70 

8 

8 

9 

10 

11 

11 

14 

23 

26 

29 

30 

31 

32 

32 

33 

34 

36 

36 

38 

38 

41 

45 

45 

47 

49 

55 

56 

56 

56 

57 

57 

2 

 
 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in Sweden 

Box 4.3.2: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.3: The dynamics of labour productivity 

Box 4.4.4: Investment challenges and reforms in Sweden 

Box 4.5.5: Fossil free Sweden initiative 

17 

39 

48 

52 

59 

3 

 
 
 
 
EXECUTIVE SUMMARY 

Sweden’s economy has performed well in recent 
years,  but  its  subdued  medium-term  growth 
prospects call for further structural reforms. A 
the  result  of 
persistent  housing  shortage 
is 
demographic  developments, 
insufficient  new 
housing  construction  and  inefficient  use  of  the 
existing  housing  stock.  Reforming 
the  rental 
market  and  supporting  construction,  in  particular 
in  urban  areas,  could  help  address  this  shortage 
and  support  mobility  and  flexibility  in  the  labour 
market.  Tax 
favouring  property 
ownership  and  mortgage  debt  are  contributing  to 
high household debt and elevated house prices. In 
the  labour  market,  the  integration  of  non-EU 
migrants 
remains  a  major  challenge,  while 
shortages  have  emerged  for  high-skilled  workers 
and  productivity  growth  has  recently  stalled. 
Reviving reform momentum, e.g. by advancing the 
tax  reform,  would 
announced  comprehensive 
address 
the  Swedish 
issues  and  make 
economy more resilient, while reducing risks from 
imbalances (1).  

incentives 

these 

Economic  growth  remains  positive,  but 
is 
expected to slow. According to the Commission’s 
autumn 2019 forecast, real GDP grew by 2.2% in 
2018  and  is  set  to  have  slowed  to  1.2%  in  2019. 
With  domestic  demand  and 
in 
particular  weakening  and  a  slowing  global 
economy,  economic  activity  is  forecast  to  remain 
subdued. Real GDP growth is expected to stay just 
above 1% over the forecast period. In the long run, 
potential  growth  should  remain  below  pre-crisis 
levels as productivity growth is set to be low. 

investment 

Sweden  has  had  high  growth,  while  lowering 
greenhouse  gas 
In  1990-2017, 
emissions. 
Sweden’s  greenhouse  gas  emissions  fell  by  26%, 
while it’s GDP per capita increased by 54%.  This 
is  partially  due  to  a  significant  price  on  carbon 
dioxide emissions introduced in the early 1990s. 

(1)  This report assesses Sweden’s economy in the light of the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains,  fairness  and  macroeconomic  stability.  At  the  same 
time,  the  Commission  published  the  Alert  Mechanism 
Report  (AMR)  that  initiated  the  ninth  round  of  the 
macroeconomic imbalance procedure. The AMR found that 
Sweden  warranted  an  in-depth  review,  which  is  presented 
in this report. 

4 

Exports  are  still  holding  up  well,  but  are 
expected  to  lose  momentum.  Growth  in  exports, 
particularly  of  services,  was  strong  in  2019.  A 
slowing  in  import  growth  due  to  weak  domestic 
demand  pushed  up  the  current  account  surplus. 
Exports of goods and services are likely to expand 
more  modestly  by  around  2%  in  2020-2021, 
against  the  backdrop  of  trade  tensions  and  as 
growth  in  Sweden’s  main  trading  partners  eases. 
The current account surplus is forecast to increase 
to above 4% of GDP. 

The labour market has started to weaken, albeit 
from high employment levels. Sweden has one of 
the highest employment rates in the EU (82.4% in 
2018), but the Commission’s autumn 2019 forecast 
expects  unemployment  to  increase  from  6.3%  in 
2018 to 7.2% in 2021. However, labour shortages 
and skills mismatches, where the jobs available do 
not match the skills of the jobless, will remain, in 
jobs.  Low-skilled 
particular 
people, 
face 
particular  difficulties  finding  a  job  given  the 
current 
Long-term 
unemployment is set to rise, therefore, albeit from 
low levels. 

non-EU  migrants, 

for  high-skilled 

headwinds. 

especially 

economic 

has 

policy 

Monetary policy is normalising, despite  limited 
inflationary pressures, and the fiscal position is 
strong.  Monetary 
remained 
accommodative  for  years  due  to  low  inflation. 
Despite  inflation  remaining  below  the  Riksbank 
target  of  2%,  the  central  bank  further  lifted  the 
policy  rate  at  the  end  of  December  2019  to  0%. 
The general government balance, while remaining 
in  surplus,  is  expected  to  decline  from  0.8%  of 
GDP in 2018 to 0.1% of GDP in 2021. Public debt 
is expected to continue falling to 32% of GDP by 
2021 due to prudent fiscal management. 

Overall  investment  levels  are  high.  Residential 
and equipment investment are declining due to the 
slowing 
in  R&D, 
sustainable transportation and education and skills 
have  been  maintained  tackling  the  continued 
investment needs in these areas. 

Investments 

economy. 

 
 
                                                           
Sweden  has  made 
addressing 
the 
recommendations.  

some (2)  progress 

in 
country-specific 

2019 

There  has  been  substantial  progress 
following area: 

in 

the 

  Sweden  maintained  investment  in  sustainable 

transport (see Section 4.4).  

There  has  been  some  progress  in  the  following 
areas: 

  With 

its  2020  budget,  Sweden 

investment-related 
education  and 
innovation (see Sections 4.1 and 4.4). 

economic 
skills,  and 

focused 
on 
research  and 

policy 

  Sweden  adopted  new  legislative  measures  to 
strengthen 
laundering 
framework. In addition, the country has started 
to 
effective 
shortcoming 
enforcement (see Section 4.2). 

anti-money 

address 

the 

in 

There  has  been  limited  progress  in  the  following 
area: 

Stimulating  housing  construction,  most  notably 
through  an  investment  subsidy  for  construction 
(see Section 4.2). 

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, flexibility in the rental market 
and revising the design of the capital gains tax 
(see Section 4.2).  

Sweden  performs  very  well  on 
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  level  of  digital  skills 
among  the  population  is  very  high.  The  good 
overall  results  reflect  Sweden's  advanced  welfare 
model  with a strong dialogue between  unions and 
employers. However, the increasing share of early 
leavers  from education and training is a  source of 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the overview table in the Annex. 

Executive summary 

concern  and  income  inequality  is  rising,  albeit 
from a relatively low level. 

On progress  towards  its  national targets  under the 
Europe  2020  strategy,  Sweden  has  reached  its 
targets  for  the  employment  rate,  greenhouse  gas 
emissions,  share  of  renewable  energy,  post-
secondary education attainment and poverty risks. 
Areas where the targets have not yet been achieved 
are  early  school  leaving,  energy  efficiency  and 
R&D. 

Sweden  is  among  the  best  performing  Member 
States  on  ‘Good  health  and  well-being’  (SDG3), 
while its performance has deteriorated recently on 
‘Reduced  inequalities’  (SDG10),  albeit  from  high 
levels (3). 

findings  of 

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

in-depth 

the 

low 

  The  banking  sector  is  resilient  but  could  be 
vulnerable  to  sudden  changes  in  economic 
and financing conditions. The profitability of 
banks  has  been  among  the  highest  in  the  EU 
due  to  low  non-performing  loan  ratios,  high 
cost  efficiency  and 
funding  costs. 
However,  banks  rely  on  wholesale  funding, 
exposing  them  to  risks  of  liquidity  shortages 
and  changes  in  interest  rate  conditions.  In 
addition, 
to 
mortgages  and  commercial  real  estate.  In  the 
event  of  an  abrupt  reversal  of  the  high 
valuation of house prices,  in  combination  with 
a general worsening of economic and financing 
conditions, these structural features could have 
the  Swedish 
negative  consequences 
economy  and 
region,  where 
Swedish banks are active. 

for 
the  Nordic 

large  exposure 

they  have  a 

  Household  debt  as  a  share  of  GDP  has 
stabilised at high levels. Household debt grew 
by 6.1 % in 2018, reaching about 88% of GDP 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment  of  trends  in  relation  to  the  SDGs  in  Sweden 
during  the  past  five  years,  based  on  Eurostat’s  EU  SDG 
indicator set. 

5 

 
 
                                                           
                                                           
Executive summary 

  Allegations  of  suspected  money  laundering 
remain  a  source  of  concern  and  have 
affected  the  reputation  of  Swedish  banks. 
However,  new  legislation  is  in  force  and 
measures  have  been 
improve 
coordination  of  the  enforcement  measures  of 
the 
and 
increased  resources  have  been  allocated  to 
authorities to strengthen anti-money laundering 
work.  These  measures  have  yet  to  be  assessed 
and yield results. 

anti-money 

laundering 

regime 

taken 

to 

and 

low 

employment 

rates.  Challenges 

  Despite  years  of  economic  growth,  some 
population groups have difficulties finding a 
job.  Sweden  is  a  top  performer  in  the  EU  for 
high 
long-term 
remain, 
unemployment 
however,  for  the  integration  of  low-skilled 
people  and  non-EU  migrants,  especially 
women, into the labour market. This challenge 
is  likely  to  remain  in  the  coming  years 
aggravated  by  the  number  and  composition  of 
asylum  seekers  who  arrived  in  late  2015. 
Efforts  have  been  made  to  improve  their 
employability, but the slowing economy might 
further add to this challenge.  

  While 

is 

educational 
overall, 

performance 
the 

has 
educational 
improved 
attainment  gap  between  different  social 
groups 
large  and  widening.  Despite 
positive  results in the OECD’s Programme  for 
International  Skills  Assessment  (PISA),  the 
performance  gap  between  pupils  born 
in 
Sweden  and  those  with  a  migrant  background 
has markedly increased, especially challenging 
as  the  number  of  pupils  with  a  migrant 
background  nearly  doubled  between  2009  and 
2018.  Another  challenge 
the  growing 
shortage of teachers. 

is 

  Despite 

the 

favourable 

business 
environment,  productivity  growth  has 
stalled  recently  and  is  expected  to  remain 
low in the short term. Productivity growth in 
the  longer  term  will  depend  on  the  successful 
transformation  of  the  production  base  and  the 
introduction 
in 
further 
information  and  communication  services  and 
strategic  value  chains.  The  country  performs 
well in terms of efficient public administration, 
access  to  finance  for  small  and  medium-sized 

innovations 

of 

and  176%  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 
distortions 
favouring  mortgage-financed 
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 
the 
countercyclical  capital  buffer  for  banks  from 
September  2019.  However,  the  policy  steps 
taken  so  far  appear  to  have  had  a  limited 
overall  impact  on  the  growth  of  mortgage 
lending.  

increased 

and 

tax 

incentives 

  While  house  prices  declined  in  late  2017, 
to  rise  again  and 
they  have  started 
issues 
valuations  remain  stretched.  Key 
favouring  home 
include 
and 
debt, 
and  mortgage 
ownership 
accommodative  credit  conditions  coupled  with 
still  relatively  low  mortgage  repayment  rates. 
New construction does not meet housing needs, 
particularly  of  affordable  homes  around  major 
cities, where demand is growing. This shortage 
is  linked  to  structural  inefficiencies,  such  as  a 
limited level of competition in the construction 
sector.  The  housing  stock  is  not  being  used 
efficiently.  In  the  rental  market,  below-market 
rents  create 
‘insider/outsider’ 
effects  while  the  vacancy  rate  has  fallen  to 
virtually zero. In the owner-occupancy market, 
capital gains taxes reduce homeowner mobility. 
The  housing  shortage  makes  it  harder  for 
people  to  move  location  for  a  new  job,  thus 
contributing to labour shortages, and can add to 
intergenerational inequality. 

lock-in  and 

  The high level of household debt and banks’ 
exposure  to  real  estate  are  a  risk  to 
macroeconomic  stability.  Despite  gradual 
policy action, mortgage debt continues to grow. 
the  housing  market  still  appearing 
With 
somewhat 
of 
indebtedness  create  a  risk  of  a  disorderly 
correction.  This  could  have  an  adverse  impact 
on  the  economy  and  potentially  also  for  the 
banking sector. 

overvalued, 

levels 

high 

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

6 

 
 
and 

innovation 

enterprises, 
and 
internationalisation  by  businesses.  However, 
investment and innovation could benefit from a 
closer  cooperation  between  academia  and 
business, supporting productivity growth. 

sizeable 

investments 

  To  achieve  Sweden’s  ambitious  climate 
and 
objectives, 
adequate  funding  will  be  key.  The  country 
intends to be carbon-neutral by 2045. This will 
require  investments  in  infrastructure,  such  as 
the  electrification  of 
transportation  and 
industry,  and  close  cooperation  across  society 
innovation,  while  maintaining 
to  support 
competitiveness.  On 
government’s 
the 
initiative, 
several  energy-intensive  sectors 
including  steel,  cement  and  mining  have 
presented  roadmaps  for  becoming  climate 
neutral by 2045, while discussions are ongoing 
on  a  comprehensive  tax  reform  for  increasing 
environmental  taxes  while  reducing  those  on 
labour  and  business.  The  Commission’s 
proposal  for  a  Just  Transition  Mechanism 
under 
financial 
framework  for  the  period  2021-2027,  includes 
a  Just  Transition  Fund,  a  dedicated 
just 
transition  scheme  under  InvestEU,  and  a  new 
public  sector  loan  facility  with  the  EIB.  It  is 
designed  to  ensure  that  the  transition  towards 
EU  climate  neutrality  is  fair  by  helping  the 
most  affected  regions  in  Sweden  address  the 
social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition 
Fund,  set  up  as  part  of  the  Just  Transition 
Mechanism,  are 
in  Annex  D, 
identified 
building  on  the  analysis  of  the  transition 
challenges outlined in this report. 

next  multi-annual 

the 

Executive summary 

7 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

is 

After  years  of  solid  growth,  the  Swedish 
losing  momentum.  Real  GDP 
economy 
increased by 2.2%  in 2018, but grew very little in 
the first three quarters of 2019 as domestic demand 
decelerated.  Gross  fixed  capital  formation  even 
turned  negative  in  the  first  half  of  2019.  The 
unemployment rate, which normally lags economic 
growth,  has  increased  since  mid-2018  with  the 
cooling of the economy. 

Waning  domestic  demand  and  heightened 
external  risks  cloud  the  outlook.  Investment,  a 
main  growth  driver  in  recent  years,  has  become  a 
drag on economic growth and private consumption 
has  slowed.  Although  the  fall  in  investment  was 
led  by  a  drop  in  housing  construction,  investment 
in  machinery  and  equipment  is  cooling  as  well. 
Gross  fixed  capital  formation  is  not  expected  to 
turn  positive  until  2021  (Graph  1.1).  By  contrast, 
net  trade  was  buoyed  by  strong  services  exports 
and  is  forecast  to  support  growth,  in  particular  in 
2019 and 2020 and private  consumption  will pick 
up  from  2020.  Overall,  real  GDP  growth  is 
projected to average 1.3% in 2019-2021.  

Graph 1.1:  Output gap, real GDP growth and its 

components (1) (2) 

(1) Forecasts for 2019-2021 are based on a no-policy 
change assumption 
(2) 2019-2021: Winter forecast 2020 for real GDP growth, 
otherwise Autumn forecast 2019  
Source: European Commission 

Potential growth 

formation 

demand weakens due to waning domestic demand, 
the contribution of labour to potential growth is set 
to halve (Graph 1.2). In addition, the  fall in  gross 
the  capital 
fixed  capital 
contribution  to  potential  growth.  The  fact  that  the 
labour  market 
than 
investment,  together  with  high  growth  in  the 
capital  stock  in  recent  years,  supports  total  factor 
productivity growth (4) (see Box 4.4.1).  

is  decelerating 

reduces 

faster 

Graph 1.2:  Contributions to potential growth (1) 

(1) 2019-2021: Autumn forecast 2019 (based on a no-policy-
change assumption) 
Source: European Commission 

Inflation and monetary policy 

Inflation  remains  low  at  below  2%.  Following 
an  increase  in  2018  due  to  temporary  factors  (in 
particular  a  sharp  rise  in  energy  prices)  the 
inflation  rate  is  set  to  fall  to  1.6%  in  2021.  Weak 
economic  activity  and  expected  moderate  wage 
increases limit inflationary pressures.  

Despite  a  slowing  economy  and  low  inflation, 
the  Riksbank  increased  its  central  policy  rate 
from  negative  territory  to  zero.  The  Riksbank 
increased  the  repo  rate  on  20  December  2018 
from  -0.5%  to  -0.25%  and  again  to  0%  on  19 
December  2019  and  indicated  that  no  more  rises 
are planned in the immediate future. The Riksbank 
will  continue  to  purchase  government  bonds  until 
the  end  of  December  2020,  maintaining 
its 
holdings  close  to  the  average  since  the  beginning 
of  2018.  Long-term  interest  rates  in  Sweden  have 

The  slowing  economy  is  negatively  affecting 
estimated  potential  output  growth.  As  labour 

(4)  Total  factor  productivity  is  a  measure  of  productivity 
accounting  for  effects  in  total  output  not  caused  by 
traditionally measured inputs of labour and capital. 

8 

-0.50.00.51.01.52.02.53.006070809101112131415161718192021Rate of change y-o-y (%)Capital Accumulation ContributionTotal Factor Productivity ContributionChanges in Hours (per Empl) ContributionLabour (persons) ContributionPF Potential Growthforecast 
 
   
  
                                                           
1. Economic situation and outlook 

shortages  in  the  coming  years.  While  the  cyclical 
economic  slowdown  should  ease  the  pressure, 
skills  shortages  of  a  more  structural  nature  are 
expected  prevent  the  gap  from  narrowing.  This 
applies  in  particular  to  education,  health  care, 
social work, ICT, industry and construction. Thus, 
securing  sufficient  skills  is  a  key  challenge  if 
sustained  economic  growth  is  to  be  ensured  (see 
Section 4.3).  

force 

labour 

the  Swedish 

Growth  of 
is 
increasingly  due  to  immigration.  In  2018,  the 
foreign-born  represented  half  of  total  growth  in 
employment,  and in education and health care  the 
foreign-born  actually  accounted  for  all  growth 
(Arbetsförmedlingen, 2019a). The PES expects the 
foreign-born  to  account  for  90%  of  employment 
growth over the medium to long term. 

Finding 
adequate 
employment  without 
education  is  a  challenge,  in  particular  for  the 
non-EU-born.  Sweden  is  among  the  countries 
with the lowest share of employees in occupations 
for which only primary education is required with 
a figure  standing at around 5% (Graph  1.3). Non-
EU  migrants  who  have  only  primary  education 
often find it hard to find work. As structural labour 
shortages  are  most  pronounced  for  high  skilled 
jobs,  weaker  employment  growth  in  the  expected 
cyclical  economic  downswing  risks  having  the 
most  impact  on  the  employment  prospects  of  the 
lower educated, including immigrants. 

Graph 1.3: 

Share of employees working in elementary 
occupation, 2nd quarter of 2019 

been determined by government bond purchases in 
combination  with  the  international  low-interest 
rate  environment.  The  10-year  government  bond 
benchmark rate  turned  negative around  mid-2019, 
associated  with  an  even  more  negative  term 
premium in mortgage rates with a likely supportive 
effect on credit growth.  

Private debt 

Household  debt  remains  at  historically  high 
levels  posing  a  risk  to  the  economic  outlook. 
Household  debt  reached  176%  of  disposable 
income  in  2018,  with  the  ratio  levelling  off.  In 
nominal terms,  household debt increased by 4.8% 
year-on-year  in  the  first  three  quarters  of  2019, 
following  a  rise  of  5.8%  in  2018.  Following 
macro-prudential  tightening,  the  distribution  of 
debt  has  become  more  concentrated.  The  share  of 
new loans with debt-to-income ratios above 450% 
fell  from  15.0%  in  2017  to  8.4%  in  2018.  At  the 
same  time,  the  share  of  new  loans  with  debt-to-
income  ratios  between  300%  and  450%  jumped 
from  32.1%  in  2017  to  37.8%  in  2018.  High 
indebtedness,  linked  to  high  house  prices,  implies 
a  risk  of  a  need  for  deleveraging  with  possibly 
severe  implications  for  domestic  demand  (see 
Section 4.2.3). 

Labour market 

The  labour  market,  which  has  had  a  high 
employment  level,  has  started  to  weaken.  The 
unemployment  rate  has  increased  markedly  from 
an average of 6.3%  in 2018 and is set to stabilise 
just  above  7%  in  2020  and  2021 (5).  At  the  same 
time, Sweden continues to have one of the highest 
the 
employment  rates 
disparity  between  the  employment  rates  of  low-, 
medium-,  and  high-skilled  workers  remains  high. 
In  2018  the  employment  rate  for  low-skilled 
employees  stood  at  62%,  compared  to  89%  for 
those with tertiary education.   

the  EU.  However, 

in 

Labour  shortages  and  skills  mismatch  persist. 
(PES) 
Service 
The 
labour 
(Arbetsförmedlingen)  expects  continued 

Employment 

Public 

(5)  Statistics  Sweden  identified  quality  issues  in  the  Labour 
Force  Survey,  which  led  to  substantial  data  revisions  for 
the  period  from  mid-2018  onwards.  Adjusted  figures 
(based  on  a  smaller  sample)  show  a  lower  level  of 
unemployment but the data have become more volatile as it 
will take time to again expand the survey coverage. 

Source: European Commission 

9 

0%2%4%6%8%10%12%14%SEPLSICZFISKGRLUMTDEATEEUKNLIEEU28PTLTHRFRHUBEDKROITBGESLVCY 
                                                           
   
1. Economic situation and outlook 

have  not  been  proportional  across  income  groups. 
Wage growth has been particularly strong for those 
in lower paid jobs, although not for the 20% of the 
workforce earning the lowest wages.  

income  group  due 

While  Sweden  remains  among  the  more  equal 
societies in the EU, it is no longer among the top 
performers.  Social  transfers  are  the  main  means 
of  counterbalancing 
increased  disparity 
the 
between  low  and  higher-wage  earners.  While 
wages  have  increased  for  the  lower  paid  jobs  but 
not  for  the  lowest  paid,  the  disposable  income  of 
the  lowest  paid  has  actually  increased  more  than 
that  of  any  other 
to 
redistribution,  except  the  top  decile  for  which 
business  income  is  an  important  determinant  of 
disposable  income.  Income  inequality,  measured 
by the income  share of the richest 20% compared 
with that of of  the poorest 20%, remains  stable at 
just  above  a  ratio  of  4.  However,  when  measured 
using  the  Gini-coefficient,  income  inequality  has 
increased  because  of  changes  in  relative  incomes 
other than the lowest due to changes along the full 
range  of 
incomes.  In  addition,  Sweden  has 
experienced  increased  wealth  inequality  and,  in 
particular,  housing  wealth  inequality  (see  Section 
4.2.2). It is difficult for young people, low-income 
groups,  and  newly  arrived  migrants 
to  find 
affordable  housing,  particularly  in  the  big  cities. 
More  broadly,  housing,  other  non-financial  and 
financial wealth dynamics have been an important 
driver of income inequalities (Andersen, 2019). 

Competitiveness 

remains 

competitive. 

Despite  weak  productivity growth, the Swedish 
economy 
Strong 
indicators  on 
is  shown  by 
competitiveness 
effective  exchange  rates  and  wage  and  cost 
developments (Graph 1.4) and is consistent with a 
relatively  strong  export  performance.  On  average, 
real  hourly  wage  growth  has  outpaced  lacklustre 
productivity growth since 2011. In the most recent 
expansionary  phase  of  the  business  cycle  average 
wage  growth  remained  modest,  while  wage 
dispersion  across  industries  remained  limited  (6). 
The  ensuing  moderate  gains  in  unit  labour  costs, 
together  with 
the  depreciating  krona,  have 
supported  overall  competitiveness  and  have  been 
an important determinant of subdued inflation.  

Graph 1.4: 

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

Source: European Commission 

Inequality 

the  Organisation 

The 
increasing  return  on  human  capital 
benefits the lower paid but not the lowest paid. 
In  2015, 
for  Economic 
Cooperation and Development (OECD) noted that 
in  Sweden  employment  opportunities,  including 
wages,  are 
to  educational 
attainment  (OECD,  2015).  Those  on  the  highest 
incomes, in sectors where skills shortages are most 
pressing,  have  experienced  significantly  higher 
wage  growth  than  those  on  the  lowest  incomes 
(Graph  1.5). With  a  large  part  of  the  labour  force 
being relatively well-educated, however, increases 

strongly 

linked 

(6)  Calmfors  et  al.  (2019)  examines  the  role  of  collective 
bargaining in shaping wage dynamics and the relationship 
to sector-specific bottlenecks in the labour market. 

10 

-8-6-4-2024606070809101112131415161718192021Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU28forecast 
    
                                                           
1. Economic situation and outlook 

Graph 1.5: 

Labour productivity and wage growth, 2011-
2017 

(NIIP).  This  to  a  large  extent  mirrors  the  funding 
of  banks  through  securities  issuance,  mostly  in 
international capital markets, amounting to around 
40  to  50%  of  GDP  and  around  25%  of  total 
funding.  This  source  of  financing  has  remained 
stable,  also 
the  wake  of  recent  money 
laundering allegations (see also Section 4.2). 

in 

Graph 1.6: 

Breakdown of Net International Investment 
Position by sectors 

(1) Equalised mean value 
Source: Statistics Sweden (income) and European 
Commission (productivity, wages), European Commission 
calculations 
Note: Ninth decile given for its high wage income share in 
disposable income; tenth decile has large share of business 
income  

External position 

an 

the 

2018, 

services 

services 

however, 

The fall in the current account surplus reversed 
in  2019.  While  the  goods  balance  fell  from  a 
surplus of 6.9% of GDP in 2006 to 1.5% of GDP 
in 
surplus 
increasing 
compensated  for  this  until  2016.  From  then 
onwards, 
balance 
deteriorated  too  and  the  total  trade  surplus  fell 
from  4.4%  of  GDP  in  2016  to  1.9%  of  GDP  in 
2018,  despite  the  fact  that  the  Swedish  krona 
depreciated  by  4.7%  in  real  effective  terms  over 
the  same  period.  In  2019,  however,  the  current 
account  surplus  widened,  as  exports  held  up 
(supported by strong competiveness) while imports 
slumped  in  line  with  the  deceleration  in  domestic 
demand. 

Corporates  reducing  their  borrowing,  and 
further  increases  in  household  savings,  will 
support the current account. Since 2004, a rising 
household  savings  surplus  was  partly  offset  by  a 
reduction  in  borrowing  by  corporations.  As  the 
economy  enters  a  phase  of  muted  growth,  weak 
domestic demand is lowering imports, and reduced 
corporate investments are expected to improve the 
savings ratio. Looking at the sectoral breakdown of 
the  international  investment  position,  only  the 
monetary  financial  institutions  have  a  substantial 
investment  position 
negative  net 

international 

Source: European Commission 

Public finances 

demographic 

While  some  pressure  is  building,  budgetary 
developments  remain  solid.  The  cooling  of  the 
economy, in combination with tax cuts, has slowed 
revenue  growth  in  2019  and  beyond.  At  the  same 
time, 
the 
integration  of  recently  arrived  immigrants  are 
putting 
expenditure. 
pressure 
Consequently,  medium-term  budget  projections 
point  to  decreasing  surpluses  of  0.3%  of  GDP  in 
2019 and 0.1% in 2020-2021.  

developments 

upward 

and 

on 

Sweden’s  debt-to-GDP  ratio  is  expected  to 
continue to fall. Strong economic growth, primary 
budget  surpluses  and  prudent  fiscal  management 
brought  the  debt-to-GDP  ratio  to  38.8%  in  2018. 
The  decline  is  set  to  continue  with  the  debt-to-
GDP  ratio  at  32.0%  in  2021,  significantly  below 
the reference value of 60 % of GDP agreed in the 
Treaty (see also Section 4.1). Moreover, while the 
overall  debt  is  set  to  decrease,  its  composition  is 
changing:  local  governments  and  regions  are 
taking on more debt to finance investments welfare 
provision facilities such as schools, preschools and 
homes for the elderly. 

11 

Disposable income -1st decile (1)Disposable income -9th decile (1)0,00,51,01,52,02,53,03,54,0Real labourproductivity perhour workedWage andbusiness income- 1st decile (1)Real hourlywagesWage andbusiness income- 9th decile (1)Average yearly growth rate (%), 2011-17-60-40-2002040608011Q212Q213Q214Q215Q216Q217Q218Q219Q2% of GDPGeneral GovernmentPrivate sectorMFI (excl central bank)Central Bank (incl reserves)Net int'l investment position (NIIP) 
  
   
1. Economic situation and outlook 

Progress towards the Sustainable Development 
Goals 

6), 

and 

cities 

“Sustainable 

Sweden  generally  performs  very  well  towards 
achieving  the  Sustainable  Development  Goals 
(SDGs) (7).  It  is  among  the  EU  Member  States 
performing best on “zero hunger” (SDG 2), “Good 
health  and  well-being” 
(SDG  3),  “Gender 
equality”  (SDG  5),  “Clean  water  and  sanitation” 
(SDG 
and 
communities”  (SDG  11).  Sweden  has  seen  a 
deterioration in its performance in recent years on 
and 
“Reduced 
“Responsible  consumption  and  production”  (SDG 
12) albeit from high  levels. In  several sub-indices 
Sweden is among the top performers, e.g. in adult 
participation  in  learning",  "death  rate  for  chronic 
diseases”,  “investment  as  a  share  of  GDP”,  and 
“seats  held  by  women  in  parliament”.  Swedes 
continue to have a high confidence in institutions. 
The  crime  rate,  however,  has  been  rising  and  is 
now above the EU average. 

inequalities” 

(SDG 

10) 

(7)  Annex  E  provides  an  overview  of  Sweden’s  performance 

on all Sustainable Development Goals (SDGs). 

12 

 
                                                           
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators - Sweden 

(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. 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a 
percentage of gross wage earnings. 
Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for real GDP and HICP, 
Autumn forecast 2019 otherwise) 

13 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)3.80.82.72.42.21.21.21.5Potential growth (y-o-y)2.71.82.02.22.11.91.71.6Private consumption (y-o-y)3.31.72.62.11.7...Public consumption (y-o-y)0.51.42.20.10.4...Gross fixed capital formation (y-o-y)6.9-0.44.15.64.2...Exports of goods and services (y-o-y)7.60.93.04.33.2...Imports of goods and services (y-o-y) 7.51.33.94.83.6...Contribution to GDP growth:Domestic demand (y-o-y)3.21.02.72.31.9...Inventories (y-o-y)0.1-0.20.20.10.4...Net exports (y-o-y)0.5-0.1-0.20.0-0.1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.50.70.81.10.90.70.60.5Capital accumulation (y-o-y)0.70.60.70.80.90.80.70.6Total factor productivity (y-o-y)1.40.50.50.30.30.40.50.5Output gap1.4-1.6-0.90.70.90.1-0.6-0.9Unemployment rate7.17.87.66.76.36.87.17.2GDP deflator (y-o-y)1.41.71.62.22.32.41.51.7Harmonised index of consumer prices (HICP, y-o-y)1.31.90.61.92.01.71.41.6Nominal compensation per employee (y-o-y)4.03.02.42.13.93.12.93.0Labour productivity (real, person employed, y-o-y)2.90.31.20.00.6...Unit labour costs (ULC, whole economy, y-o-y)1.12.71.12.13.32.21.82.2Real unit labour costs (y-o-y)-0.31.0-0.4-0.10.9-0.20.30.5Real effective exchange rate (ULC, y-o-y)-0.31.1-1.50.5-3.4-4.20.40.2Real effective exchange rate (HICP, y-o-y)-0.80.0-1.9-0.8-3.9-3.70.4-0.3Net savings rate of households (net saving as percentage of net disposable income)5.510.613.313.315.4...Private credit flow, consolidated (% of GDP)12.77.96.213.39.0...Private sector debt, consolidated (% of GDP)154.5191.0192.8197.9200.0...of which household debt, consolidated (% of GDP)61.775.383.187.487.9...of which non-financial corporate debt, consolidated (% of GDP)92.8115.7109.7110.5112.1...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..1.01.10.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)3.51.5-1.5-2.6-3.9-3.3-2.8-2.7Corporations, gross operating surplus (% of GDP)24.924.324.224.123.623.923.723.5Households, net lending (+) or net borrowing (-) (% of GDP)0.84.15.64.65.86.76.87.1Deflated house price index (y-o-y)10.11.511.14.8-3.1...Residential investment (% of GDP)4.03.74.55.75.4...Current account balance (% of GDP), balance of payments7.16.14.33.11.93.03.43.9Trade balance (% of GDP), balance of payments6.75.24.62.91.8...Terms of trade of goods and services (y-o-y)-0.4-0.10.4-0.9-1.50.2-0.8-0.5Capital account balance (% of GDP)-0.2-0.2-0.2-0.10.0...Net international investment position (% of GDP)-11.9-8.9-6.31.48.1...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-21.5-22.1-17.9-7.1-11.4...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)123.3153.7161.6164.1148.4...Export performance vs. advanced countries (% change over 5 years)6.5-5.5-8.1-7.2-8.2...Export market share, goods and services (y-o-y)-0.7-4.2-0.4-3.2-3.42.9-0.8-1.3Net FDI flows (% of GDP)2.32.50.92.12.4...General government balance (% of GDP)2.00.0-0.51.40.80.30.10.1Structural budget balance (% of GDP)..0.01.10.30.20.40.6General government gross debt (% of GDP)45.338.443.040.738.834.633.432.0Tax-to-GDP ratio (%) (3)46.543.643.544.744.443.843.743.5Tax rate for a single person earning the average wage (%) (4)30.325.424.725.025.1...Tax rate for a single person earning 50% of the average wage (%) (4)26.020.419.920.320.3...forecast 
 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

88% 

Since  the  launch  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  (CSRs)  addressed  to  Sweden 
have  recorded  at  least  ‘some  progress’ (8).  12% 
have  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 CSRs related to the housing  market 
and household debt. 

Graph 2.1:  Overall multiannual implementation of 2011 - 

2019 country-specific recommendations to 
date (1) (2) (3) 

(1) The overall assessments 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 adapted until 
February 2020 
Source: European Commission 

Sweden’s  fiscal  policy  continues  to  be  in  a 
healthy  state.  Continued  budgetary  surpluses,  a 
declining debt-to-GDP ratio well below the Treaty 
threshold  and  a  sound  fiscal  framework  have 
ensured  Sweden’s  compliance  with  the  medium-
term budgetary objective.  

in 

the 

labour  market, 

the  government 
For 
achieved  some  progress 
improving  the 
employment situation of young people. Measures 
to  support  apprenticeships  and  other  types  of 
work-based  vocational  education  were  adopted, 
but the low-skilled and the non-EU born citizens in 
particular face high unemployment levels. 

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

particular Section 4. 

year 

since 

2011, 

Every 
it  has  been 
recommended that Sweden address its high and 
rising  household  debt  and  high  house  prices. 
The  authorities  have  implemented  and  adopted 
policy  measures  to  address  the  issue,  but  these 
have been of a rather incremental nature.  

In  addition  to  macro-prudential  steps,  the 
government  has  aimed  to  increase  housing 
supply. Macro-prudential measures include a loan-
to-value ceiling of 85% in 2010, raising banks risk 
weight  floors  for  mortgages  in  2013  and  2014,  a 
formal  amortisation  requirement  in  2016,  further 
strengthened  in  2018  and  an  enhanced  legal 
mandate  for  the  financial  supervisor  in  2018. 
While this has improved banking sector resilience, 
it  has  not  stopped  household  debt  growth.  The 
authorities  also  revised  the  building  and  planning 
regulations  and  provided  budgetary  support  for 
more  construction.  This  has  increased  building 
supply, but not enough to cover expected needs, in 
particular in major cities.  

its 

some  progress (9) 

in 
Sweden  has  made 
addressing 
country-specific 
2019 
recommendations.  Sweden  received  three  CSRs. 
The first one relates to the high level of household 
debt and high house prices. This is relevant for the 
macroeconomic  imbalance  procedure  (see  Section 
3). Limited progress  has been  made  in addressing 
these  imbalances.  The  unlawful  sale  of  rental 
contracts has been criminalized and fines are  now 
higher.  The  government  marginally  changed  the 
capital gains tax to improve mobility and achieve a 
better use of the existing housing stock. To support 
housing  supply,  the  government  has  reinstated 
investment  support  for  building  rental  apartments 
(see Section 4.2.2). In addition, the countercyclical 
capital  buffer  requirement  for  systemic  banks  has 
been  raised  from  2.0%  to  2.5%  effective  from  19 
September 2019.  

Sweden has made some progress on the second 
CSR  related  to  investment  and  on  the  third 
CSR  related  to  anti-money  laundering.  The 
country  is  increasing  its  investment  in  education 

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

is  presented 

in 

14 

No Progress4%Limited Progress8%Some Progress42%Substantial Progress38%Full Implementation8% 
 
    
                                                           
                                                           
2. Progress with country-specific recommendations 

reforms.  Since  2018,  such  support  has  been 
provided to Sweden for three projects. In 2018, the 
Commission provided the authorities  with support 
for  the  implementation  of  the  corporate-income-
tax  gap  assessment  methodology.  In  2019,  work 
started to improve the capacity of municipalities to 
assess  the  quality  of  healthcare  at  home  and  in 
nursing  homes.  The  Commission  is  also  assisting 
the authorities in preparing a study to digitalise the 
issuance of import permits, export permits and re-
export  certificates  in  order  to  comply  with  the 
Convention  on  International  Trade  in  Endangered 
Species of Wild Fauna and Flora (CITES). 

covers 

recommendation 

and  in  infrastructure.  Investment  in  research  and 
innovation and transport has been maintained. The 
third 
anti-money 
laundering,  where  Sweden  has  made  some 
progress.  It  strengthened  the  legal  anti-money 
laundering  framework  and  somewhat  increased 
staffing,  although  a  further  strengthening 
is 
needed.  The  country  has  started  reviews  of  the 
governance  of  major  Swedish  banks  and  their 
control  of  anti-money  laundering  measures  in 
Baltic subsidiaries and launched two investigations 
at the end of 2019. 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
to  help  design  and  implement  growth-enhancing 

Table 2.1: 

Summary table on CSR assessments (*) 

Source: European Commission 
(*) The assessment of CSR 2 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

15 

 Sweden Overall assessment of progress with 2019 CSRs: Some 1. Address risks related to high household debt by gradually reducing the tax deductibility of mortgage interest payments or increasing recurrent property taxes. Stimulate investment in residential construction where shortages are most pressing, in particular by removing structural obstacles to construction. Improve the efficiency of the housing market, including by introducing more flexibility in rental prices and revising the design of the capital gains tax. Limited progress  No progress on limiting mortgage interest tax deductibility or increasing recurrent property taxes;  Limited progress on stimulating housing construction, most notably investment subsidy;  No progress on flexibility in the rental market and revising the capital gains tax; 2. Focus investment related economic policy on education and skills, maintaining investment in sustainable transport to upgrade the different transport modes, in particular railways, and research and innovation, taking into account regional disparities. Some progress  Some progress on education and skills with measures taken, as reflected also in the 2020 budget;  Substantial progress on infrastructure with the implementation of the 2018-2029 national transport plan on track;  Some progress on research and innovation as Sweden maintained its investment; 3. Ensure effective supervision and the enforcement of the anti-money laundering framework. Some progress  Substantial progress on new legislative measures;  Some progress on ensuring more effective supervision and enforcement and on the review of Baltic subsidiaries;  Limited progress on staffing of supervisors, in particular FSA;   
 
 
   
 
2. Progress with country-specific recommendations 

16 

 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in Sweden 

Sweden benefits from EU support. The financial allocation from the EU Cohesion policy funds1 
for Sweden amounts to € 3.47 billion in the current Multiannual Financial Framework, equivalent 
to  around  0.1%  of  GDP  annually.  By  the  end  of  2019,  some  € 2.98  billion  (around  86 %  of  the 
total amount planned) was allocated to specific projects, while € 1.57 billion was reported as spent 
by the selected projects 2 showing a level of implementation above the EU average.  

EU Cohesion policy funding also contributes to addressing structural challenges in  Sweden. 
The Cohesion Policy programmes for Sweden have allocated € 644.25 million for smart growth, € 
244.54 million for sustainable growth and sustainable transport and € 783.80 million for inclusive 
growth. In 2019, following a  performance review 3, € 139.54  million  was  made available  within 
performing priorities.  

in  research, 

investments,  mainly 

EU  Cohesion  policy  funding  is  contributing  to  transformations  of  the  Swedish  economy  by 
technological 
promoting  growth  and  employment  via 
development  and  innovation,  competitiveness  of  enterprises,  sustainable  transport,  employment 
and labour  mobility. By 2019, investments driven by the  European Regional Development Fund 
(ERDF)  had  approved  800  projects,  1,800  organisations  are  co-financing  the  projects,  20,000 
SMEs are supported. European Social Fund (ESF) funding contributes to employment growth and 
a  sustainable  working  life  through  measures  aimed  at  skills  development  and  support  for 
vulnerable groups. In total, more than 160,000 people have benefited from the support. The Fund 
has helped the process of integration of the foreign-born into the labour market, especially women. 
The ESF and the Youth Employment Initiative supported over 25,000 participants with a foreign 
background or minorities. Over 10% of the ESF projects focus on the newly arrived in Sweden. 

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  help  address  investment 
needs. The European Agricultural Fund for Rural Development (EARDF) provides supports of € 
3.46  billion  and  the  European  Maritime  and  Fisheries  Fund  (EMFF)  has  € 173.18  million 
(including  the  national  co-financing  for  both)  available.  Sweden  benefits  also  from  other  EU 
programmes, such as the Connecting Europe Facility, which allocated € 347.11 million to specific 
projects  on  strategic  transport  networks.  Horizon  2020  allocated  € 1.6  billion  (including  to  485 
SMEs of about € 248.11 million). 

EU funding contributes to mobilisation of private investment. By the end of 2018, European 
Structural  and  Investment  funds 4  helped  programmes  mobilise  additional  capital  by  committing 
about  € 275.3  million  in  the  form  of  loans,  guarantees  and  equity,  which  is  4.6%  of  all  decided 
allocations of the European Structural and Investment funds (ESIF). 

EU funds already invest amounts on actions in line with the Sustainable Development Goals 
(SDGs). In Sweden, European Structural and Investment Funds support 10 of the 17 SDGs with 
up to 95% of the respective expenditure.  

1 European Regional Development Fund, Cohesion Fund, European Social Fund, Youth Employment Initiative, including 

national co-financing.  

2 https://cohesiondata.ec.europa.eu/countries/SE. 
3  The  performance  review  is  regulated  by  Article  22  of  the  Regulation  (EU)  No  1303/2013,  whereby  5-7  %  of  overall 
resources  allocated  are  released  to  performing  priority  axes  of  the  operational  programmes,  the  amount  includes 
national co-financing. 

4  European  Regional  Development  Fund,  Cohesion  Fund,  European  Social  Fund,  European  Agricultural  Fund  for  Rural 

Development Fund and European Maritime and Fisheries Fund. 

17 

 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

imbalances 

in-depth  review 

The  2020  Alert  Mechanism  Report  concluded 
should  be 
that  another 
undertaken for Sweden to assess the persistence 
or  unwinding  of 
(European 
Commission,  2019a).  In  February  2019,  Sweden 
was  again  identified  as  having  macroeconomic 
imbalances  (European  Commission,  2019a).  The 
identified 
to 
elevated  house  prices  coupled  with  high  and 
increasing 
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 (10). 

imbalances  related 

in  particular 

debt.  This 

household 

to  be  high 

orderly,  i.e.  the  non-performing  (NPL)  ratio  and 
the  number  of  bankruptcies  have  been  low  and 
stable.  Leverage  continues 
in 
comparison  with  most  Member  States,  however, 
but equity cushions and corporate savings provide 
the 
for  a  substantial  buffer.  Thus,  overall, 
corporate  sector  is  in  a  position  to  further  reduce 
leverage 
like 
commercial real estate, appear more vulnerable. In 
the commercial real estate sector, asset prices have 
risen  fast,  yields  have  fallen  and  banks’  exposure 
to  lending  for  the  sector  has  increased.  (see 
‘Corporate debt developments’ in Section 4.2.3). 

if  needed.  Some 

segments, 

High  house  prices  in  combination  with  high 
household debt  expose the Swedish economy to 
shocks. House prices have risen significantly over 
the  past  two  decades  and  remain  high,  despite  a 
correction  in  2017.  The  overall  estimate  of  the 
overvaluation  gap  is  at  around  30%.  Strong 
fundamentals, low interest rates, distortive taxation 
and supply side inefficiencies all contribute to the 
overvaluation  (see  Section  4.2.2).  Because  of  the 
combination of high house prices and high private 
debt,  the  European  Systemic  Risk  Board  (ESRB) 
stepped  up  its  warning  and  issued  in  2019  a 
these 
to  Sweden 
recommendation 
structural factors (ESRB, 2019a).  

to  address 

The  banking  sector  is  relatively  resilient,  but 
could  be  vulnerable  to  sudden  changes  in 
economic  and 
financing  conditions.  Bank 
profitability has been among the highest in the EU 
due  to  low  NPL  ratios,  high  cost  efficiency  and 
low  funding  costs.  However,  banks  rely  on 
wholesale  funding,  exposing  them  to  risks  of 
liquidity  shortages  and  changes  in  interest  rate 
conditions. In addition, they have a large exposure 
to mortgages and commercial real estate. If there is 
an  abrupt  reversal  of  the  high  house  prices,  in 
combination with a general worsening of economic 
and  financing  conditions,  these  structural  features 
could have negative consequences for the Swedish 
the  Nordic  region,  where 
economy  and  for 
Swedish banks are active. 

3.1. 

IMBALANCES AND THEIR GRAVITY 

Consolidated private sector debt stood at 200% 
of GDP in 2018, among the highest in Europe. It 
grew  by  two  percentage  points  in  2017-2018. 
Consolidated  debt  of  both  households  (88%  of 
GDP  in  2018)  and  non-financial  corporations 
(112%  of  GDP  in  2018)  both  grew.  Current  debt 
levels are high compared to other EU countries and 
above  debt  benchmarks  developed  by 
the 
European Commission.  

Household debt remains the main concern. Not 
only has household debt risen faster than GDP and 
disposable income for an extended period of time, 
but  the  expansion  of  household  debt  is  also 
strongly  tied  to  high  house  prices  and  very  low 
interest rates. While households possess significant 
assets, these are  usually illiquid and their value  is 
exposed to market risk. Moreover, high household 
debt is a particular concern for certain groups that 
entered  the  housing  market  in  recent  years  and 
took  on  above  average  levels  of  debt  relative  to 
income  (see  ‘Household  debt  developments’  in 
Section 4.2.3).   

The  debt  level  of  non-financial  corporations, 
while  high,  appears  manageable.  Swedish  non-
financial  corporations  deleveraged  following  the 
financial crisis as nominal GDP growth outstripped 
credit  growth.  Deleveraging  in  Sweden  has  been 

(10)  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. 

18 

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

the  unlawful  sale  of  rental  contracts  has  been 
criminalised  and  fines  have  been  increased.  The 
government  marginally  changed  the  capital  gains 
tax  to  improve  mobility  and  achieve  better  use  of 
the  existing  housing  stock.  Deferral  of  the  capital 
gains tax liability on housing transactions remains 
possible  when  moving  house,  with  the  maximum 
deferrable amount increased to SEK 3 million. To 
partially address the continued shortage of housing 
supply,  the  government  has  reinstated  investment 
support  for  building  rental  apartments  (including 
for  students)  as  part  of  the  2020  budget  bill.  This 
entered into force on 1 January 2020 with a budget 
allocation  of  SEK  2.1  billion,  which  should 
gradually  increase  to  SEK  3  billion.  Concerning 
macroprudential policy, the countercyclical capital 
buffer for systemic banks has been raised from 2.0 
to 2.5%, effective from 19 September 2019 and the 
FSA  proposed  tighter  capital  requirements  on 
banks  for  their  exposures  to  commercial  real 
estate.  

Important  policy  gaps  remain,  particularly  in 
relation  to  tax  incentives  for  (debt-financed) 
home ownership and the rental market. Sweden 
is one of the very few EU countries with tax relief 
on  the  full  amount  of  mortgage  interest  paid  and 
there  has  been  no  progress  towards  reducing  this 
tax deductibility. Nor has any action been taken to 
reform  the  system  of  recurrent  property  taxation, 
which currently has a relatively low ceiling so that 
the tax in practice tends to be a rather modest fixed 
fee  that  does  not  increase  apace  with  property 
values.  At  the  same  time,  the  capital  gains  tax, 
which  negatively  affects  housing  mobility  in  the 
owner-occupied housing market segment, has been 
broadly  left  untouched.  Sweden’s  rental  market 
and  discourages 
regulated 
remains 
increased  supply  of  rental  housing  and  more 
efficient usage of the existing stock. 

tightly 

3.3.  OVERALL ASSESSMENT 

and 

house 

overvalued 

The  Swedish  economy  still 
faces  macro-
economic  imbalances  related  to  high  private 
debt 
prices. 
Macroeconomic  shocks  could  still  destabilise  the 
Swedish  economy  as  household  debt  related  to 
overvalued  house  prices  could  trigger  a  harmful 
adjustment.  In  such  an  adverse  scenario,  a  large 
and  disorderly  correction  of  house  prices  would 
lead  to  a  negative  interaction  between  credit  and 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

Household  debt  continues  to  rise.  The  stricter 
amortisation  rules  for  new  residential  mortgages 
resulted  in  a  somewhat  slower  credit  growth.  In 
nominal  terms,  it  grew  4.8%  year-on-year  in  the 
first three quarters of 2019 (5.8% in 2018). In the 
third  quarter  of  2019,  household  debt  stood  at 
177%  of  disposable  income.  The  combination  of 
favourable financing conditions due to low interest 
rates,  a  uptick  in  house  prices  and  still  growing 
disposable  income  will  highly  likely  result  in 
continued uptake of debt in particular by first-time 
buyers (Emanuelsson et al., 2018).  

House  prices  are  likely  to  increase  further. 
House prices started to grow  again in 2019 as the 
supply  of  new  homes  is  lagging  and  the  rental 
market  does  not  offer  many  alternatives. 
Moreover, the low interest rates and negative term 
premium  can  suppress  user  housing  costs  even  if 
debt increases. In December 2019 the year-on-year 
increase  in  house  prices  was  4.2%,  leaving  them 
3.2%  below  their  August  2017  peak  (11).  Real 
house  prices  were  2.3%  year-on-year  higher  in 
December  2019  and  7.8%  below  their  2017  peak. 
Indicators  still  point  to  an  overvaluation  of  house 
the  gap  between  prices  and 
prices,  with 
fundamentally  justified  values  among  the  highest 
in  the  EU.  Continued  distortions  in  supply  and 
demand 
together  with  growth  of  nominal 
disposable income and some financial space (lower 
interest  rates  at  the  longer  end  of  the  yield  curve 
plus uptake of consumer loans) suggest that prices 
are likely to rise moderately in the future. 

Corporate  debt  is  on  the  rise,  again.    After 
reaching  a  post-crisis  low  of  106%  of  GDP, 
consolidated  corporate  debt  has  started  to  rise 
again.  Quarterly  indicators  for  non-consolidated 
debt point to a further, albeit moderate, rise in the 
first  half  of  2019.  Corporates  have  somewhat 
started to lengthen the duration of loans following 
the  strong  decline  in  longer  maturities.  Still,  70% 
of  the  remaining  maturity  is  below  3  months  and 
90% below one year. 

Limited policy steps have been taken to address 
the  imbalances  associated  with  household  debt 
and  the  housing  market.  For  the  rental  market, 

(11)  According to the HOX index of Valueguard Sweden. 

19 

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

economic  growth.  This  could  spill  over  to  other 
countries  in  the  region  through  the  financial 
system. 

resorted  mostly 

Policy measures have not sufficiently addressed 
housing  debt  and  house  price  imbalances.  The 
authorities  have 
to  macro-
prudential  measures  to  address  demand  pressures 
while  supply  measures  have  been  restricted  to 
subsidising  construction  in  the  rental  market.  The 
2016 ‘22-point plan’ to improve the working of the 
housing  market,  which  was 
implemented 
gradually,  has  been  superseded  by  the  broader 
the  government 
reform  agenda  contained 
programme  of  January  2019 
(‘the  January 
Agreement’). Still policy gaps remain for housing-
related taxation and for the functioning of housing 
supply and the rental market. 

in 

20 

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

Table 3.1: 

MIP assessment matrix (*) - Sweden 2019 

(Continued on the next page) 

21 

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

Table (continued) 

Source: European Commission 

22 

 
 
  
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

Graph 4.1.1:  Swedish fiscal rules index and government 

gross debt 

Public  finances  remain  resilient.  The  general 
government balance had a surplus of 0.8% of GDP 
in 2018, with the general government gross debt at 
38.8% of GDP and the debt-to-GDP ratio expected 
to  have  declined  below  the  new  35%  debt  anchor 
in 2019. A slightly expansionary 2020 budget bill 
and slower growth are expected to lead to a decline 
in the general government surplus, but Sweden still 
faces low fiscal sustainability risks in the  medium 
to long term. 

4.1.1.  FISCAL FRAMEWORK 

A  revised  fiscal  framework  came  into  force  in 
Sweden  in  2019.  The  main  changes  are  the 
introduction  of  a  debt  anchor  set  at  35%  of  GDP 
with  a  5  percentage  point  tolerance  margin  and  a 
lower  net  lending  surplus  target  over  the  cycle  to 
0.33% of GDP, from the previous 1% of GDP. In 
addition,  it  entails  a  strengthened  mandate  for  the 
Fiscal  Policy  Council  (Finanspolitiska  rådet), 
which  has  worked  since  2007  to  monitor  fiscal 
rules and evaluate the official macro-forecasts. The 
fiscal  framework  kept  the  expenditure  ceiling  and 
a  balanced  budget 
local 
authorities. 

requirement 

for 

The framework has strong credibility based on 
its  institutional  set-up  and  Sweden’s  track 
record.  The  framework  has  contributed  to  long-
term fiscal sustainability in Sweden (Graph 4.1.1), 
combining  stability  and  sound  implementation 
over  time  with  the  possibility  of  amending  when 
necessary, for example in response to demographic 
changes  or  debt  development  assessments.  Since 
2017, ties between the budget and climate policies 
have been strengthened through the climate policy 
framework,  and  the  budget  includes  an  annual 
climate report. 

Source: European Commission 

Broad  political  support  was  and  remains 
crucial  for  the  success  of  the  framework.  The 
institutional set-up of  Sweden’s public  finances is 
based  on  consensus  across  party  lines,  which  has 
been  a  factor  for  its  soundness  (see  European 
Commission,  2019b).  The  predictability  of  the 
fiscal  framework  has  contributed  to  its  success. 
According  to  the  framework,  statutory  revisions 
should be  made every 8  years. The  current policy 
agreement  between 
two 
centre-right  parties  (the  Liberals  and  the  Centre 
Party) explicitly states that the framework is to be 
complied  with over the election period, also to be 
prepared for a downturn. 

the  government  and 

that 

rule. 

It is too early to evaluate the results of the new 
fiscal  framework.  While  the  debt  level  is  in  line 
with  the  benchmark  rule  and  is  projected  to  have 
fallen to 34.6% of GDP in 2019, an assessment of 
the  surplus  target  requires  more  data  points  under 
the  new 
the  current 
It  appears 
expenditure  ceiling  will  help  achieve  the  surplus 
target.  In  a  retroactive  perspective,  the  new  target 
would  not  have  been  reached  (Finanspolitiska 
rådet,  2019).  Looking  ahead,  local  governments 
and  regions  face  a  rising  demand  for  welfare 
services.  The  long-term  ability  of  the  pension 
system  to  guarantee  adequate  pensions  is  also 
uncertain. In the event of substandard pensions, ad 
hoc interventions could put additional  pressure  on 
public finances (Aspegren et al., 2019). 

23 

0102030405060708001234567891094969800020406081012141618in % of potential GDPStrength of fiscal rulesGovernment debt (rhs) 
 
   
4.1. Public finances and taxation 

slower revenue growth. This includes the abolition 
of  the  5%  ‘austerity  tax’  levied  on  the  portion  of 
individual  incomes  exceeding  SEK  689,300  per 
year (removing the top layer of progressivity), and 
a  reduction  in  income  tax  rates  for  income  above 
SEK  17,000  /month  for  the  over-65s.  The  aim  of 
the measure is to remove the gap between taxation 
of employment income and pension income.   

Revenue from environmental taxes is below the 
EU  average.  Environmental  taxes  accounted  for 
2.1%  of  GDP  in  2018  (EU  average  2.4%)  and 
energy taxes for 1.6% of GDP (EU average 1.8%). 
In  the  same  year,  environmental  tax  revenue 
accounted for 4.8% of total revenue from taxes and 
social  security  contributions  (EU  average  6.2%). 
This  situation  is  partially  due  to  the  intended 
behavioural  impact  of  taxes,  and  an  increased 
substitution to biofuels in the transport sector.  

Some  exemptions  and  reductions  in  tax  rates 
for  carbon  and  energy  are  being  phased  out. 
Discounts in the carbon tax on heating fuels in the 
non-ETS  (emissions  trading  system)  sectors  have 
been  reduced,  and  ultimately  abolished  in  2018. 
Tax reductions or exceptions remain only for fuels 
in certain areas, such as agriculture and inland sea 
transport.  Since  2017,  taxes  on  petrol  and  diesel 
are subject to an annual increase of two percentage 
points  on  top  of  consumer  price  inflation.  The 
‘diesel  differential’  (difference  in  price  of  diesel 
versus  petrol)  has  been  reduced  by  gradually 
adjusting the respective excise tax rates.  

4.1.3.  SUSTAINABILITY OF PUBLIC FINANCES 

and 

fiscal  management 

is  expected  to 
Sweden’s  government  debt 
continue  declining  over  the  medium  term. 
Sound 
sustainable 
economic  development  under  the  Commission’s 
baseline  no-policy change scenario is projected to 
bring  government  debt  to  15.4%  of  GDP  in  2030 
from 34.6% of GDP in 2019. The pension system 
is  being  reformed,  with  the  aim  of  tying  the 
minimum pensionable age to a ‘reference age’ that 
will  increase  with  life  expectancy.  As  a  first  step, 
the  minimum  age  for  the  regular  old  age  pension 
(income-based pension) has been raised from 61 to 
62  in  January  2020,  and  further  steps  to  raise  the 
reference  age  for  the  old  age  (income-based) 
pension  and  minimum  (guaranteed  sum)  pensions 
are expected in the coming years (Aspegren et al., 

4.1.2.  TAXATION AND BUDGETARY 

DEVELOPMENTS 

The general level of taxation remains above the 
EU average, but varies across specific taxes. The 
total  tax  burden  was  43.8%  of  GDP  in  2018  (EU 
average  39.2%  of  GDP).  The  overall  labour  tax 
burden  is  also  high  with  an  implicit  tax  rate  of 
39.6%  in  2018,  above  the  EU  average  of  36.2%. 
At  the  same  time,  the  relatively  low  recurrent 
property  tax  on  homes (12),  and  mortgage  interest 
deductibility,  result  in  a  regressive  tax  bias  in 
favour of house ownership. However, capital taxes 
are also below the EU average (6.1% of GDP; EU 
average  of 8.5%, and 13.8%  of total taxation; EU 
average of 21.6%). 

The  high  tax  burden  on  labour  might  affect 
work  incentives.  Low-income  earners  at  50%  of 
the  average  wage  face  a  particularly  high  tax 
wedge, i.e. the gap between labour costs and take-
home  pay,  at  39.5%.  Furthermore,  incentives  to 
move  from  inactivity  to  employment  as  measured 
by the inactivity trap indicator, are low at 50% and 
67% of average wage, due to a high tax burden.    

tax 

could 

reform 

A  broader 
support 
employment  and  help  mitigate  the  build-up  of 
household  debt.  The  government’s  2019  policy 
statement  included  an  objective  to  carry  out  a 
major tax reform. No concrete plans have yet been 
announced,  however.  Therefore,  it  is  not  certain 
whether the forthcoming reform would include e.g. 
a tax shift from labour to property by revising the 
rules  on  mortgage  interest  deductibility  or  the 
recurrent  property  tax.  Reforms  in  this  area  could 
contribute  to  more  favourable  development  of 
foster 
household  debt 
employment  and  possibly  also  have  a  favourable 
impact on income equality (Justo et al., 2019). 

(see  Section  4.2), 

The 2020 budget bill is slightly expansionary. It 
reflects rising demand for welfare services and the 
financial  constraints  of  local  governments  and 
regions,  which  will  receive  higher  grants  (an 
increase  of  SEK  5 billion).  Moreover,  it  includes 
new spending on law and order and a commitment 
to support a green transition using SEK 3.2 billion 
to promote the transition to a fossil-free economy. 
On the revenue side, sizeable tax cuts translate into 

(12)  0.75%  of  the  assessed  value  (with  a  cap  of  SEK  7812 
(EUR 730) in 2019) compared to the EU average of 1.55%. 

24 

 
                                                           
4.1. Public finances and taxation 

2019). Overall, the outlook for fiscal sustainability 
appears sound in the short, medium and long term 
(European Commission, 2020a) (13).  

Debt appears to be resilient to shocks. Given the 
low stock of initial debt, adverse shocks to growth, 
interest  rates  or  the  primary  balance  would  not 
have  a  sizeable  impact  on  the  debt  ratio.  In  all 
sensitivity test scenarios government debt remains 
on  a  downward  trend.  Debt-to-GDP  at  the  end  of 
the  projection  period  (2030)  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 18.0% of GDP 
in 2030. 

to 

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  (the 
second highest in the EU) to 4.9% of GDP in 2070 
(European  Commission  and  Ageing  Working 
Group  of  the  EPC,  2018).  This  corresponds  to  a 
53% increase, slightly below the EU average. The 
share of the population receiving long-term care is 
relatively  high  by  EU  standards,  whereas  the 
underlying  level  of  need (14)  is  among  the  lowest 
in the EU. 

(13)  See also Annex B for an overview. 
(14)  Based  on  indicators  such  as  the  percentage  of  the 
population  reporting  a  long-standing  illness  or  health 
problem  and  the  percentage  of  the  population  reporting 
severe limitations in daily activities.   

25 

 
                                                           
the 

international  comparability  of 
enhancing 
reported  capital  ratios.  The  ensuing  drop 
in 
reported  bank  capitalisation  as  a  ratio  of  risk-
weighted assets moved it closer to the EU average 
(see  Graph  4.2.1).  However,  the  leverage  ratio 
remains between 4% and 5% for most banks and is 
among  the  lowest  in  the  EU.  The  comparatively 
low  level  of  own  funds  illustrates  the  existing 
structural  vulnerabilities,  consistent  with 
the 
finding of Betz et al. (2014) that the leverage ratio 
is  the  simple  best  indicator  predicting  failure  for 
European  banks.  Capital  requirements  related  to 
the  output  floor (18),  as  agreed  by  the  Basel 
Committee  on  Banking  Supervision,  may  lead  to 
higher  capital  buffers  for  Swedish  banks  going 
towards  full  implementation  on  1  January  2027 
(Finansinspektionen, 2019a). 

Graph 4.2.1:  Common Equity Tier 1 capital ratios (%) 

The grey column represents the spread of the second 
quartile of EU Member States’ values, and the light blue 
column represents the values of EU Member States falling in 
the third quartile. 
Source: European Commission 

(18)  The output floor limits the amount of capital benefit a bank 
can  obtain  from  its  use  of  internal  models,  relative  to  the 
use of standardised approaches. 

4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR (*) (15)  

Overview 

low  credit 

The  banking  sector  is  resilient  thanks  to  high 
profitability  and 
losses.  Despite 
negative 
interest  rates  in  recent  years,  bank 
profitability  still  ranks  among  the  highest  in 
Europe.  Moreover,  in  2019,  the  Swedish  banking 
sector  continued  to  exhibit  one  of  the  lowest 
average  NPL  ratios  for  both  households  and  non-
financial  corporations  (see  Table  4.2.1).  This  low 
incidence  provides  resilience  in  the  event  of 
adverse  shocks  and  has  led  to  low  funding  costs. 
These  developments  and  high  cost  efficiency 
resulted  in  return  on  equity  and  return  on  assets 
averaging 12 and 0.7% respectively in 2019. Share 
prices fell, however, as several Swedish banks are 
being  investigated  for  failures  to  properly  prevent 
money  laundering,  particularly  in  their  Baltic 
branches and subsidiaries. 

Vulnerabilities and risks remain due to the size, 
concentration  and  interconnectedness  of  the 
Swedish banking system. The size of the banking 
system,  measured  by  its  total  assets,  is  almost 
300%  of  GDP (16).  The  sector  is  concentrated 
around  three  major  (pan-Nordic)  banks  covering 
over 60% of the market across all main segments. 
In  addition,  these  banks  are  closely  interlinked 
through their trading operations and their bilateral 
non-secured  loans.  There  are  also  sizeable  cross-
holdings  of  covered  bonds (17),  which  entails 
significant  risks  of  contagion  in  the  event  of 
disruptions.  

Regulatory changes in the calculation of banks' 
risk-weighted  assets  led  to  a  significant  decline 
in reported capital ratios. At the end of 2018, the 
Financial 
Authority 
Supervisory 
(Finansinspektionen,  FSA)  revised  the  modalities 
for  the  risk-weight-floor  imposed  on  residential 
mortgages  for  banks  using  internal  risk  models, 

(15)  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). 

(16)  This  includes  foreign  banks’  operations  on  the  Swedish 
market.  Excluding  foreign  banks’  operations  in  each 
country, the EU average is just over 130% and in Sweden 
about 200%. 

(17)  Inter-bank  exposures  in  securities  amount  to  about  SEK 
150  billion  or  €14  billion,  which  corresponds  to  almost 
30% of Common Equity Tier 1 (CET1) capital on average 
over the last 3 years. 

26 

1012141618202224141516171819Q2SEEU28 average 
 
                                                           
   
 
                                                           
4.2. Financial sector 

Table 4.2.1: 

Financial soundness indicators (1) 

(1) All banks in Sweden 
(2) Annualized data 
Source: European Central Bank; European Commission 
calculations 

Swedish  banks  have  maturity  mismatches 
between  assets  and  liabilities  and  rely  on 
wholesale  funding.  The  loan-to-deposit  ratio  is 
high  in  Sweden  (182.2  as  of  Q2-2019,  twice  the 
EU  average).  Compared  to  European  peers,  the 
major banks in Sweden have a large share of loans 
on the asset side, mainly mortgages with usually a 
very long maturity of 30–50 years. On the liability 
side,  bank  deposits,  commonly  perceived  as  a 
stable  funding  source,  are  a  comparatively  small 
share.  Swedish  banks  rely  on  the  international 
capital  markets to cover the resulting  funding  gap 
of  around  50%  of  their  loan  books,  mostly  with 
short-term  debt  in  foreign  currency  and  covered 
bond issuances backed by residential mortgages. 

Stress  tests  show  mixed  results  for  Swedish 
banks. According to the 2018 stress test conducted 
by  the  European  Banking  Authority  (European 
Banking  Authority,  2019),  the  major  Swedish 
banks would have the ability to withstand a severe 
recession  combined  with  falling  real  estate  prices 
(illustrated,  among  other  things,  by  a  reduction  in 
the Common Equity Tier 1 (CET1) ratio of at the 
most  between  2.7  and  3.3  percentage  points).  By 
contrast,  the  results  of  the  Riksbank’s  stress  tests 
show  that  in  the  event  of  a  deep  recession  the 
major  banks’  credit  losses  could  be  higher.  They 
would incur substantial operating losses,  lowering 
their  CET1  ratio  by  almost  14  percentage  points 
and  the  leverage  ratio  by  over  4  percentage 
points (19).  

The  exposure  of  banks  to  the  housing  market 
poses  risks.  Households  remain  vulnerable  to  an 
adjustment  in  the  housing  market  and  an  increase 
in  debt  service  costs  (see  Section  4.2.3).  An 
indicator  developed  by  the  Riksbank  (Giordani  et 
al,  2017)  to  measure  vulnerability  in  the  financial 
system  is  currently  at  historically  high  levels, 
partly  due  to  high  indebtedness  and  rising  real 
housing  prices.  This 
the  macro-
prudential  policy  measures  adopted  to  cover  the 
associated risks.  

is  despite 

exposes 

liability 

funding  costs.  Because 

from 
investigations. 

The 
credit 
structure 
institutions to the risks of liquidity shortage and 
higher 
international 
wholesale  funding  is  much  more  sensitive  to 
changes in interest rates or conditions of financial 
stress, Swedish banks could find it difficult to get 
sufficient  liquidity  in  an  adverse  situation  e.g. 
disruption  on  the  housing  market  or  confidence 
the  ongoing  money 
effects  stemming 
laundering 
this 
Against 
background, Swedish supervisors have stressed the 
importance  of  adequate  liquidity  coverage  ratios 
liquidity  buffers 
to  diversify 
and 
(Finansinspektionen, 2019b; Riksbank 2019a). On 
the  other  hand,  all 
important 
institutions  already  meet  the  current  minimum 
requirements for own funds and eligible liabilities 
(MREL).  This  is  the  amount  of  own  funds  and 
liabilities  that  can  be  written  down  or  converted 
into new equity to absorb losses and restore capital 
in a crisis. 

systemically 

the  need 

Risks  related  to  the  commercial  real  estate 
market  triggered  an  in-depth  analysis  by  the 
Financial  Supervisory  Authority.  Commercial 
real  estate  prices  have  increased  sharply  since 
2013,  in  particular  for  offices  in  the  centres  of 
Stockholm  and  Gothenburg  (Finansinspektionen, 
2019c). Banks' commercial real estate lending has 
grown  in parallel, possibly indicating a  search  for 
yield.  However,  given  the  size  of  the  commercial 
property  market  in  Sweden  (around  36%  of 
GDP)(20)  and  its  sensitivity  to  macro-financial 
shocks,  a  sharp  market  correction  could  have 
the 
ramifications 

financial  stability,  via 

for 

(19)  The different methods used make it difficult to compare the 
EBA and Riksbank stress tests. Differences are due mainly 
to  the  selected  credit  loss  model  and  net  interest  and 
commission income model of banks, different assumptions 
on  the  banks’  balance  sheets  (static  or  dynamic)  and  the 
significance  of  second-round  effects  (Riksbank,  2019b, 
p.25). 

(20)  Within the EU, Sweden appears to be among the countries 
with  a  relatively  large  commercial  real  estate  sector,  but 
data  problems  hinder  comparative  analysis.  The  ESRB  is 
coordinating 
and 
harmonisation of data; for initial results see ESRB (2019b).  

coverage 

improve 

efforts 

to 

27 

2014q42015q42016q42017q42018q42019q2Non-performing loans1.31.31.21.31.01.1o/w foreign entities------o/w NFC & HH sectors1.61.51.41.51.2-o/w NFC sector1.81.91.61.80.91.0o/w HH sector1.41.21.21.21.41.5Coverage ratio26.026.926.126.422.223.0Return on equity(2)11.811.211.910.912.212.0Return on assets(2)0.60.60.70.70.80.7Total capital ratio22.224.126.325.920.720.2CET 1 ratio17.318.920.420.717.016.7Tier 1 ratio19.221.022.723.018.518.2Loan to deposit ratio161.8177.8178.0172.7190.7182.2 
 
  
 
                                                           
4.2. Financial sector 

skills  to  ensure  that  they  are  of  use  to  the  entire 
system,  and  to  foster  collaboration,  dialogue  and 
effective  exchange  between  the  authorities,  and 
between the authorities and operators. 

its 

anti-money 

The  Financial  Supervisory  Authority  recruited 
additional  staff  to  ensure  a  more  transparent, 
risk-based and efficient supervision. It increased 
its staff by four new posts in 2018 to a total of 13, 
still  low  for  the  size  of  the  Swedish  financial 
sector.  The  2020  budget  allocates  an  additional 
amount  of  SEK  10  million  to  the  FSA  to 
laundering  work 
strengthen 
(Finansinspektionen,  2019d).The  FSA  is  currently 
working  at  domestic  level  to  apply  the  risk-based 
supervision  approach  through  a  risk  classification 
tool, which will need to be updated in 2020. More 
work  is  needed,  however,  to  understand  and 
correctly  apply  the  risk-based  approach,  revising 
its  inspection  procedures  and  applying  a  more 
parallel, 
dissuasive 
permanent structures have been set up to integrate 
anti-money 
terrorism 
laundering  and  counter 
financing  supervision  at  the  Nordic  or  Nordic-
Baltic levels. 

sanctioning 

policy. 

In 

for 

system 

Financial 

Intelligence 

Sweden’s 
Unit 
(Finanspolisen,  FIU)  started  to  upgrade  its 
suspicious 
national  reporting 
transactions.  Also  to  be  able  to  handle  an 
increased  number  of  notices,  the  FIU  plans  to 
replace  its  existing  reporting  system  with  an 
integrated  one  by  March  2020.  The  new  system 
should  not  only  improve  the  quality  of  reporting 
but  also  enhance  the  FIU’s  capacity  to  identify, 
map  and  analyse  risks  and  methods  for  money 
laundering  and  terrorist  financing.  Sweden  only 
makes limited use of the FIU.net  for requests and 
exchange  of  information  with  other  EU  Financial 
Intelligence  Units.  At  present,  it  still  suffers  from 
outdated  internal  databases  and  a  lack  of  clear 
procedures  to  prioritise  and  analyse  incoming 
suspicious 
transaction  reports.  The  FIU  has 
currently  around  35  staff,  and  is  in  the  process  of 
recruiting  more  staff  to  strengthen  its  analytical 
capacity. 

to  cover 

appropriate 

analysis  of 

exposure of construction firms to interest rate and 
refinancing  risk.  Thus,  the  FSA  conducted  an  in-
depth 
capital 
the 
losses  from 
requirement  for  banks 
commercial  real  estate  lending.  In  January  2020, 
the  supervisor  raised  Pillar  2  capital  requirements 
to 
coverage 
(Finansinspektionen,  2020).  The  adjusted  risk 
weight is 35% (with a lower 25% requirement for 
commercial  exposures  secured  by  residential 
property) against the current level of around 23%. 

sufficient 

capital 

ensure 

the  Banking  Union 

Work on a revised Riksbank act is progressing, 
while 
inquiry  was 
completed.  On  29  November  2019  a  dedicated 
parliamentary committee presented a  report to the 
government  with  a  proposal  for  a  new  Riksbank 
Act  with  some  changes  to  the  mandate  of  the 
central  bank,  which  is  due  for  subsequent  public 
consultation  (SOU,  2019a).  On  10  December 
2019,  the  government  released  the  results  of  an 
inquiry into a possible Swedish membership of the 
Banking  Union  (SOU,  2019b).  The  report  lists 
advantages  and disadvantages of  membership, but 
does not contain explicit policy proposals.  

Anti-money laundering 

cases 

Cases of alleged money laundering have put the 
spotlight  on  Swedish  banks.  Recent  large-scale 
alleged  money 
involving 
laundering 
activities of Swedish banks through their branches 
and  subsidiaries  in  the  Baltics,  resulted  in  a  CSR 
for  Sweden  to  address  shortcomings  in  its  anti-
money laundering framework (see Section 2). The 
European  Commission  looked  at  the  case  of 
Nordea  and  the  role  of  the  Swedish  authorities 
(European  Commission,  2019c)  and  asked  the 
European  Banking  Authority 
investigate 
whether  financial  supervision  in  the  Swedbank 
case  was  in  line  with  EU  law.  This  investigation 
has  not  yet  been  completed.  Allegations  of 
suspected  money  laundering  have  affected  the 
reputation  of  Swedish  banks,  resulting  in  a  sharp 
fall in share prices in 2018-2019.  

to 

Enforcement of the anti-money laundering legal 
framework  will  be  better  coordinated.  Sweden 
has  created  a  special  body  to  promote  efficient 
collaboration  between  the  supervisory  authorities 
and 
of 
representatives  from  17  organizations.  It  aims  at 
bring  together  different  types  of  knowledge  and 

the  Police  Authority, 

consisting 

28 

 
4.2.2.  HOUSING MARKET (*) 

Housing market developments 

Residential  real  estate  prices  have  started  to 
grow again in 2019, while housing construction 
is  shrinking.  House  prices  increased  by  2.7%  in 
September  2019  year-on-year,  leaving  them  2.5% 
below their peak of August 2017. In real terms, the 
increase  was  1.4%.  House  prices  are  estimated  to 
have been overvalued by 7% in 2018 according to 
the  European  Commission’s  model.  When 
the  overvaluation 
compared 
amounted to 36% in 2018. After the cooling of the 
housing  market  for  tenant-owned  apartments  in 
2018,  the  transaction  volume  returned  to  its  2017 
high in early 2019. Supply constraints and demand 
developments are expected to support house prices 
in the near term while market distortions remain in 
place.  

income  only, 

to 

to 

due 

houses, 

possibly 

Single-family  houses  and  apartments  showed 
different  price  trends.  Apartments  have  been 
more  affected  by  the  2017  price  decline  than 
a 
single-family 
combination  of  high  construction  volumes  for 
apartments 
coupled  with  macroprudential 
tightening.  Apartment  prices  declined  more 
(10.4%) than those for single-family houses (8.3%) 
from  peak  (August  2017)  to  trough  (December 
2017)  and  have  recovered  less  with  prices  in 
September  2019  standing  5.1%  below  their  peak 
(single-family houses: -0.8%) (see Graph 4.2.2).  

Graph 4.2.2:  House prices by market segment (nominal) 

4.2. Financial sector 

Real  house  prices  have  grown  faster  than 
disposable  income  over  the  past  25  years.  The 
increase of about 200% outpaced house price rises 
in most other EU countries. House prices are most 
overvalued  when  compared  with  rents.  Since  the 
Swedish rental market is highly regulated, rents are 
on average below market rents and waiting lists are 
long  (see  European  Commission,  2019b,  p.30). 
The  development  of  price-to-income  and  the 
Commission’s  in-house  model  also  suggest  some 
overvaluation  (see  Graph  4.2.3).  The  European 
Systemic Risk Board came to a similar conclusion 
in  its  assessment  and  recommendation  to  Sweden 
(ESRB, 2019a; ESRB, 2019c). (21) 

but 

seem 

valuations 

Low  interest  rates  have  supported  high  house 
stretched. 
prices, 
Historically  low  interest  rates  have  reduced  the 
user cost of home ownership, pushing house prices 
up.  Interest expenses of households have declined 
to  the  lowest  level  in  three  decades.  Debt  service 
of households, however, has stayed close to its pre-
crisis  high  since  2011.  The  Swedish  Debt  Office 
(Riksgälden) 
(Bjellerup  and  Majtorp,  2019) 
examined the valuation of the housing market and 
concluded that price developments up to 2017 can 
be explained by changes in disposable income and 
after-tax interest payments,  with also a significant 
effect  from  the  imposition  of  loan-to-value  limits. 
Recent developments are more difficult to explain 
using this  model. In recent  years, there  have  been 
changes  in  the  structure  of  the  mortgage  market. 
Engström  (2020)  examines  the  role  of  new  credit 
intermediaries  and  the  possible  impact  they  have 
on competitive conditions and interest rates in the 
mortgage  market.  To 
conclude,  valuations 
continue to appear stretched for the entire  market, 
but less markedly so than in 2016 and 2017.  

(21)  Svensson (2019) examines alternative measures of housing 
valuation  and  concludes  that  prices  are  in  line  with 
determinant factors. 

Source: Valueguard HOX house price index 

29 

707580859095100105Jan-2015Jan-2016Jan-2017Jan-2018Jan-2019Index: Aug 2017=100Overall housing marketSingle-family housesApartmentsStockholm apartments 
   
                                                           
4.2. Financial sector 

Graph 4.2.3:  Estimated house price valuation gaps based 
on different indicators (1) (2) (3) 

taxes  continue  to  be  low  compared  with  other 
countries  and  are  capped  nationally.  The  national 
cap  implies  that  accumulated  housing  wealth  is 
taxed  relatively  more  in  poorer  regions  than  in 
richer regions. Combined with regional disparities 
in the income tax, this may reinforce differences in 
house prices between regions.  

and 

increased 

income  has 

The  opening  gap  between  growth  in  house 
prices 
the 
vulnerabilities  of  specific  groups.  While  house 
prices have increased across the entire spectrum, it 
seems  that  the  rise  has  been  stronger  in  lower 
housing  market  segments  than  for  other  parts  of 
the  market.  At  the  same  time,  there  has  been  less 
growth of income in households focusing on these 
segments. Using the difference between mean and 
median  as  a  rough  indicator  for  this  development 
shows 
the 
median price increased 36 percentage points more 
than the mean between 2005 and 2017 (23).  

tenant-owned  apartments, 

that  for 

accumulation.  The 

Three  factors  possibly  explain  the  relatively 
higher  prices  in  the  lower  segment.  These  are: 
(1)  building  activity  favouring  more  expensive 
houses,  (2)  increased  income  inequality,  and  (3) 
housing  wealth 
annual 
additions to the housing stock has on average been 
below  1%  (see  “Supply  drivers”)  in  the  past  10 
years  and  income  inequality  (see  Section  4.3)  has 
increased only to a limited extent. Housing wealth 
accumulation takes place when new entrants pay a 
higher  price  than  earlier  entrants  did.  This  wealth 
accumulation  can  be  passed  on  along  the  housing 
ladder,  i.e.  those  selling  a  house  to  a  new  entrant 
will use the proceeds to acquire a new, likely more 
expensive 
growing  wealth 
The 
accumulation on the asset side is partially offset by 
the increase in household debt. At the current very 
low  interest  rates,  this  does  not  translate  into 
higher housing costs for new homeowners but new 
entrants in the housing market tend to have (much) 

house. 

payments are deductible, real estate is effectively the only 
leveraged asset of (non-entrepreneurial) households. 

(23)  The  developments  in  the  difference  between  mean  and 
median, that is  (a  rough  measure  for)  the  skewness  of  the 
distribution  is  used  to  trace  these  developments.  If  the 
difference  between  mean  and  median  decreases,  then  the 
lower-priced  segments  of  the  market  see  higher  price 
increases  than  other  segments.  If  this  difference  moves 
faster  than  the  income  distribution,  usually  a  rather  stable 
distribution  with  a  sizable  difference  between  mean  and 
median, then the lower incomes face higher price increases 
compared to their income. 

(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 

Demand drivers 

Interest  rates  at  historical  lows  and  structural 
features  propel  housing  demand.  Monetary 
policy  has  been  expansionary  due  to  low  interest 
rates  and  quantitative  easing  (see  Section  1). 
Therefore,  three-month  interest  rates  have  been 
negative since the second quarter of 2015. Interest 
rates  for  longer  maturities  have  declined  even 
more.  This  has 
into  households 
translated 
increasing  the  duration  of  their  mortgages  (see 
Section  4.2.3).  However,  it  seems  difficult  to 
secure  current  low  mortgage  rates  beyond  five 
years,  regardless  of  the  lower  long-term  rates  and 
the  predictability  this  could  offer  for  monthly 
housing costs.    

The  tax  system  still  favours  debt  used  for 
investment  in  housing,  and  amplifies  regional 
divergences  in  house  prices.  The  interest  that 
households pay on their debt is deductible at 30%, 
first against capital income and then against labour 
income tax if capital income is smaller than labour 
income.  For  annual  interest  payments  above  the 
threshold  of  SEK  100,000,  21%  can  be 
deducted (22).  At  the  same  time,  local  property 

(22)  Although the tax system does not discriminate between the 
underlying  asset  for  interest  payments,  i.e.  all  interest 

30 

-60-40-200204060809900010203040506070809101112131415161718% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overvaluation gap 
   
                                                           
                                                                                   
relative 

higher  debt 
than 
to 
households that had entered earlier (see subsection 
4.2.3). 

income 

their 

Supply drivers 

Building  activity  has  fallen  short  of  estimated 
needs  for  several  years.  The  National  Board  of 
Housing, Building and Planning (Boverket )(2019) 
projects an annual  need of some 93,000 new home 
constructions for 2018- 2020 and a  need of 51,000 
for  the  subsequent  period    to  2025.  The  effective 
housing  supply,  even  at  the  peak  in  2017,  has 
fallen  well  short  of  the  estimated  short-term  need 
and has only rarely met the structural, longer-term 
need.  Residential  real  estate  construction 
is 
forecast  to  shrink  at  a  high  rate  in  2019  (-9.0% 
year-on-year) with a further decline in 2020 (-2.0% 
year-on-year).  Confidence  surveys  record  falling 
orders  and  expectations  are  at  the  lowest  level 
since  the  2012  recession.  New  building  permits 
and housing starts show a decline too.  

could 

Structural  hurdles  tend  to  constrain  housing 
supply and raise construction costs. Developable 
land  is  not  coming  fast  to  the  market  and  despite 
some  reforms,  zoning  and  building  regulations, 
such as the varying interpretation of building rules 
by  municipalities  seems  to  fragment  the  market. 
This 
foreign 
construction  companies  from  entering  the  market, 
preventing competition to induce lower prices and 
(European  Commission, 
higher  productivity 
2019b, p.29). In addition, lack of competition in a 
number of building materials markets contribute to 
increased construction costs (Swedish Competition 
Authority (Konkurrensverket), 2018). 

particularly 

prevent 

4.2. Financial sector 

Graph 4.2.4:  New housing construction and estimated need 

Source: Boverket, Statistics Sweden 

In  addition  to  shortage  of  supply,  available 
housing does not fit households’ needs. The ratio 
of existing housing stock to number of households 
has  been  relatively  stable  recently  at  between 
105%  and  106%  because 
the  number  of 
households  has  increased  since  2013  at  the  same 
annual rate  of 1.0% as  the  housing stock. Beyond 
the shortage of building supply, the most pressing 
mismatch appears to be the size of households and 
the  characteristics  of  the  housing  stock.  Around 
70%  of  Swedish  households  consist  of  no  more 
than  two  people,  but  only  51%  of  the  housing 
stock is non-rental multi-dwelling houses, broadly 
unchanged since the start of records in 2013 (first 
available  year,  see  Graph  4.2.5).  The  number  of 
one  person  households,  already  40%  of  all 
households,  has grown  faster  than average  (1.2%) 
as  has  the  number  of  households  with  more  than 
five people. This last category represents only 6% 
of all households.  

31 

0102030405060708090100080910111213141516171819E20EThousandsNet conversionNew constructionProj. need 2018-2020 
   
4.2. Financial sector 

Graph 4.2.5:  Household dwellings by type 

Graph 4.2.6:  Types of tenure and vacancy rates 

Source: Statistics Sweden 

Source: European Central Bank 

The  housing  stock  and  rental  market  fail  to 
adjust  to  changing  needs  due  to 
inertia. 
Conversion and destruction are even  more limited 
than new additions to the housing stock, rendering 
changes  in  the  existing  stock  slow.  Building 
constraints  are  particularly  binding 
the 
metropolitan  areas (24).  Those  depending  more  on 
public housing, i.e. those with lower incomes, face 
an-ever-tighter  gridlock  in  the  rental  market.  The 
share  of  public  housing  for  rent  out  of  the  total 
housing  stock  has  declined  from  23%  in  2001  to 
18%  in  2018  while  the  vacancy  rate  for  rental 
accommodation  has  dropped  to  a  historic  low  of 
0.5% and continues to be much lower than the EU 
average (see Graph 4.2.6).  

in 

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  (European 
Commission, 2019b, p.30). 

(24)  The  role  of  municipalities,  owners  of  almost  half  of  the 
rental  stock  and  the  suppliers  of  buildable  land,  adds 
complexity  including  through  the  impact  of  central  level 
equalisation 
see 
https://eso.expertgrupp.se/wp-
content/uploads/2016/06/2017_2-Bygg-mer-for-fler.pdf. 

(utjämningssystemet), 

transfer 

Policy developments 

Policy  steps  to  address  imbalances  in  the 
housing  market  have  been  limited.  Whereas 
policy  measures  in  2018  mostly  focused  on  the 
demand  side,  the  supply  side  featured  more 
prominently  in  2019.  These  steps  have  been  of  a 
rather  incremental  nature  and  are  unlikely  to 
fundamentally  change  housing  market  distortions. 
To  bring  this  about,  determined  policy  action  is 
needed in the rental market and in tax policy. 

Sweden  has  raised  the  ceiling  for  deferred 
capital  gains  taxes  from  SEK  1.45  million  to 
SEK  3  million.  The  increase  in  the  ceiling  can 
promote  housing  market  mobility.  However,  the 
deferred capital gain is subject to an annual tax of 
roughly  0.5%,  which  in  the  current  low-interest-
rate  environment  makes  deferral  less  interesting. 
Moreover,  during  the  period  21  June  2016  -  20 
June  2020,  there  is  a  temporary  exemption  from 
the previous  maximum deferrable amount of SEK 
1.45 million, so in practice the new rules represent 
a  tightening  of  the  deferral  conditions.  More 
generally,  deferral  only  reduces  the  immediate 
cash  flow  impact  and  not  the  effective  wealth 
reduction,  and  so  there 
is  still  room  for  a 
substantial capital gains tax reform. 

The FSA has tightened macro-prudential policy 
somewhat  further.  The  supervisor  increased  the 
countercyclical  capital  buffer  (CCyB)  to  2.5% 
from 19 September 2019. Previously, the FSA had 
gradually raised the CCyB since its introduction in 
2014.  The  previous 
level  of  2%  had  been 
applicable  from  14  March  2017.  This  increase  in 

32 

104.5%105.0%105.5%106.0%40%45%50%55%60%65%70%1314151617181 - 2 persons households (% of total)Multi-dwelling ratio (% of total)Housing stock-to-households- ratio (rhs)0%2%4%6%8%10%12%0%10%20%30%40%50%60%70%80%90%100%010203040506070809101112131415161718Public (% of total)Private (% of total)SE vacancy rateEU28 vacancy rate 
   
                                                           
   
4.2. Financial sector 

Graph 4.2.7:  Household debt evolution (indexed, 2005 = 

100) 

targeted  at 

the  countercyclical  buffer  aims  to  support  overall 
financial  sector  resilience  even 
if  was  not 
imbalances  related  to 
specifically 
the  housing  market.  In 
household  debt  and 
addition,  the  FSA  adapted  the  requirements  for 
macro-prudential  risk  weights  for  residential  real 
estate.  This  measure  entered  into  force  on  31 
December  2018  for  a  period  of  2  years.  While 
unlikely  to  have  a  marked  impact  on  lending,  it 
increased 
the  comparability  of  reported  risk-
weighted  capital  ratios  for  Swedish  banks  with 
those of their EU peers.  

support 

for  building 

Investment 
rental 
apartments  has  been  reinstated.  To  reduce  the 
continued  shortage  of  housing  supply, 
the 
government  has  earmarked  SEK  2.1  billion  to 
encourage 
the  building  of  rental  apartments 
(including for students) in its 2020 budget bill. The 
support should enter into force on 1 January 2020. 
Together  with  an  easing  of  building  regulations 
this may attenuate supply side issues somewhat. 

The  announced  comprehensive  tax  reform 
could  be  an  opportunity  to  address  several 
shortcomings in one go. In its political agreement, 
the government indicated the intention to overhaul 
the tax system. So far, no timeline or details have 
been  communicated.  Such  a  tax  reform  could 
address  not  only 
for  debt 
the 
accumulation    but  could  also  lower  the  barrier  to 
the housing market for people with lower incomes, 
promoting  housing  mobility  and  reducing  wealth 
inequality.  

incentives 

4.2.3.  PRIVATE INDEBTEDNESS (*) 

Household debt developments 

Household debt remains high, although its rate 
of  increase  is  slowing.  Swedish  household  debt 
has  been  on  a  persistent  upward  trajectory  since 
the  early  2000s,  significantly  outpacing  debt 
growth 
in  peer  countries  (see  Graph  4.2.7). 
However, on the back of less buoyant credit flows, 
the  rate  of  growth  of  nominal  household  debt 
slowed  to  5.8%  in  2018,  well  below  the  peak 
increase  of  8.0%  in  2016  and  declined  further  to 
4.8%  by  the  third  quarter  of  2019,  bringing  it 
broadly  on  a  par  with  nominal  household 
disposable income growth.  

Source: European Commission 

increase 

in 
The  recent  more  moderate 
household  debt  helped  stabilise  household  debt 
ratios.  The  average  debt-to-disposable  income 
(DTI)  and  debt-to  GDP  ratios  both  broadly 
levelled  off  in  2018  and  even  fell  back  somewhat 
in  the  first  half  of  2019.  Despite  the  broad 
stabilisation  in  aggregate  debt  ratios,  they  remain 
well above the fundamentals-based and prudential 
benchmarks  for  Sweden  and  are  still  among  the 
highest  in  the  EU.  There  is  also  significant 
dispersion  in  debt  levels  across  households.  The 
average DTI ratio for new borrowers in 2018 was 
the  previous  year. 
289%  down  from  300% 
Households  with  a  mortgage  living  in  large 
metropolitan areas, as  well as younger and lower-
income  households  tend  to  face  particularly  high 
debt service costs relative to their incomes(25).That 
said,  persistently  low  interest  rates  helped  check 
the  rise  in  mortgage  interest  payments  and  thus 
debt  service  as  a  share  of  disposable  income 
(Finansinspektionen 2019e).  

Drivers of household debt dynamics 

Household  debt 
reflects 
mortgage lending. Mortgage debt amounts to over 

growth  mostly 

(25)  Many  owner-occupiers  living  in  tenant-owned  apartments 
also  indirectly  bear  the  debt  load  of  their  tenant-owner 
association (European Commission, 2018b), which adds to 
the  debt  service  of  the  housing  loan  proper  (Riksbank, 
2019b).  Moreover,  tenants  with  high  debt  tend  to  live  in 
apartments  owned  by  highly-indebted 
tenant-owner 
associations (Finansinspektionen 2019d) 

33 

801001201401601802002202402600506070809101112131415161718Index, 2005=100SwedenDenmarkFinlandNetherlandsUnited KingdomEU average 
  
                                                           
4.2. Financial sector 

2016  allowed  lower  interest  rates  to  translate 
relatively  quickly  into  reduced  interest  payments 
as  a  share  of  household  income,  despite  ongoing 
increases  in  house  prices.  The  combination  of 
these factors has limited current debt service costs, 
but also implies risks related to future interest rate 
rises. 

Graph 4.2.8:  Maturity of mortgages and interest rates 

80%  of  total  household  borrowing,  and  has  been 
the  key  driver  of  the  persistent  rise  in  overall 
household  indebtedness.  Sweden  experienced  an 
extended  period  in  which  house  price  rises  (see 
Section  4.2.1)  and  mortgage  debt  growth  were 
mutually  reinforcing.  Increases  in  the  underlying 
value of collateral enabled higher housing loans, in 
turn  putting  upward  pressure  on  prices  and  thus 
keeping  increases  in  the  loan-to-value  ratio  in 
check.  The  growth  in  household  mortgage  loans 
contracted slightly for most of 2018 in the wake of 
the  correction  in  house  prices  in  late  2017.  
However,  as  house  price  growth  has  resumed, 
albeit  at  modest  rates,  and  mortgage  interest  rates 
have  remained  low,  overall  mortgage  lending  has 
picked up again. 

in  part  due 

to  rapid  changes 

Unsecured  borrowing  has  not  been  a  major 
substitute  for  mortgages.  Unsecured  borrowing 
and  household  loans  with  other  collateral  (e.g. 
cars)  have  historically  grown  comparatively 
slowly.  As  mortgage  credit  growth  slowed, 
unsecured  borrowing  kept  increasing  at  a  brisk 
pace, 
the 
technological,  institutional  and  market  conditions 
under which providers of consumer credit operate. 
However, Van Santen (2017) finds no evidence of 
in  borrowing  for  housing 
a  significant  shift 
loans.  Overall, 
purposes 
unsecured borrowing by households remains under 
5%  of  GDP,  a  level  broadly  in  line  with  the  EU 
average,  with  currently  limited  implications  for 
financial stability. 

towards  unsecured 

in 

Structural  factors  account  for  relatively  low 
debt service costs. There are strong tax incentives 
for purchasing owner-occupied housing, especially 
tax-deductible  debt  (see 
when  financed  with 
Section  4.2.2).  Swedish  mortgage  contracts  have 
long  maturities  compared  to  other  EU  countries, 
and  overall  amortisation  rates  are  still  low  in 
comparative  perspective.  For  historical  and 
institutional  reasons,  mortgages  mostly  have  had 
variable  rates  heavily  skewed  towards  the  short 
end of the yield curve(26), which between 2011 and 

(26)  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 

(1) Monthly averages of daily rates 
(2) Monthly averages of daily average rates of Swedbank, 
SEB, SBAB, Nordea and SHB Stadshypotek 
Source: Macrobond 

A move towards longer maturities helps reduce 
the interest sensitivity of  mortgage  service. The 
long-term  increase  in  the  ratio  of  household 
mortgage  debt  to  income  implied  higher  interest 
sensitivity,  given  the  predominance  of  housing 
loans linked to very short-term interest rates. Since 
late 2017, however, the share of mortgages with a 
maturity  of  3-5  years  has  increased  markedly, 
implying  a  lower  speed  at  which  interest  rates 
changes would be passed on to households (Graph 
4.2.7). This broadly coincided with the adjustment 
in  the  housing  market  in  the  autumn  of  2017  and 
thus  possibly  partly  reflects  a  shift 
in  risk 
appreciation on the part of households. However, it 
also  went hand in  hand  with  a change in the  term 
structure  of  mortgage  interest  rates  offered  by 
banks,  as  the  yield  premium  for  longer  maturities 
increased. On balance this recent shift implies that 
the  immediate  effects  of  an  interest  rate  increase 
on the capacity of households to service their debt 
would be cushioned, thus heightening resilience. 

mortgage may need to be redeemed  early (e.g. because of 
plans to move after a few years; (Holmberg et al., 2015).  

34 

0%1%2%3%4%5%0%20%40%60%80%100%of all mortgage loansMortgage loans with rate fixation of ≤ 1 Year  (until Aug 2010)Mortgage loans with rate fixation of ≤ 3 Months (from Sep 2010 on)Mortgage loans with rate fixation of 3 Months-1 Year (from Sep 2010 on)Mortgage loans with rate fixation of 1-5 YearsMortgage loans with rate fixation of >5 YearsYield, Mortgage Benchmark of Central Bank of Sweden, 5 Year (1) (rhs)Mortgage lending rates with rate of fixation of 3 months (2) (rhs) 
                                                           
   
                                                                                   
4.2. Financial sector 

amortisation  requirements  helped  limit  the  build-
up  in  household  debt.  New  mortgagors  who  were 
subject  to  the  stricter  amortisation  requirement 
borrowed less and purchased less expensive homes 
than 
the 
they  would  have  done  without 
requirement.  The  FSA  further  found  that  the 
sharpened  amortisation 
requirement  did  not 
significantly limit young households’ access to the 
housing  market  compared  to  other  groups.  Their 
access  was  affected,  however,  by  the  general 
increase 
in  house  prices  (Finansinspektionen, 
2019b).  

towards 

higher-income 

However,  the  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, 2018). Moreover, stressed 
scenarios  assume  that  households  are  able  to 
reduce  their  spending  to  near-subsistence  levels. 
Thus,  although  most  households  may  be  able  to 
continue  servicing  their  debt  even  in  a  downturn, 
this  would  likely  require  a  considerable  fall  in 
consumption  with  substantial  knock-on  effects  on 
the rest of the economy.  

A significant part of household financial wealth 
is  illiquid,  tied  up  in  pension  funds  or  life 
insurances. The Swedish gross household savings 
ratio is among the highest in the EU, partly due to 
considerable  pension  savings  which  outstripped 
the  rise  in  household  income  in  the  last  decade. 
The build-up in pension buffers reflects ageing but 
also  the  shift  towards  a  pension  system  based  on 
defined  contributions  in  both  the  first  and  second 
pension pillars (Aspregren et al., 2019). However, 
correcting  for  pension  contributions  and  capital 
formation the freely available savings that Swedish 
households  have  available  to  counter  financial 
shocks  do  not  appear  to  be  particularly  high  in 
comparison to other EU countries with high gross 
household saving ratios (Graph 4.2.9). In addition, 
most  non-housing  financial  assets  are  exposed  to 
market  risks  and  would  likely  fall  in  value  in  an 
economic downturn, weighing on consumption via 
wealth effects. 

Policy developments 

High  household  debt  coupled  with  high  house 
prices  are  a  risk  for  the  Swedish  economy. 
While  the  recent  stabilisation  in  household  debt 
implies 
further 
that  debt  dynamics  do  not 
aggravate existing vulnerabilities, the already high 
debt level  keeps  the Swedish economy  vulnerable 
to  a  rapid  deterioration  in  market  conditions. 
Hence,  risks  may  come  into  play  should  the 
projected economic slowdown be more severe than 
expected. 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  higher  bank  funding  costs  that  might  originate 
in 
highly-leveraged 
economy, 
households  may  need  to  reduce  consumption  to 
service their debts. This would reduce demand and 
increase  uncertainty,  potentially  weighing  on 
investment,  employment  and  economic  growth 
thus  further  impairing  households'  debt  service 
ability.  At  the  same  time,  falling  collateral  values 
make  banks  more  cautious  about  new  lending. 
Ultimately,  this  could  lead  to  a  self-reinforcing 
deleveraging 
broader 
process 
macroeconomic impact. 

global 

with 

the 

a 

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 on 
average (Finansinspektionen, 2019f). The fact that 
these  estimated  buffers  have  stabilised  or  even 
slightly  improved  in  recent  years  lends  some 
comfort.  The  strong  ability  of  households  to  pay 
back  their  loans  is  also  reflected  in  a  very  low 
share  of  non-performing  household  loans  (see 
Section  4.2.1).  Additionally,  households  have 
significant  financial  wealth,  estimated  at  roughly 
three times their liabilities. 

(FSA) 

imposed 

requirements 

Amortisation 
for  mortgages 
helped  dampen  household  debt  dynamics.  In 
the  Financial  Supervisory 
2016  and  2018 
amortisation 
Authority 
requirements  on  mortgage  loans  for  households 
with  loan-to-value  and/or  loan-to-income  ratios 
above  certain  thresholds  (European  Commission, 
2019b, p. 35), with a view to curbing the growth in 
housing  loans  and  indebtedness.  According  to 
FSA 
preliminary 
stricter 
(Finansinspektionen, 

assessments 

2019d), 

from 

the 

the 

35 

 
4.2. Financial sector 

at  a  quite  low  level  (around  42 %  as  of  Q2  2019, 
compared  to  about  60 %  on  average  for  EU 
countries)  and  continues  to  fall  (Graph4.2.10).  In 
addition, the gross corporate savings ratios remains 
high  at  around  13 %  of  GDP.  Thus,  on  the  whole 
the  corporate  sector  is  in  a  position  to  reduce 
leverage  should  that  be  needed.  While  some 
segments, such as commercial real estate (Section 
4.2.1),  appear  more  vulnerable, 
the  financial 
stability  concerns  stemming  from  corporate  debt 
seem limited.  

Graph 4.2.10: Leverage, Non-Financial Corporations 

Source: European Commission 

Graph 4.2.9:  Household saving ratio, adjusted for net 

pension contributions and capital formation 

Source: European Commission 

Corporate debt developments 

Following  a  period  of  post-crisis  deleveraging, 
corporate  debt  growth  has  again  picked  up  in 
recent  years.  Swedish  non-financial  corporations 
deleveraged significantly in the wake of the global 
financial crisis, as still positive net credit flows to 
the  sector grew less  than  nominal GDP. The ratio 
of  consolidated  corporate  debt  bottomed  out  at 
around 106% of GDP in 2016, still well above the 
fundamentals  based  and  prudential  benchmarks 
and also well above the EU average. The increase 
in  the  debt  ratio  in  2017  reflected  buoyant  credit 
interest  rates  in  an 
low 
growth  spurred  by 
environment 
activity, 
strong 
supporting corporate investment. Thus, in 2017 the 
absolute  size  of  credit  flows  to  the  nonfinancial 
corporate  sector  outpaced  those  to  households  for 
the  first  time  since  2008.  The  recent  cyclical 
to  a 
in  economic  activity 
weakening 
moderation 
to  nonfinancial 
in  credit  growth 
corporations,  which,  however,  kept  outpacing 
nominal GDP growth. In recent years, commercial 
real  estate  has  become  an  important  driver  of 
growth in credit to non-financial corporations. The 
debt-to-GDP  ratio  reached  113.9%  at  the  end  of 
the second quarter of 2019. 

economic 

led 

of 

Overall, despite high corporate debt levels firms 
generally face limited risks of financial distress. 
Although Sweden’s corporate-debt-to-GDP ratio is 
high  compared  to  other  EU  countries,  other 
indicators  show  that  financial  risks  are  overall 
limited.  Corporates  have 
significant  equity 
cushions, with a debt-to-equity ratio that is already 

36 

-8%-6%-4%-2%0%2%4%6%06070809101112131415161718Average of 11 MS with HH gross saving rate ≥ 10%SE020406080100120140160180040506070809101112131415161718Ratios of debt to equity, GDP and total financial assets (%)Debt / GDPDebt / equityDebt / financial assetsDebt / financial assets, consolidated 
   
   
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  EMPLOYMENT AND SKILLS 

in  2018 

rate  grew 

The  labour  market  performs  well,  but  the 
economic  slowdown  has  a  cooling  effect.  The 
employment 
to  82.4%, 
maintaining  one  of  the  highest  levels  in  the  EU 
(EU  average  73.2%).  However,  signs  point  to  a 
slowdown  in  2019,  with  employment  declining  to 
82.1% in the second quarter of 2019. Employment 
levels  vary  between  various  socio-economic 
groups,  from  60.5%  among  non-EU  born  women 
to  87.4%  among  native-born  men.  Temporary 
contracts  are  slightly  more  prevalent  than  on 
average  in  the  EU  (15.0%;  EU  average  14.1%). 
Labour  shortages  and  skills  mismatches  persists, 
and the integration of foreign born into the labour 
market remains a key challenge. 

Unemployment  is  slowly  increasing,  also  for 
young  people.  While  unemployment  was  below 
the EU average in 2018 (6.3%; EU average 6.8%), 
it was above the EU average in Q3-2019 at 6.9%. 
The main reasons  for this increase  were  weak job 
growth  and  an  increase  in  the  labour  force,  with 
more  people  far  from  the  labour  market.  Youth 
unemployment  increased  sharply  from  17.4%  in 
2018  to  19.9%  in  Q3-2019.  The  rate  of  young 
people  neither  in  education,  employment  nor 
training was among the lowest in the EU in 2018, 
at  a  rate  of  6.1%  (EU  average  10.4%).  However, 
this number has seen a decrease in 2019, falling to 
5.5% in Q2-2019. 

in 

the  1990s 

While long-term unemployment remains among 
the  lowest  in  the  EU,  it  is  set  to  rise.  It  was  at 
1.1% in 2018, well below the EU average of 2.9%. 
The  Public  Employment  Service  (PES)  predicts 
that long-term unemployment will reach its highest 
level  since 
the  coming  years 
(Arbetsförmedlingen,  2019a).  This  is  due  to  a 
weaker 
structural 
transformation, the composition of the unemployed 
and fewer subsidised jobs. In the first half of 2019, 
for the first time since records began, more women 
than  men  were  registered  with 
the  PES  as 
than  12  months.  The 
unemployed  for  more 
weakest  development  has  been  among  foreign-
born women lacking primary education.  

labour  demand, 

increased 

employers  and  60%  of  public  sector  employers 
reported 
problems 
recruitment 
(Arbetsförmedlingen,  2019a).  The  PES  expects  a 
continued shortage in the coming years, despite the 
slowdown in the economy.  

Shortages  are  particularly  pronounced 
in 
education,  health  care,  social  work,  ICT, 
industry  and  construction.  Sweden  has  a  high 
number  of  ICT  specialists  compared  to  other  EU 
countries, at 6.6% of total employment.  However, 
5.4% of Swedish enterprises (EU 4.6%) report that 
it is hard to fill vacancies with specialist ICT skills. 
In  the  ICT  sector,  more  than  50%  of  employers 
report 
growth 
(Arbetsförmedlingen, 2019b). In the public sector, 
the  shortage  has  declined  from  record  high  levels 
in  2017  due  to  the  recruitment  of  more  support 
positions.  The  labour  shortage  is  also  affected  by 
the  housing  market.  Almost  one  in  five  (19%) 
finding 
employers  state 
accommodation  affect  the  responsiveness  to  their 
recruitment offers (Svenskt Näringsliv, 2019). 

that  difficulties 

affecting 

shortage 

in 

a 

low 

for  people  with 

levels  of 
Demand 
qualification  is  very  limited.  The  share  of  the 
population in elementary occupations is 5.4%, the 
lowest  in  the  EU.  The  disparity  between  the 
employment  rates  of  workers  with  primary, 
secondary  and  tertiary  education  remains  high.  In 
2018,  the  employment  rate  of  the  low  qualified 
was  62.3%,  compared  to  89%  of  people  with 
tertiary  education.  The  employment  gap  (19.2 
percentage points (pps)) between non-EU-born and 
native-born  for  the  low  qualified  is  the  second 
highest in the EU, and well above the EU average 
of 1.7 pps.  

People  with  disabilities  are  also  at  a 
disadvantage.  While  their  employment  level  of 
52.6%  (2017)  is  above  the  EU  average  of  50.6%, 
the  employment  gap  between  people  with  and 
without  disabilities  is  wider  than  the  EU  average 
(30.9  pps  vs    EU  average  24.2  pps).  Their 
unemployment  level,  20.3%,  is  also  higher  than 
among  people  without  disabilities  (4.7%,  20-64 
years). 

Labour  shortages  persist,  despite  the  economic 
slowdown. In the construction and services sectors 
shortages  are  the  highest  in  the  EU  (European 
Commission,  2019d).  In  a  survey  37%  of  private 

37 

 
 
4.3. Labour market, education and social policies 

Graph 4.3.1:  Employment rate by country of birth (20-64 yrs) 

in  otherwise  excellent  performance  on  SDG5, 
‘Gender  equality’.  While  the  activity  rate  of  non-
EU-born  women  is  significantly  higher  than  the 
EU  average  (73.9%  vs  63.6%),  it  is  still  13.7  pps 
below  the  rate  among  native-born  women.  Thus, 
foreign-born  women  are  a  particular  focus  of 
government  and  PES  efforts.  However,  women 
with temporary residence permits are less likely to 
register  with  the  PES  for  introduction  activities 
than are women with permanent residence permits 
(Wickström Östervall, 2019). 

across 

experience 

The  successful  labour  market  integration  of 
non-EU-born  residents  remains  high  on  the 
political  agenda.  Sweden  has  a  well-known 
tradition  and  track  record  of  integrating  newly 
arrived  migrants  into  the  society,  which  has 
contributed  to  social  cohesion.  Recent  research 
the 
(Calmfors  and  Gassen,  2019)  comparing 
integration 
the  Nordics 
concludes that an efficient policy response to ease 
barriers to entering the labour market consists of a 
mix covering education and training, active labour 
market  policy,  incentives  through  social  benefits 
and  appropriate  wage  levels.  The  authors  argue 
that stronger efforts to educate could have  a great 
potential  to  improve  immigrants’  employment 
opportunities,  and  lifelong  learning  could  be 
especially  effective  in  the  long  run  for  non-EU-
born  women,  the  group  that  is  farthest  from  the 
labour market today. 

Graph 4.3.2:  Employment rate by citizenship 

Source: European Commission 

Source: European Commission 

The  employment  rate  of  the  foreign-born 
remains  low.  In  2018,  the  employment  rate  of 
non-EU-born,  at  66.1%,  above  the  EU  average  of 
64.4%,  but  it  was  20.2  pps  lower  than  that  of 
native-born  Swedes.  This  is  the  largest  gap  in  the 
EU (EU average 9.4 pps). The employment gap is 
16.1  pps  for  the  highly  educated,  which  is  also 
above the EU average (11.7 pps). The rate of over-
qualification  among  20-64  year-olds  is  much 
higher  for  non-EU-born  (34.4%)  than  for  native-
born Swedes (12.2%), suggesting entry barriers for 
highly  educated  migrants  to  jobs  for  which  they 
would  be  qualified.  On  average,  42%  of  25-54 
year-olds in Sweden who were not born in the EU 
have a high level of education,  while 34% have  a 
low  level  of  education.  To  overcome  potential 
barriers, a new ‘intensive introduction year’ within 
the  establishment  programme  is  being  introduced. 
It  will include training (such  as social  orientation, 
Swedish  language  training,  and  labour  market 
education) and new measures (such as mentorships 
and  certificates  of  knowledge  documenting 
professional and language skills).  

Among  non-EU-born  women,  the  employment 
gap  is  wider  still.  The  employment  rate  of  non-
EU-born  women  is  60.5%,  compared  to  85.0% 
among  the  native  born,  due  to  both  higher 
inactivity 
and  unemployment.  Non-EU-born 
women  have  an  unemployment  rate  of  18.7% 
(3.9% among native-born  women): this difference 
is the highest in the EU, pointing at a shortcoming 

38 

2030405060708090NationalsEU28 mobile workersThird countries% of population 20-64EU28SE 
   
   
 
4.3. Labour market, education and social policies 

Box 4.3.2: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. 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.  

Sweden  performs  well  on  most  of  the  indicators  of  the  Social  Scoreboard  supporting  the  European 
Pillar of Social Rights. The employment rate is among the highest and the gender employment gap among 
the lowest in the EU. The level of digital skills among the population is very high. 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.  However, 
increasing  the  labour  market  participation 
of  the  low  skilled  and  foreign-born,  in 
particular  women,  remains  a  challenge. 
While  income  inequality  is  below  the  EU 
average, it has increased in recent years. 

school-leaving 

There  has  been  a  sharp  increase  in  the 
early 
rate.  While 
remaining  slightly  below  the  EU  average, 
the  share  of  early  leavers  from  education 
and training has been growing since 2014, 
with  a  sharp  increase  in  the  past  year. 
Students  born  abroad  are  more  likely  to 
leave  school  early.  There  is  a  continued 
rise  in  influence  of  the  socio-economic 
background 
their 
educational  performance,  as  shown  by  the 
recent PISA results. 

students 

on 

of 

inclusive  and 

Sweden continues to improve its policies 
to  facilitate  labour  market  integration. 
The public employment services have long 
been  implementing  policies  to  make  the 
labour  market  more 
to 
encourage  education  and  training.  A  new 
intensive  year  for  newly  arrived  is  being 
developed,  which  would  combine  existing 
measures with new targeted measures. The 
new  measures  will  consist  of  a  new  form 
of  internship,  mentorship  and  a  certificate 
of  knowledge  after  the  completed  year. 
The  measures  used  during  the  year  would 
be adapted to individual, local and regional 
needs 
industry 
conditions, 
representatives and other stakeholders will 
play a role in developing them.  

and 

and 

The  government  decided  to  reform  the  Public 
Employment  Service.  A  complete  reorganisation 
is envisioned by 2022.  This schedule  has already 
been  revised,  however,  to  ensure  a  continuous 
provision  of  services.  Among  other  changes,  job 

matching  is  to  be  carried  out  by  independent 
contractors.  The  employment  services  will  also 
intensify  digitalisation,  providing  services  via 
telephone, chat and video.   

39 

 
4.3. Labour market, education and social policies 

income 

increasing 

by the Gini coefficient (27): in 2018 it stood at 0.27 
(EU average 0.31). The ratio of disposable income 
of  the  top  20%  compared  to  the  bottom  20% 
(S80/S20)  was  4.13  in  2018,  lower  than  the  EU 
average  of  5.17.  However,  Sweden  stands  out 
compared  to  other  EU  countries  due  to  the 
continuously 
inequalities 
(Fritzell  et  al.  2014;  Keeley  2015).  The  share  of 
people  at  risk  of  poverty  or  social  exclusion 
(18.0% in 2018) is below the EU average (21.9%). 
Still,  the  risk  of  poverty  or  social  exclusion  has 
been  stable  in  Sweden  in  recent  years,  while  on 
average  steadily  decreasing  across  the  EU.  The 
small  increase  from  2017  to  2018  was  driven  by 
higher  monetary  poverty  (from  15.8%  to  16.4%), 
severe  material  deprivation  (from  1.1%  to  1.6%) 
and people in very low  work-intensity households 
(from 8.8% to 9.1%).  

Vulnerable groups are more likely to be at risk 
of  poverty  or  social  exclusion.  Among  non-EU 
born adults, 41.1% are at risk of poverty or social 
exclusion, which is significantly more than among 
the  native-born  (12.9%).  The  risk  of  poverty  or 
social  exclusion  for  children  0-17  years  old 
increased  from  19.4%  in  2017  to  20.6%  in  2018, 
while  it  decreased  on  average  across  the  EU. 
Educational background also has a marked impact 
on the risk of poverty. The low skilled have an in-
work 
13.1%, 
substantially above the risk for medium- and high-
skilled  workers  (6.4%  and  4.8%  respectively). 
People  with  disabilities  are  more  likely  to  be  at 
risk  of  poverty  or  social  exclusion.  This  risk  in 
Sweden is higher than the EU average (30.1%; EU 
average 29.3%), and the gap between people with 
and  without  disabilities  is  very  wide  compared 
with  the  EU  average  (14.7  pps;  EU  average 
10.3 pps).  

at-risk-of-poverty 

rate 

of 

(27)  The  Gini  coefficient  measures  the  extent  to  which  the 
distribution  of  income  within  a  country  deviates  from  a 
perfectly equal distribution. 

but 

employability, 

Vocational  education  and  training  in  Sweden 
improves 
overall 
participation  rates  remain  low.  At  88.7%  in 
2018,  the  employment  rate  of  recent  training 
graduates is well above the EU average of 79.5%. 
Still,  overall participation rates are  lower  than  the 
EU  average.  Total  enrolment  in  upper  secondary 
in  Sweden 
vocational  education  and 
declined  slightly  in  2017  to  34.1%  of  all  upper 
secondary pupils, below the EU average of 47.8%.  

training 

Participation 
in  vocational  education  and 
training  programmes  increased,  and  continues 
to  be  supported.    This  includes  measures  to 
increase  the  quality  and  supply  of  work-based 
learning  and  apprenticeships,  resulting  in  a  207% 
increase  in  the  number  of  apprentices  in  upper 
secondary  school  VET  between  2013-2014  and 
2018-2019    (12,400  apprentices  representing  12% 
of  all  learners  in  a  national  vocational  education 
and  training  programme  in  2018-19)  (Cedefop, 
2020). A state grant has been available till 2020 for 
the development of regional support structures for 
work-based learning placements for social partners 
and  stakeholder  organisations  (a  total  of  SEK  10 
million,  or  about  €  935,000,  per  year)  (Cedefop, 
2020).  

Participation  of  adults  in  learning  is  generally 
high, and the government has made training of 
low-skilled  people  a  priority.  In  2018,  29.2%  of 
adults  participated  in  learning,  well  above  the 
national  Europe  2020  target  of  15%,  but  slightly 
fewer than in the year before. The government and 
its  parliamentary  partners  have  agreed  to  expand 
opportunities  for  adults  to  participate  in  further 
education  and  training,  and  to  make  access  to 
study loans easier.  

The  Swedish  labour  force  has  good  digital 
skills.  81.6%  of  employees,  self-employed  and 
family  workers  and  94%  of  the  unemployed  have 
more  than  basic  digital  skills  in  Sweden,  among 
the highest in the EU. 

4.3.2.  SOCIAL POLICIES AND HEALTHCARE 

Sweden remains a relatively equal society, but is 
no  longer  among  the  top  EU  performers  in 
income  equality  or  low  risk  of  poverty.  Income 
inequality  is  below  the  EU  average,  as  measured 

40 

 
                                                           
4.3. Labour market, education and social policies 

The  number  of  homeless  people  doubled  between 
the first homelessness count in 1993 and the most 
recent  one  in  2017.  An  increasing  number  of 
homeless  people  are  aged  65  or  older,  women 
(38% in 2017 vs 17% in 1993) and people with a 
migrant  background  (43%  in  2017  vs  23%  in 
1993).  

Sweden  has  a  good,  tax-funded  and  generally 
effective  healthcare  system  with  a  strong  focus 
on  outpatient  and 
long-term  care.  Total 
healthcare  spending  as  a  share  of  GDP  is  higher 
than  the  EU  average  (11.0  %;  EU  average  9.8%). 
The  share  of  health  component  in  long-term  care 
spending  is  also  significantly  higher  than  the  EU 
average  (26%;  EU  average  15.7%).  Ageing  and 
disease patterns in the coming decades might exert 
pressures on  spending,  mainly public spending on 
long-term  care,  which  is  already  above  the  EU 
average 
average  1.6%).  Life 
expectancy at birth is one of the highest in the EU 
(82.4  years;  EU  average  81.0).  Mortality  rates  of 
preventable and treatable causes are low, and most 
Swedes  report  being  in  good  health  (77%;  EU 
average  70%),  with  a  substantial  gap  in  self-rated 
health  by  socioeconomic  status:  in  the  top  20% 
income bracket 89% of people report good health, 
compared  with  67%  of  those  in  the  bottom  20% 
income bracket. 

(3.2%;  EU 

The  healthcare  system 
is  generally  good. 
However,  steps  to  address  and  improve  access  to 
care  (better  treatment  guarantees  in  primary  care) 
and ‘patient contracts’ (a coherent map of planned 
care)  are  being  rolled-out.  Total  unmet  medical 
care  needs  and  out-of-pocket  payments  are  below 
the  EU  average, 
showing  Sweden’s  good 
performance  on  SDG3,  ‘Good  health  and  well-
being’. 

More than one third of all deaths in Sweden can 
be attributed to behavioural risk factors (dietary 
risks,  alcohol  consumption  and  low  physical 
activity).  The  obesity  rate  among  adults  has 
increased,  but  remains  below  the  EU  average. 
Cancer  screening  is  still  not  fully  rolled  out, 
despite high coverage rates for mammography and 
cervical  cancer  screening  (Cancerfonden,  2019).  
A  national  cancer  strategy  (and  new  investments) 
is being planned, focusing on quality and equity in 
treatment  and  targets  for  prevention  and  early 
detection.  

Graph 4.3.3:  At-risk-of-poverty or social exclusion rate and 
its components (AROP, SMD, LWI) 

Source: European Commission 

the 

and  more 

rental  sector 

The demand for affordable housing is growing. 
In 2019, 240 municipalities (of 290) had a housing 
shortage,  particularly  for  low-income  households 
in 
(Boverket,  2019).  221 
municipalities also reported a shortage  of  housing 
for newly arrived migrants (particularly refugees). 
While  Sweden  does  not  have  social  housing  as 
such,  in  special  cases  the  social  services  may  be 
obliged  to  provide  housing  as  social  assistance 
(emergency 
housing 
solutions).  Families  with  children  and  young 
people aged 18-29  with a  low  income, pensioners 
and  people  receiving  activity  assistance (28)  or 
sickness  assistance  can  apply  for  housing  benefit. 
According  to  the  Skåne  County  Administrative 
Board  (2018)  older  people  with  care  needs, 
pensioners  with  a  minimum  pension,  youth  and 
young adults, students and newly arrived migrants 
find  it  more  and  more  difficult  to  either  enter  the 
ordinary  housing  market  or  have  the  financial 
means to keep their housing.  

long-term 

the 

increase 

The  lack  of  affordable  housing  is  a  driver 
in  homelessness  and 
behind 
housing  exclusion.  In  the  latest  count  about 
33, 250  people  lacked  a  permanent  abode  in 
Sweden  (National  Board  of  Health  and  Welfare, 
2017).  Almost  50%  of  these  were  in  long-term 
housing  arrangements  (for 
instance  municipal 
social contracts), whereas 650 people were acutely 
homeless,  sleeping  outdoors  or  in  public  spaces. 

(28)  Activity compensation is a compensation for those who are 
young and will probably not be able to work full time for at 
least one year due to illness, injury or disability. 

41 

024681012141618200506070809101112131415161718% 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 

Waiting  times  for  health  services  are  still  high 
and  have  significant  regional  differences.    The 
situation in urban areas has slightly improved, but 
there are  still areas where waiting times are much 
higher  than  the  national  average  (SALAR,  2018). 
Despite  high  numbers 
(above  EU  average, 
(OECD/EU,  2019))  of  doctors  and  nurses  (whose 
tasks  in  primary  care  have  gradually  expanded  to 
prescribing  and  care  coordination),  healthcare 
employers still report a need to increase their staff 
numbers.  The 
healthcare 
availability 
professionals  varies across the country and access 
to  care  is  still  influenced  by  the  cumbersome 
recruitment  situation 
in  a  number  of  health 
professions (the proportion of ‘outsourced doctors’ 
is  highest 
in 
psychiatry). 

in  primary  health  care  and 

of 

Reforms  are  planned  for  primary  care.  The 
reforms hope to attract and train advanced practice 
and  specialist  nurses  and  to  reduce  waiting  times 
surgery.  A  coordination  body 
for  elective 
responsible  for 
long-term  planning  of  health 
personnel  and  skills  supply  will  be  put  in  place 
(Government of Sweden, 2019).  

Shortcomings  in  care  coordination  at  different 
levels are still present.   Half of patients reported 
in  hospital 
experiencing  a  coordination  gap 
discharge planning (OECD/EU, 2019). Legislation 
to  promote  more  timely  discharge  is  in  place  but 
cooperation  between  various  actors  (regions, 
municipalities) has to be further improved.  

4.3.3.  EDUCATION 

The  Swedish  education  system  is  well-funded 
and  offers  overall  satisfactory  results,  but 
increasing  gaps  are  a  challenge.  Between  2009 
and  2018,  the  number  of  students  with  a  migrant 
the 
background  nearly  doubled,  challenging 
capacity  of  the  education  system  to  cater  for  the 
needs  of  all  learners.  Schools  with  many  students 
with  a  migrant  background  perform  worse  than  is 
the  EU  average  for  such  schools  (OECD,  2019b). 
Socio-economic  factors  also  play  a  role,  with 
increasing  income  inequality  and  housing  market 
inefficiencies.  

Participation  in  early  childhood  education  and 
care (ECEC) is widespread, and steps are being 
its  quality.  The 
improve 
taken  to  further 

95.4%) 

average 

participation  rate  in  ECEC  for  children  up  to  3 
years old is one of the  highest in the EU (49.4%) 
and, for children over 3 it is above the EU average 
(European 
(96.3%;  EU 
Commission,  2019d).  As  of  autumn  2019,  a  new 
curriculum  aims 
the  focus  on 
learning, in particular reading, Swedish and digital 
skills, and supports integration and equality. Since 
autumn  2018,  the  pre-school  class  (age  6)  has 
formally  been  compulsory.  Pre-school  directors 
now need to have the same qualifications as school 
directors to increase the quality of instruction.  

to  strengthen 

taken.  Reflecting 

The  shortage  of  teachers  remains  a  challenge, 
despite  measures 
recent 
downward  revisions  in  migration  estimates,  the 
projected  teachers’  shortfall  for  2033  stand  at 
45,000,  still  a  substantial  figure,  corresponding  to 
21% of the current teacher population (Skolverket, 
2019).  The  shortage  of  teachers  reflects  both 
external  factors,  such  as  demographic  growth  and 
the  large  recent  influx  of  migrants,  including  a 
large  proportion  of  school-age  children,  and 
profession-specific  problems,  such  as  40%  of 
teachers being over 50 years old and on relatively 
low  salaries  (European  Commission,  2019d). 
While  the  ‘Boost  for  Teachers’  Salaries’  scheme 
has increased the salaries of one in three teachers, 
it has also created inequalities and divisions among 
teachers,  and  it  has  not  sufficiently  improved  the 
profession’s image.  

A  high  workload,  work-related  stress  and 
health issues are affecting the teacher shortages. 
Many  teachers  are  leaving  the  profession  and  the 
share of teachers receiving unemployment benefits 
increased by 14% in 2018 (Arevik, 2019; Lärarnas 
riksförbund,  2019a).  Despite  earlier  measures, 
there  has  been  no  clear 
improvement.  The 
government  is  therefore  trying  to  reduce  the 
burden  on  teachers  by  financing  more  teacher 
assistants  to  handle  administrative  and  other  non-
teaching tasks. The budget for 2020 has announced 
a  continuation  of 
for  Teachers 
programme, targeted programmes for special needs 
and  vocational  teachers  and  additional  training  of 
school leaders. (Regeringen, 2019c). In 2017/2018, 
almost  20%  of  teachers  in  compulsory  and  upper 
secondary schools had no formal teacher education 
(European Commission, 2019d), and an inquiry is 
now  looking  into  how  to  increase  quality  of 
teacher  training  and  make  it  easier  for  people  to 
become teachers (Regeringen, 2019c).  

the  Boost 

42 

 
4.3. Labour market, education and social policies 

Sweden  is  among  the  EU  countries  with  the 
highest  expenditure  on  education.  In  2017, 
general government expenditure on education  was 
among the  highest in the EU  both as a  proportion 
of  GDP  (6.8%;  EU  4.6%)  and  as  a  proportion  of 
total  general  government  expenditure  (13.7%;  EU 
10.2%).  The  school-age  population  is  expected  to 
grow  by  12.3%  between  2020  and  2030,  and  by 
17.8% by 2040, one of the highest rates of growth 
in 
that  continued  high 
in  education  will  be  needed (29) 
investment 
(European Commission, 2019d).  

the  EU,  suggesting 

that 

shows 

Swedish  pupils  score  well  in  basic  skills.  The 
International  Skills 
OECD’s  Programme 
for 
Assessment 
pupils’ 
(PISA) 
performance  in  basic  skills  in  Sweden,  after  a 
period of deterioration in mathematics and science, 
has  now  improved  and  is  better  than  the  EU 
average in all three skills (30). The performance of 
top achievers in mathematics and reading has also 
improved, and in reading is among the best in the 
EU  (13.3%  of  top  performers  compared  to  8.9%) 
(OECD,  2019b).  The  improvement  suggests  that 
the educational reforms introduced in recent years 
are  bearing  fruit,  and  is  a  clear  sign  of  good 
performance on SDG4, ‘Quality education’.  

(resulting 

education 

The Swedish education system has traditionally 
been  equitable,  but  inequality  is  rising.  An 
education  reform  in  the  1990s  brought  about  a 
decentralisation  of 
in 
inequality  of  funding  across  municipalities)  and 
introduced  school  choice  and  competition  among 
schools  (31).  This  led  to  widening  inequalities 
across  pupils  and  schools 
(OECD,  2019c). 
According to PISA 2018, the average performance 
of learners with a migrant background in reading is 
83  points  worse  than  that  of  native  students,  the 
second biggest difference in the  EU. This gap has 
significantly increased since 2015, when it stood at 
60  points.  As  a  result,  learners  with  a  migrant 
background  are 
to 
underperform  in  reading  than  their  peers  with  a 
native background (OECD, 2019b). 

times  more 

likely 

three 

(29)  600 new pre-school and 300 new school buildings need to 

be built by 2020 (SALAR, 2018). 

(30)  Relevant  PISA  percentages  of  underachievers: 

in 
mathematics  it  is  18.8%  (EU  average  22.4%),  in  science 
19.0%  (EU  average  21.6%)  and  in  reading  18.4%  (EU 
average 21.7%).  

(31)  The  OECD  notes  that  the  general  direction  of  reform  was 
common  to  several  OECD  countries  at  the  time,  some  of 
which perform well in international comparisons. 

in 

often 

Efforts  are  being  made  to  reduce  inequality 
between  schools  and  to  improve  the  quality  of 
compulsory  education.  Learners  with  a  migrant 
background  are  concentrated  in  relatively  few 
municipalities, 
socio-economically 
challenged  areas.  The  government  is  directing 
additional funding to these municipalities, seeking 
to  reduce  the  differences  and  improve  teaching 
quality  (SOU,  2017).  There  are  also  introductory 
programmes,  offered  at  different  educational 
levels,  with  strengthened  language  teaching  for 
pupils with a migrant background. Currently, these 
programmes  are  offered  from  pre-school  (ECEC) 
to  facilitate  integration.  The  National  Agency  for 
Education has proposed changes to the syllabus, to 
make  it  clearer  and  simpler  and  to  emphasise 
teaching  of  factual  knowledge  in  earlier  years, 
adapting  content  to  grades  (Fredriksson,  2019). 
Three  inquiries  are  ongoing  to  address  inequality 
and  educational  quality.  They  will  analyse  the 
rules  of  admission  to  compulsory  school,  grade 
inflation (32) (Regeringen, 2019c), and the learning 
environment  in  after-school  centres  (Regeringen, 
2019b).  

integration 

Early  school  leaving  has  continuously  risen  in 
the last decade.  It stands at 9.3%, below the EU 
average  of  10.6%,  but  higher  than  the  national 
Europe 2020 target of 7%. The difference between 
native-born  pupils  (7.3%)  and  those  born  abroad 
(17.7%) is wide and growing, mainly linked to the 
difficulty  of 
school-age 
migrants arriving late in the course of compulsory 
education,  from  weaker  educational  systems. 
Building  on  earlier  projects  by  the  Swedish 
Association  of  Local  Authorities  and  Regions, 
Uppdrag  fullföljd  utbildning  (Preventing  early 
school leaving) project aims to produce a national 
strategy  against  early  school  leaving  (SALAR, 
2019a).  

among 

The  education  system  is  one  of  the  most 
digitalised in the EU. Programming is part of the 
national  curriculum  and  national  tests  are  being 
digitalised. A digital strategy for schools has been 
in  place  since  2017,  and  an  action  plan  was 
launched in March 2019, but its implementation is 
slow,  casting  doubt  on  whether  the  goals  of  the 

(32)  Grade  inflation  refers  to  a  tendency  of  teachers  to  give 
higher-than-deserved  grades  to  pupils.  This  practice  is 
thought to attract new pupils hoping for better grades to the 
school. 

43 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

strategy can be achieved as planned by 2022. The 
share  of  young  people  aged  16–19  with  above-
basic  digital  skills  is  higher  than  the  EU  average 
(68%;  EU  average  57%).  However,  this  group 
reports 
technologies 
prevents them from doing homework and severely 
reduces 
(Swedish 
Media Council), 2019). 

that  overuse  of  digital 

(Statens  Medieråd 

reading 

The  tertiary  attainment  rate  and  the  graduate 
employment  rate  are  among  the  highest  in  the 
EU, but there are shortages for some categories 
of  graduates.  Sweden  has  one  of  the  highest 
tertiary  educational  attainment  rates  in  the  EU 
(52% in 2018) (European Commission, 2019d) and 
graduates easily find employment (92.5% in 2018, 
among  the  highest  in  the  EU).  However,  the 
proportion  of  students  studying  natural  sciences, 
mathematics and statistics is very low, which could 
be  linked  to  a  weaker  performance  of  the  school 
system in the past. In addition, there are shortages 
of  graduates  in  teaching,  medicine,  nursing  and 
ICT. 

44 

 
4.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

4.4.1.  PRODUCTIVITY AND INVESTMENT 

Productivity Developments 

Similar  to  other  developed  countries,  Sweden’s 
labour  productivity  growth (33) 
rate  has 
deteriorated in recent years. Labour productivity 
growth  in  the  business  sector  increased  two 
decades  ago  following  labour  and  product  market 
reforms  (Heyman  et  al.,  2019).  In  line  with 
international  developments,  average  productivity 
growth  has  been  falling  gradually  since  2007 
(Graph  4.4.1).  The  average  quarterly  growth  rate 
of labour productivity in Sweden fell from around 
1.5% in 2010 to 0.4% in late 2018. As productivity 
growth  is  a  crucial  component  of  prosperity,  it  is 
important  to  understand  the  drivers  behind  the 
recent slowdown. 

Graph 4.4.1:  Labour productivity in the business sector in 

SEK per hour worked 

Source: Statistics Sweden 

The  slowdown  in  productivity  growth  came  in 
particular  from  manufacturing  and  a  shift  to 
services and construction. Productivity growth in 
manufacturing  fell  from  an  average  quarterly 
growth rate of 1.4% in the 1990s to 0.2% after the 
crisis.  The  shrinking  size  and  productivity  of  the 
electronics  and  communications  equipment  sector 
account  for  most  of 
lower  productivity 
performance  of  manufacturing  after  2007.  In 
addition,  there  has  been  a  reallocation  of  labour 
from  manufacturing 
and 
to 
construction  sectors,  which  have  relatively  lower 

services 

the 

the 

to 

(Graph  4.4.2).  This 

shift  has 
productivity 
contributed 
the  stagnation  of  productivity 
growth.  Still,  productivity  growth  has  been 
outstanding  in  some  services  sectors  such  as 
computer  programming,  consultancy  and  related 
activities  and  information  services  making  up  for 
the drop in productivity in manufacturing.  

Graph 4.4.2:  Labour productivity and hours worked by 

sector 2001-2018 - changes between 2001 and 
2018 (1) 

(1) Manufacturing does not include ICT equipment and 
transport vehicles that are presented separately. “Services” 
does not include Real estate services and ICT services. The 
latter is presented separately. 
Source: Statistics Sweden 

Drivers of labour productivity growth 

Growth  accounting  suggests  that  lower  capital 
deepening  and  total  factor productivity  growth 
have  been  behind  the  productivity  slowdown. 
Productivity  growth  can  be  divided  into  three 
components:  changes  in  the  input  of  capital  per 
unit  of  labour  (capital  deepening),  variations  in 
labour  quality  and  effects  on  total  output  not 
caused by changes in the inputs capital and labour 
(total 
factor  productivity).  Breaking  down 
productivity  growth  shows  a  significant  fall  in 
capital  deepening  and  total  factor  productivity  in 
2011-2017  compared  to  earlier  periods  (Table 
4.4.1). 

(33)  The  terms  productivity  and  labour  productivity  are  used 
interchangeably  in  this  section  to  describe  value  added  in 
constant prices per hour worked. 

45 

40506070809010011012093Q294Q295Q296Q297Q298Q299Q200Q201Q202Q203Q204Q205Q206Q207Q208Q209Q210Q211Q212Q213Q214Q215Q216Q217Q218Q219Q2Index, 2018=100Market producers and producers for own final use totalProducers of goodsProducers of servicesManufacturing 2001…ICT Equipment 2001Transport vehicles 2001Utilities 2001Construction 2001Services 2001ICT Services 2001Manufacturing 2018…ICT Equiment 2018Transport vehicles2018Utilities 2018Construction 2018Services 2018ICT services 201844.555.566.577.588.555.566.577.5Hours worked (in logs) Labour productivity (GVA/Hours worked, in logs)20012018 
 
   
                                                           
  
4.4. Competitiveness, reforms and investment 

is  often  associated  with 

Total  factor  productivity  (TFP)  growth  has 
been  falling  in  recent  years.  TFP  measures 
overall efficiency in the combination of inputs and 
innovation  and 
it 
intangible  assets  such  as  brands,  organisational 
capital, management practices and other horizontal 
factors having a cross-cutting impact on efficiency. 
TFP  was  the  main  driver  of  labour  productivity 
before  the  crisis,  but  it  contributed  much  less 
between  2011  and  2017  (Table  4.4.1),  similar  to 
other developed countries. Shortcomings could be 
related  to  the  process  of  technological  diffusion, 
since  it  seems  that  new  technologies  benefit 
technological  leaders  much  more  than  the  bulk  of 
industry. 

Reviving productivity growth 

Addressing  the  productivity  gap  between  small 
and  large  firms  could  improve  productivity.  In 
Sweden as in most EU Member States, small firms 
on  average  have  lower  productivity  than  large 
ones.  While  there  are  many  reasons  why  such  a 
gap  may  exist (35),  the  difference  has  recently 
widened (Andrews et al, 2016). This suggests that 
policies 
adaption  of  new 
the 
technologies  by  small  firms,  facilitating  business 
dynamism  and  adequate  skills  of  the  workforce 
fostering 
could  play  an 
productivity growth. 

supporting 

important 

role 

in 

in 

low  digital 

faster.  Only  4.4%  of 

large  companies.  SMEs  and 

Sweden  encourages  SMEs  to  embrace  new 
large 
technologies 
enterprises  have  very 
intensity 
compared  to  22.3%  of  SMEs.  Moreover,  only 
22.5%  of  SMEs  provide  training  for  their  staff  to 
develop  or  upgrade  their  ICT  skills  compared  to 
their 
74.5% 
managements  need  to  become  more  aware  of  the 
advantages  of  digital  technologies  and  speed  up 
their adoption (OECD, 2019c). The Swedish smart 
digital 
the 
strategy 
industry 
transformation  of  SMEs  with, 
for  example, 
vouchers for consultancy  services (€10.7 million). 
The  government  has  also  provided  €1.46  million 
for digital skills for SMEs’ management teams.  

supports 

Business 
affect 
productivity performance in Sweden. Heyman et 

dynamics 

could 

also 

(35)  Small  firms  might  be  active  in  sectors  with  lower 
productivity  such  as  services,  employ  less  capital  per 
worker and do not benefit from economies of scale. 

Table 4.4.1:  Contributions to productivity growth in the 

business sector 

(1) Approximate contribution in percentage units and 
approximate percentage change, calendar-adjusted 
values. 
Source: Swedish National Institute of Economic Research 

Hours worked increased faster than investment, 
lowering  capital  deepening.  The  availability  of 
physical  capital  per  unit  of  labour  has  fallen, 
reducing  its  contribution  to  labour  productivity 
growth  from  1.1%  in  1997-2007  to  just  0.2%  at 
present.  This  is  the  result  of  a  lower  rate  of 
physical  capital  accumulation  and  the  increase  in 
the  number  of  hours  worked  in  the  market  sector 
(about 25% in 2018 with respect to 2001). Physical 
non-ICT  capital  has  been  a  consistent  contributor 
to  productivity  growth 
throughout  the  whole 
period, but its  importance  has decreased since the 
crisis.  Intangible  assets  like  R&D  and  software 
have  been  an  important  driver  for  productivity 
growth  in  Sweden,  albeit  to  a  lesser  extent 
recently. 

The  quality  of  labour  was  a  major  driver  of 
productivity  growth  before  the  crisis  but  its 
contribution  is  now  moderate. The  indicators  of 
labour quality peaked even before the crisis had set 
in.  It  has  become  negative  recently,  especially  in 
some  manufacturing  activities (34).  The  average 
contribution  of  labour  quality  to  total  factor 
productivity  was  0.3%  on  average  per  year  in 
1997-2007,  falling  to  0.2%  in  the  crisis  years  and 
to  0.1%  between  2011  and  2017  (Table  4.4.1). 
Education levels of younger workers (25- 34 years 
old)  have  increased  in  the  last  20  years,  but  there 
are some disappointing recent results for particular 
parts  of  the  population  (see  Section  4.3.3).  The 
lower  education  level  of  the  non-EU-born  labour 
force,  and  their  increasing  share,  has  lowered  the 
contribution  of  labour  quality  to  productivity 
growth.  

(34)  Average  income,  age,  education  and  ethnicity  are  the 
subcomponents  of  the  labour  quality  indicator  used  by 
Statistics  Sweden  (Antonio  Espinoza  and  Yingfu  Xie, 
2015). 

46 

 1997-2007 2008-2010 2011-2017 Capital deepening 1.1 1.1 0.2 Education level of people in work 0.3 0.2 0.1 Total factor productivity 2.0 -1.3 0.8 Productivity growth 3.4 0.0 1.1   
 
  
 
                                                           
                                                           
4.4. Competitiveness, reforms and investment 

matches  the  investment  made  by  the  Wallenberg 
foundation. 
the  government 
announced  an  investment  of  SEK  40  million  in 
professional education in AI. 

In  June  2019, 

the 

The  successful  deployment  of  5G  in  Sweden 
depends  on 
timely  availability  and 
assignment of the 5G pioneer bands. While part 
of  the  700  MHz  band  was  assigned  last  year, 
decisions  are  pending  for  the  use  of  the  reserved 
2×10 MHz spectrum block and the unsold 20 MHz 
spectrum  block.  The  3.6  GHz  band  auction  was 
postponed indefinitely to consider national security 
issues concerning 5G roll out.  

Investment  

Investment increased steadily, but it is expected 
to  decline  in  2019  and  2020.  Although  the 
contribution  of  private  business  investment  to 
gross  capital  formation  is  significantly  higher  in 
Sweden  than  in  the  EU-28  (see  Graph  4.4.3), 
recent  surveys  indicate  a  decline  in  investment. 
According  to  the  European  Investment  Bank 
(2019),  the  share  of  firms  intending  to  reduce 
investments  in  2019  exceeded  those  expecting  an 
increase.  Participants  saw  a  worsening  economic 
climate  and  a  lack  of  skilled  workers  as  the  main 
obstacles  holding  back  investment.  The  survey 
from  Statistics  Sweden  (2019)  suggests  that  these 
factors will also prevail in 2020. 

Graph 4.4.3:  Investment as share of GDP by institutional 
sector - EU 28 and Sweden 

Source: European Commission 

al. (2018) have shown that the entry of new firms 
has  a  positive  impact  on  employment  creation, 
while  productivity  growth  mainly  comes  from 
large  and  established  firms.  However,  there  is  no 
clear conclusion on the net impact of entry/exit on 
productivity 
in  Sweden.  A  horizontal  study 
conducted  for  a  number  of  EU  Member  States 
(Bauer,  2019)  suggests  that  net  entry  and  the 
subsequent  reallocation  of  resources  have  a  small 
but positive impact on productivity in the services 
sectors 
increasing 
Sweden’s  very  low  entry  rate  (see  Section  4.4.4) 
could have a positive impact on productivity.  

(just  above  1%).  Thus, 

in 

Specific  sectors  will  be  crucial  for  productivity 
growth in the near future. The transport vehicles 
sector  has  been  a  key  contributor  to  the  Swedish 
economy  in recent  years.  Against the backdrop of 
climate  change,  the  sector  is  facing  technological 
and  global  market  challenges.  Considerable 
investments  are  underway  in  Sweden  to  improve 
the  competitiveness  of  Swedish  manufacturers 
involved 
supply  chain, 
the  automobile 
especially  for  the  production  of  batteries.  The 
“computer programming” sector is highly dynamic 
and  has  taken  the  relay  from  the  “computers  and 
as 
sector 
electronic 
leading 
contributor 
growth.  The 
productivity 
construction  sector  is  one  of  the  few  sectors  with 
labour productivity below the EU average and has 
been  attracting 
increasing 
resources  due 
demand,  which  has  reduced  overall  productivity 
growth. Increasing competition could help reverse 
this trend (see Section 4.2.2). 

equipment 

to 

to 

a 

that 

improves  productivity, 

Embracing new technology has the potential to 
improve productivity in the long term. Artificial 
intelligence  and  robotics  are  widely  expected  to 
have  a  strong  impact  on  societies  and  economies. 
While  it  is  uncertain  how  and  when  current 
research  will  be  converted  into  widely  used 
is 
technology 
important  to  follow  developments  closely.  The 
Swedish  government  adopted  a  roadmap  for 
artificial  intelligence  in  2018,  which  aims  to 
improve welfare and competitiveness and make the 
country  a  world  leader  in  the  field.  The  roadmap 
focuses  on  education,  research,  innovation,  and 
frameworks  and 
infrastructure.  The  Swedish 
Innovation  Agency  will  invest  €100  million  over 
the  next  10  years  in  AI-related  projects.  This 

it 

47 

 
    
 
4.4. Competitiveness, reforms and investment 

Box 4.4.3: The dynamics of labour productivity 

During  Sweden’s  current  economic  expansion  labour  productivity  has  become  more  pro-cyclical. 
Sweden’s economy outperformed the EU over the past decade, with particularly strong investment growth. 
At  the  same  time,  the  country’s  productivity  growth  has  slowed.  An  important  difference  compared  with 
earlier cycles has been the behaviour of employment, which has grown almost steadily since 2007 regardless 
of the cycle. Because employment growth has been less sensitive to the cycle, the cyclicality of gross value 
added per hour worked (that is labour productivity) has increased compared to earlier cycles (see Graph 1).  

Structural  shifts  between  and  within  sectors 
have  determined  productivity  patterns  in  this 
cycle but  not all of it is permanent.  The services 
sector  has  increased  its  relative  importance  in  the 
economy  at  the  expense  of  manufacturing  (see 
Section  4.4.1),  which  is  likely  a  lasting  shift. 
Services’  labour  productivity  has  been  more  pro-
cyclical  in  the  past  decade,  until  recently.  In  the 
current 
in  pro-cyclical 
construction  activity  has  had  an  important  imprint 
on  productivity’s  cyclicality  as  well.  This  is  more 
likely  to  have  been  an  exceptional  feature  of  the 
recent boom. Manufacturing, on the other hand, has 
lost  share  in  the  economy  and  saw  somewhat  less 
cyclical behaviour of productivity growth. With labour shortages and increasing skills scarcity, firms seem 
more cautious about shedding labour after the crisis. This has mostly benefited the better-educated (with at 
least secondary education). It also offered opportunities to more marginal groups to enter the labour market, 
but likely in return for lower wages and higher job uncertainty.  

increase 

cycle, 

an 

The recent loss in economic momentum will put the new productivity and labour market dynamics to 
the test. Since the early 1990, a dichotomy has opened up in the Swedish labour market, as in other Member 
States.  The  20%  of  the  workforce  earning  the  lowest  wages  has  had  to  accept  more  limited  wage  growth 
than other groups while also facing lower employment growth (see Section 1). They, therefore, seem to be 
most at risk of job losses as output growth slows. Lower employment protection for temporary workers is 
likely to require higher flexibility from these workers. Additionally, labour hoarding has been increasingly 
associated  with  business  churn  (Bauer,  2019)  i.e.  the  entry  and  exit  of  firms.  In  the  event  of  a  prolonged 
downturn,  the  new  preference  for  labour  hoarding  could  result  in  firms  exiting  the  market  instead  of 
restructuring. Policy will have to anticipate these factors (see Section 4.3) in order to keep up employment 
and structurally raise productivity growth. Education, integration and a fostering environment for innovation 
are needed to achieve this.  

48 

 
 
 
4.4. Competitiveness, reforms and investment 

According  to  Atomico  (2019),  Sweden  is  the 
fourth  Member  State  after  the  UK,  Germany  and 
France by stock of capital in deep tech companies 
in  2019,  with  over  €3  billion  since  2015.  It  hosts 
Northvolt,  which  collected  the  biggest  venture-
capital backed funding deal in Europe  in 2019, of 
approximately € 1 billion.  

Investment in Research and Development 

in 

research 

attractive 

the  European 

Sweden  invests  considerable  resources  in  R&D 
and  continues  to  be  one  of  the  most  innovative 
economies  in  the  EU.  The  country  has  been  the 
top  performer 
Innovation 
Scoreboard  since  2011  and  has  further  increased 
its  performance  over  time.  It  benefits  from  an 
innovation-friendly  environment,  highly  skilled 
workers, 
and 
internationally  competitive  and  innovative  large 
companies.  With  3.3%  of  GDP  allocated  to  R&D 
in 2018, Sweden has the highest R&D spending in 
the  EU.  It  has  the  highest  business  spending  on 
R&D  (2018:  2.35%  of  GDP)  and  the  second 
highest public spending on R&D (2018: 0.96% of 
GDP) in the EU. Sweden’s national goal for R&D 
expenditure in relation to GDP amounts to around 
4%  by  2020.  Addressing  these  challenges  would 
lead to progress on SDG 9. 

systems 

to  keep 

Sustaining a high quality public research base is 
essential 
the  Swedish  knowledge 
economy  competitive.  Sweden  has  the  second 
in 
highest  number  of  scientific  publications 
relation  to  population  in  the  EU (36).  A  strong 
increase  in  international  scientific  co-publications 
since  2011  has  not  led  to  an  increase  in  scientific 
impact, however (37). The number of new doctoral 
graduates (38)  has  fallen  over  the  past  7  years 
(European Commission, 2019e; Swedish Research 
Council, 2019). In 2019, the government launched 
resource 
a  public 
into  a 
distribution  of  universities,  STRUT) 
reform  of  government  control  and 
possible 
allocation  of 
to  higher  education 
institutions  (SOU,  2019a).  The  new  Swedish 
research  bill,  with  priorities  and  focuses  for  the 

resources 

(Steering 

enquiry 

and 

(36)  International 

scientific 

co-publications  per  million 

population. 

(37)  As  measured  by  highly  cited  scientific  publications. 
Scientific  publications  among  the  top-10%  most  cited 
publications  worldwide  as  percentage  of  total  scientific 
publications of the country. 

(38)  New doctoral graduates per 1,000 population aged 25-34. 

The  allocation  of  capital  and  labour  across 
sectors has followed similar patterns. Investment 
data  show  a  shift  of  capital  flows  away  from 
manufacturing  towards  services.  In  1996,  services 
accounted  for  50%  of  all  business  investment 
against 37% in manufacturing. At the end of 2018, 
the  share  of  services  was  up  to  almost  70%  and 
manufacturing  had  fallen  to  less  than  20%.  In  the 
services sector, real estate accounts for a hefty and 
stable share of investment (around 38%).  

Business  investment  is  highly  concentrated  in 
the main exporting sectors. Transport equipment 
accounts  for  35%  of 
total  manufacturing  in 
investment, followed by machinery with 15%. The 
capital-labour  ratio  increased  threefold  between 
1995  and  2015  in  the  transport  sector,  probably 
due  to  the  higher  density  of  robots.  Transport 
equipment  and  machinery  are  currently  the  top 
export  sector  and  both  are  quite  sensitive  to 
changes in foreign demand for their products. 

Graph 4.4.4:  Investment in intangible capital assets 

Source: Klems 2019 

Investment  in  intangible  capital  assets  has 
increased. The relative importance of these assets 
is  higher  than  in  the  EU  average,  amounting  to 
approximately two thirds of the total investment in 
assets accounted for (see Graph 4.4.4). Design and 
other  product  developments  are  the  main  asset 
followed  by  purchased  organisational 
types, 
capital.  In  both  cases,  there  has  been  a  sharp 
upswing in the volume of investments, resulting in 
a  relatively  higher  importance  of  intangibles  as 
productivity drivers.  

Sweden has a vibrant and fast-growing venture 
in  high-tech. 
capital  market, 

especially 

49 

01002003004005006007009596979899000102030405060708091011121314151617Bn SEK (2010 ref.prices)Vocational trainingPurchased organisational capitalDesign and other product developmentsAdvertising, market research and brandingOwn-account organisational capitalGross fixed capital formation 
   
                                                           
4.4. Competitiveness, reforms and investment 

transport  sustainable  by  upgrading  the  different 
transport  modes, 
in  particular  railways.  The 
government’s  budget  for  2020  includes  a  number 
of  measures  for  additional  support  to  renewable 
energy  and  charging  infrastructure  for  electric 
vehicles in rural areas. 

Swedish  firms  invest  relatively  more  in  energy 
efficiency. The percentage of investment in energy 
efficiency in 2019 was higher than the EU average 
(14% compared to 10%). As a result, the share of 
building  stock  meeting  high  energy  efficiency 
standards was 31%, up 2 pps with respect to 2018. 
In  parallel,  energy  audits  increased  as  well,  with 
50%  of  firms  having  done  an  energy  audit  in  the 
last 3 years. 

Investment in transport infrastructure 

in 

rail 

tracks 

73-point 

government’s 

investment  needs 

programme 
The 
transport 
reiterates 
infrastructure.  Following  the  September  2018 
parliamentary  elections, 
the  new  government 
confirmed  the  national  plan  for  infrastructure 
2018-2029  with  substantial  investments.  The  plan 
anticipates  total  spending  of  SEK  700  billion, 
including  maintenance  of 
and 
investments 
in  new  railways  (see  European 
Commission,  2019f).  If  this  is  implemented  as 
planned,  in  the  next  12  years  the  state  will  invest 
three times more in new rail infrastructure than in 
new  roads,  which  could  shift  transport  from  road 
to  rail  (currently  10%).  In 
(currently  86%) 
addition,  the  charging  infrastructure  for  electrical 
vehicles  should  get  more  attention  to  prepare  the 
ground  for  the  intended  ban  on  the  sale  of  new 
petrol and diesel cars from 2030. The government 
has proposed SEK 50 million over 3 years and has 
set up an electrification commission to develop an 
action  plan  for  the  electrification  of  the  most 
trafficked roads.  

4.4.2.  SINGLE MARKET INTEGRATION AND 

SERVICES SECTOR 

Energy system 

Sweden  has  a  dynamic  and  competitive  energy 
wholesale  market.  The  wholesale  electricity 
market is fully liberalised and competition benefits 
from good connectivity to both the Nordic market 
and other European countries. In addition, a  well-

next  four  years,  is  currently  being  prepared  and 
will be presented in autumn 2020.  

high 

Sweden’s 

A  sufficient  supply  of  talent  is  essential  to 
maintain 
innovation 
performance.  A  key challenge for SMEs in 2018 
was  the  availability  of  skilled  staff  (European 
Commission/European  Central  Bank,  2019). 
Among Sweden’s most R&D intensive companies, 
4  out  of  10  consider  it  difficult  to  recruit  R&D 
personnel, and more than a third respond that it has 
become  more  difficult  than  5  years  ago.  (Royal 
Swedish Academy of Engineering Sciences, 2019, 
see  Section  4.3.2).  A  shortage  of  highly  skilled 
personnel  in  science,  technology  and  engineering 
might  hamper  investment  in  R&D  and  ultimately 
affect innovation performance. 

Exploiting  the  full  potential  of  SMEs  can 
broaden  and  strengthen  Sweden’s  innovation 
performance.  So  far,  innovation  has  relied  on  a 
limited  number  of  large  and  globally  competitive 
companies.  However,  the  innovation  performance 
of  SMEs  has  decreased  since  2011  and  could 
improve.  SMEs  could  benefit  from  stronger 
collaboration  between  academia  and  the  business 
sector. Although there are close links between the 
business  sector  and  public  sector  researchers, 
which  result  in  academic  publications,  the  co-
funding of public R&D expenditure has decreased 
in recent years, with Sweden ranked 8th in the EU 
(European  Commission,  2019e).  This  shows 
further potential for privately co-funded university 
and  government  R&D  to  support  the  research 
needs of the business sector. 

Green investments 

climate  and 

Identifying 
investment  needs  and  securing 
adequate  funding  will  be  key  to  delivering  on 
Sweden’s  ambitious 
energy 
objectives and transforming the Swedish economy 
to become sustainable and climate neutral by 2045 
(see Section 4.5). Sweden will also need to support 
the  decarbonisation  of 
the  economy  using 
ambitious  policies  to  promote  innovation  and 
competitiveness.  The 
final  Swedish  national 
energy and climate plan (Regeringen, 2020), which 
is  to  be  assessed  by  the  European  Commission, 
presents investment needs in electricity production 
and infrastructure. Recent initiatives for long-term 
investments  have 
focused  on  decarbonising 
energy-intensive  industrial  sectors  and  making 

50 

 
4.4. Competitiveness, reforms and investment 

designed  model  of  price  zones  does  not  unduly 
limit  cross-border  flows.  Sweden  also  has  a  well-

functioning,  albeit  small  gas  market,  which  is 
supplied by one route from Denmark. 

51 

 
4.4. Competitiveness, reforms and investment 

Box 4.4.4: Investment challenges and reforms in Sweden 

Macroeconomic perspective 

Total investment as % of GDP was above the EU average over the past decade. Both private and 
public investment have  grown  faster  than GDP and the  EU average. Private  investment is  set  to 
fall  in  2019  and  2020,  as  equipment  investment  is  affected  by  the  cyclical  slowdown  and 
residential  investment  adjusts  to  lower  levels  due  to  lagged  effects  of  the  2017  housing  market 
weakness.  Public  investment  in  housing,  healthcare  and  education  infrastructure  is  set  to  have 
remained robust overall in 2019.  

Assessment of barriers to investment and ongoing reforms 

Barriers  to  investment  in  Sweden  are  overall  low  (European  Commission,  2019e),  but  scope 
remains  for  measures in tackling barriers to construction (see Section 4.2.2) and in research and 
innovation (see Section 4.4.1) and construction investment. . 

Several  institutions  promote  access  to  finance  for  early-stage  companies  and  SMEs  (European 
Commission,  2019).  The  EU  supports  investment  in  Sweden  also  via  the  European  Fund  for 
Strategic Investments (EFSI). By October 2019 total financing under the EFSI amounted to € 2.3 
billion, intended to trigger € 8 billion in additional investments. The current experience with the 
EU  financial  instruments  and  the  EFSI  budgetary  guarantee  demonstrated  a  need  for 
simplification,  streamlining and better coordination of the  EU’s investment support instruments 
during  the  next  (2021-2027)  programming  period,  including  by  increasing  complementarity 
between  support  at  EU  level  and  that  at  national/regional  level.  By  the  end  of  2020,  EFSI  and 
other  EU  financial  instruments  will  come  under  the  roof  of  the  new  InvestEU  programme  that 
promotes a more coherent approach to financing EU policy objectives and increases the choice of 
policy  implementation  options  and  implementing  partners  to  tackle  country  specific  market 
failures and investment gaps. In addition, under InvestEU, Member States can set-up a national 
compartment  by  allocating  up  to  5%  of  their  structural  funds  to  underpin  additional  guarantee 
instruments  supporting the  financing of investments  with  a higher degree of adaptation to local 
conditions.  InvestEU  will  be  policy-driven  and  focus  on  four  main  areas:  Sustainable 
Infrastructure,  Research,  Innovation,  and  Digitisation,  Small  Businesses,  and  Social  Investment 
and Skills.  

52 

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. Competitiveness, reforms and investment 

Differences  between  urban  centres  and  regions 
also  exist 
innovation. 
in  productivity  and 
Similar disparities as for GDP per head are present 
  Productivity 
in  other  economic  dimensions. 
growth  was  higher  in  larger  city  regions  with 
Stockholm  well  ahead,  whereas  North-Central 
Sweden,  East-Central  Sweden,  Upper  Norrland 
and  Middle  Norrland  had  low  or  even  negative 
productivity  growth (39)  (Eurostat  2017).  The 
larger city regions are all innovation leaders,  with 
an  innovation  performance  of  130%-155%  of  the 
EU average in 2018. The other regions are strong 
innovators  (with  a  performance  of  91%-115%), 
except  for  Mellersta  Norrland,  the  only  moderate 
innovator, with (89%). 

on 

focus 

regions’ 

Sweden  uses  regional  smart  specialisation 
strategies  and  intends  to  coordinate  rural  and 
regional  policy  better.  Eighteen  strategies  are 
already  in  place,  supported  by  the  ERDF.  The 
comparative 
strategies 
advantages to foster growth and innovation. Every 
region  will  need  such  a  strategy  to  fulfil  the 
enabling  conditions  for  the  upcoming  ERDF 
programming  period.  In  addition,  the  government 
announced  in  its  2020  budget  bill  that  it  wants  to 
strengthen  the  innovation  capacity  of  counties. 
Regional 
including 
innovation  or  smart  specialisation  should  interact 
with  national  and  international  strategies  and 
actions. 

development 

strategies 

Transport infrastructure   

in 

it  climate  friendly 

Improving  Sweden’s  transport  infrastructure 
and  making 
is  a  key 
challenge.  Among  EU  Member  States,  Sweden 
the  Global 
infrastructure 
ranks  13th  on 
Competitiveness Report (World Economic Forum, 
2019),  with  rail 
infrastructure  at  only  25th. 
Planned  investment  in  rail  infrastructure  and 
waterways is important to facilitate a modal split in 
transport  and  to  deliver  on  Sweden’s  ambitious 
climate  objective  (see  Section  4.5).  The  objective 
is  to  decrease  emissions  from  domestic  transport 
(except  aviation)  by  at  least  70%  by  2030  from 
2010 levels, so a comprehensive and relatively fast 
transformation  of  the  fleet  to  low  emissions 
vehicles 
the  political  agenda.  The 
government  has  introduced  a  new  climate  bonus 

is  on 

(39)  European  Commission  calculations  based  on  Eurostat 

regional accounts data released 2019. 

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 
developments,  due 
importance  of 
to 
in  Sweden’s  overall  generation 
hydropower 
capacity. 

the  EU,  although 

they  are  subject 

the 

retail 

liberalised 

electricity  market 

The 
remains 
competitive,  with  a  large  number  of  suppliers. 
For  a  mature  market  (the  Swedish  electricity 
market  was 
in  1996),  consumers’ 
supplier switching rates are healthy (9.7% per year 
in  2017)  due 
to  strong  competition  among 
suppliers.  Smart  meters  also  support  competition 
and  should  facilitate  the  uptake  of  new  energy 
services, such as demand response aggregation. As 
a  result,  retail  electricity  price  developments  tend 
to  be  mainly  driven  by  network  charges.  Due  to 
investments 
and 
accommodate  an  increased  share  of  wind  power 
these  charges  have  increased  recently  and  are 
among  the  highest  in  the  EU  for  household 
customers.  

to  modernise 

grid 

the 

4.4.3.  REGIONAL DIFFERENCES AND 

INFRASTRUCTURE 

benefited 

economic 

Sweden’s regional prosperity  is at or above the 
EU  average,  but  challenges  lie  ahead.  In  2017, 
GDP  per  head  (in  purchasing  power  parity)  was 
above  the  EU  average  in  all  regions  except  for 
North-Central  Sweden,  where  it  is  just  below  the 
average (European Commission, 2019e). While all 
growth, 
from 
regions 
prosperity  gains  were  higher  in  the  urban  areas 
around  Stockholm,  Gothenburg  and  Malmö, 
slightly  widening 
(see 
European  Commission,  2019e,  p.50).  Over  the 
coming decade, demographic developments are set 
to  pose  challenges  for  most  regions.  The  number 
of  people  over  80  years  old  will  rise  by  47%  and 
those  younger  than  20  by  10%.  At  the  same,  the 
population  in  employment  and  paying  taxes  is  set 
to grow at only 6%. These diverging trends result 
in  higher  expenditure  for  elderly  care,  schooling 
and  healthcare,  while  tax  revenues  remain  rather 
stable, opening up an estimated financing  need of 
more than SEK 60 billion a year (SALAR, 2019b). 

regional  disparities 

53 

 
                                                           
4.4. Competitiveness, reforms and investment 

support  and  the  development  will  be  exposed  to 
competition. 

4.4.4.  INSTITUTIONAL QUALITY AND 

GOVERNANCE 

Business Environment 

Sweden has a favourable business environment. 
The country ranked 10th in the World Bank’s Ease 
of  Doing  Business  2020  Indicators.  It  scores 
particularly  high  in  obtaining  electricity  and  the 
registration  of  property,  but  less  so  in  getting 
credit,  enforcement  of  contracts  and  starting  a 
business.  Companies,  including  SMEs,  benefit 
(European 
to 
from 
Commission,  2020b).  Shortcomings  are  related  to 
the availability of skilled labour and the processing 
of  work  permit  extensions  for  highly  skilled  non-
EU professionals, which is still slow, despite some 
improvements. 

finance 

access 

good 

Starting  a  new  business  is  relatively  easy, 
further facilitated by lowered minimum capital 
requirements. The number of procedures and the 
administrative  burden  involved  when  opening  a 
new  business  are  below  the  EU  average.  The 
minimum  permissible  share  capital  to  start  a 
private  limited  company  was  reduced  from  SEK 
50,000  to  SEK  25,000.  This  measure  should  help 
foster  entrepreneurship,  competition  and  market 
dynamism.  

Despite  the  favourable  business  environment, 
the  rate  of  market  entry  and  creation  of  new 
firms  is  relatively  low.  Sweden  has  one  of  the 
lowest percentages of new firms created every year 
divided  by  the  total  number  of  incumbent  firms  –  
the ‘business birth rate’ – in the EU. This rate has 
remained stable at around 7% in past 10 years, and 
fell  to  6.6%  in  2017 (40),  below  the  levels  of  the 
crisis  period.  The  birth  rate  is  also  comparatively 
low  in  the  services  sector,  where  more  new 
businesses are created (6.8%, compared to 12% in 
Denmark and 10% in Finland).  

(40)  The Swedish Agency for Growth Policy Analysis reports a 
fall  of  3%  in  the  number  of  newly  started  enterprises  in 
2018. 

for  electric  lorries  and  electric  working  machines, 
merged it with the existing electric bus bonus and 
boosted  the  common  funding  by  SEK  20  million 
for  2020,  bringing  it  to  SEK  120  million.  In 
addition,  the  eco-bonus  system  to  promote  a  shift 
of  goods  transports  from  road  to  ship  is  being 
prolonged,  with  SEK  50  million  per  year  until 
2022.  Sweden’s  maritime  transport  sector  is  also 
preparing 
fuels 
domestically by  2045,  in  line  with  the  national 
climate objectives.  

the  use  of 

to end 

fossil 

The  government  has  launched  several  public 
inquiries  and  initiatives  to  further  enhance 
energy  efficiency  in  the  transport  sector.  To 
facilitate  public  transport  within  and  between 
regions  an  inquiry  was    launched,  running  until 
April  2020,  which  is  looking  into  necessary 
requirements  for  introducing  a  national  ticketing 
system for all public transport.  As a follow-up to 
the  national  action  plan  for  promoting  domestic 
shipping  presented  by  the  Swedish  Transport 
Administration  (Trafikverket)  in  May  2019,  the 
government 
Analysis 
(Trafikanalys)  has  to  evaluate  the  implementation 
each  year  until  2022.  The  agency  is  also  looking 
into how e-commerce could become more efficient 
Swedish  Transport 
and 
to 
Administration  has  until  30 April  2020 
investigate  what  would  be  required  to  procure 
daily  night 
to  several 
European cities. 

sustainable.  The 

from  Sweden 

Transport 

agency 

trains 

Broadband 

is  a 

Sweden 
for  ultrafast 
front-runner 
connectivity  and  has  a  competitive  telecoms 
market, but it might miss its broadband targets. 
84% of Swedish households had access to ultrafast 
broadband  of  100  Mbps  in  2018.  The  goal  is  to 
reach  95%  coverage  by  2020.  86%  had  access  to 
30  Mbps,  and  the  goal  here  is  to  reach  98% 
coverage  by  2025.  To  reach  these  targets  roll-out 
in sparsely populated areas needs to speed up. For 
the  next  three  years,  the  Swedish  government  has 
for  broadband 
allocated  SEK  650  million 
development,  but  the  Swedish  Post  and  Telecom 
Authority 
additional 
estimates 
investment of SEK 22 billion is required to achieve 
the 2025 target. The PTS is designing a new model 
for  state  support  to  broadband  expansion.  Public 
actors  will  set  priorities  about  areas  in  need  of 

(PTS) 

that 

54 

 
                                                           
4.4. Competitiveness, reforms and investment 

Graph 4.4.5:  Business birth rates 

(1) Number of new firms per 100 existent 
Source: European Commission 

Entrepreneurship  as  a  career  has  become  less 
attractive.  The  Global  Entrepreneurship  Monitor 
(2019) has highlighted the fall of entrepreneurship 
activity  in  Sweden  since  2013,  especially  among 
women. It indicates that while there is a perception 
of abundant business opportunities, the motivation 
to  start  up  a  new  company  is  decreasing.  For  the 
first time in the past fifteen years, less than 50% of 
the surveyed population consider entrepreneurship 
as an attractive career choice.  

The  public  sector is  digitally  mature, but there 
is room for improvement on open data and the 
reuse  of  public  data.  E-government  services  are 
widespread  in  Sweden  with  93%  of  internet  users 
able to submit forms online. However, the country 
achieved only 52% of the maximum score on open 
data 
in  2018.  The  new  agency  for  digital 
government  (DIGG),  set  up  in  2018,  has  the 
objective  of  increasing  the  use  of  data  by  the 
public  administration.  It  has  not  yet  implemented 
any  changes.  To  advance,  a  focus  on  data  as  a 
strategic  resource  and  better  leadership  might  be 
trust  and 
together  with  work  on 
required, 
accessibility in digital services. This and the good 
conditions  for  using  data  could  build  citizen-
related services, analyse complex societal changes 
and promote digital innovation.   

55 

3%5%7%9%11%13%15%17%08091011121314151617Business birth ratio (1) DenmarkFinlandSwedenUnited Kingdom 
   
 
4.5.  ENVIRONMENTAL SUSTAINABILITY 

Leading towards carbon neutrality  

Graph 4.5.2:  Greenhouse gas emissions, carbon taxes and 

economic growth 

Sweden  has  experienced  high  growth  while 
lowering  greenhouse  gas  emissions.  Sweden  is 
among the EU Member States with the lowest per 
capita  greenhouse  gas  (GHG)  emissions  (Graph 
4.5.1).  Between  1990  and  2017,  Sweden’s  GHG 
emissions  fell  by  26%,  while  it’s  per  capita  GDP 
increased by 54%. Over this period, the decline in 
CO2 emissions per capita GDP outpaced the EU’s 
average.  

Graph 4.5.1:  The ten EU countries with the lowest 

greenhouse gas emissions in 2017 

(1) The size of the bubbles represents the tax per tonne of 
carbon dioxide. 
Source: World Bank, European Commission 

Sweden  has  the  highest  share  of  renewables  in 
energy  consumption  in  the  EU.  The  share  of 
renewable  resources  in  final  energy  consumption 
increased  from  41%  in  2005  to  55%  in  2018, 
making  Sweden  the  only  EU  country  to  source 
over  half  of  its  energy  from  renewable  sources 
(Graph  4.5.3).  Biofuel  is  the  largest  renewable 
source  and  is  used  mostly  for  heating,  whereas  in 
electricity  hydropower  is  the  dominant  renewable 
source.  

Graph 4.5.3:  Share of renewable sources in final energy 

consumption, 2017 

Source: European Commission 

A significant price on carbon dioxide emissions 
has  been  a  key  feature  of  Swedish  climate 
policy.  The  carbon  tax  was  SEK  250  when 
introduced  in  1991  and  reached  SEK  1,180  in 
2017, a real increase of 233%. It is levied on fossil 
fuels  and  determined  by  their  carbon  content  (see 
Section 4.1 for tax exemptions and subsidies). The 
tax  covers  about  40%  of  Swedish 
carbon 
greenhouse  gas  emissions  (World  Bank,  2019).  It 
is  not  applied  to  the  sectors  falling  under  the  EU 
ETS.  A  high  carbon  tax  has  helped  reduce 
greenhouse  gas  emissions  without  stopping  the 
Swedish  economy  from  growing  faster  than  most 
other  EU  Member  States  with  lower  carbon  taxes 
(Graph 4.5.2 and Andersson, 2019). 

Source: European Commission 

Sweden  has  a  very  ambitious  GHG  emissions 
reduction  target.  Its  national  GHG  emission 
reduction  targets  are  more  ambitious  than  the  EU 
commitments,  aiming  at  a  reduction  in  non-ETS 
emissions  by  2030  of  63%  compared  to  1990 

56 

024681012MTSEROLVHRHUFRPTITLTTonnes per person20072017DKEEFIFRIELVPLPTSIESSEUK-40-30-20-1001020-100102030405060Greenhouse gas emissions -tonnes per capita change 2007-17 (%) GDP change 2007-17 (%)0102030405060LUNLMTBECYUKIEPLSKHUCZDEFRGRESEUITBGSIROLTHRPTEEATDKLVFISE% 
 
   
  
  
4.5. Environmental sustainability 

Sweden will reduce emissions from 53 million ton 
of  carbon  dioxide  equivalents  in  2018  to  45  in 
2045  (Naturvårdsverket  (Swedish  Environment 
Protection Agency), 2019). 

The  transition  to  lower  carbon  emissions  has 
benefited  from  a  competitive  advantage  in 
renewable  energy.  Sweden´s  geography  offers 
opportunities  for  producing  renewable  energy,  in 
particular  from  wood  and  hydropower.  Low-cost 
hydropower  energy  provides  the  most  electricity, 
and 
this  has  given  Sweden  a  competitive 
advantage  while  allowing  it  to  reduce  greenhouse 
gas  emissions.  An  energy-intensive  sector  like 
paper and pulp is a showcase: it has hardly reduced 
its  final  energy  consumption  but  has  halved  the 
carbon-intensity  of  its  gross  value  added.  The 
decline  in  the  exchange  rate  over  the  years  has 
likely been another supporting factor for the paper 
and pulp industry, which faces strong competition 
in the global market.  

levels.  According  to  the  Climate  Act  adopted  in 
2017,  Sweden  shall  reach  carbon  neutrality  by 
2045, including emissions within ETS. Up to 15% 
of  the  emissions  reductions  to  reach  carbon 
neutrality  can  be  compensated 
through  other 
measures  like  carbon  capture  and  storage  or 
investments abroad. Reducing the carbon-intensity 
of the Swedish economy would lead to progress on 
SDG 7 “Affordable and clean energy” and SDG 13 
“Climate  action”.  Sweden´s  draft 
integrated 
national  energy  and  climate  plan  projects  a  65% 
share  of  renewables  in  final  energy  consumption 
by 2030 (Regeringen, 2019f). The targets set in the 
plan  would  make  for  a  moderate  contribution 
towards the EU 2030 energy  efficiency  targets on 
primary 
low 
contribution  towards  the  EU  targets  for  final 
energy  consumption 
(European  Commission, 
2019g).  Across  the  business  sector,  it  has  been 
difficult 
to  reduce  final  energy  consumption 
(Graph 4.5.4). 

consumption 

energy 

and 

a 

Graph 4.5.4:  Final energy consumption (Mtoe(1)) 

Graph 4.5.5:  Carbon dioxide emissions/gross value added 

(g/SEK) 

(1) Million tonnes of oil equivalent 
Source: European Commission 

Source: European Commission 

Challenges on the way to carbon neutrality 

Sweden  is  likely  to  meet  its  EU  commitments 
but will need to take additional policy action to 
achieve  its  own  objectives.  Sweden  is  fully  on 
course  to  meet  its  EU  2020  and  2030  targets  to 
reduce GHG emissions in non-ETS sectors by 17% 
and 40%, respectively, from 2005 levels. However, 
the  annual  rate  of  reductions  has  been  below  1% 
since  2014,  which  means  that  Sweden  is  not  on 
course to meet its 2030 and 2045 domestic targets 
((Klimatpolitiska  rådet  (the  Swedish  Climate 
Policy  Council),  2019).  With  current  policies, 

As  the  competitive  advantage  in  renewable 
energy decreases, energy efficiency will become 
more important. Sweden has the largest potential 
for  the  share  of  renewable  energy  in  final  energy 
consumption  by  2030  among  Member  States 
(IRENA,  2018).  However,  additional  renewable 
energy  would  have  to  come  from  higher  cost 
low-cost 
sources 
the 
hydropower 
the 
comparative  advantage  of  Sweden  under  pressure 
as  it  moves  to  decarbonize  economic  growth 
further.  Energy  efficiency  measures  complement 
renewable  energy  deployment  as  a  way  of 

(IRENA,  2020).  This  puts 

instead  of 

relatively 

57 

0123456789Manufacture ofbasic metalsManufacture ofpaper, printingand reproductionOthermanufacturingand constructionTransportationand storageMtoe20082017020406080100120140160180Manufacture ofbasic metalsManufacture ofpaper, printingandreproductionOthermanufacturingand constructionTransportationand storageg/SEK20082017 
  
  
4.5. Environmental sustainability 

roadmap. Fossil carbon dioxide emissions from the 
steel  industry  emanate  mainly  from  production 
processes  and  internal  transport.  To  reduce  these 
emissions,  the  industry  is  looking  at  innovative 
processes  such  as  using  hydrogen  to  reduce  iron 
ore to iron whereby emissions are eliminated from 
the reduction process leaving water as the only by-
product. However, these technological changes are 
costly  and 
involve  numerous  challenges  and 
greenhouse gas emissions have actually increased. 

Policy and industry initiatives 

The  government  has  recognised  the  need  for 
further  measures.  Its  climate  policy  action  plan, 
published 
in  December  2019,  presents  132 
measures across different sectors. The  focus is on 
reducing  GHG  emissions  from  the  transportation 
sector. More broadly, the  government continue its 
policy of significant pricing of emissions to reduce 
emissions  while  at  the  same  time  considering  a 
shift 
to 
labour  and  corporate 
environmental taxes.   

taxes 

from 

Sweden  intends  to  reduce  carbon  emissions  by 
electrifying  the  transport  sector.  This  will 
require  large  investments  in  several  modes  of 
transport  by  both  public  and  private  sectors  (see 
also  Section  4.4).  At  the  end  of  2019,  the 
government  launched  an  inquiry  into  phasing  out 
cars powered by fossil fuels. The electrification of 
transport  will  also  necessitate  investments  in 
power generation and distribution infrastructure.  

The  Industrial  Leap  programme  to  support 
low-carbon  innovation  in  industry  was  scaled 
up  during  the  year.  In  early  2019,  the  Swedish 
Parliament  approved  the  allocation  of  SEK  300 
million  per  year  to  the  programme  for  the  next  3 
years, with a particular focus on the steel industry. 
In 
the  government’s  climate  action  plan  of 
the  government  proposed 
December  2019, 
doubling  the  funding  of  this  programme.  The 
intention is to continue annual funding until 2040. 
Other  research  programmes  focus  on  areas  where 
Sweden  can  have  a  competitive  edge  such  as 
biofuels-  and  waste-based  combined  heat  and 
power production, forest carbon sequestration and 
efficient use of bioenergy sources.  

reducing 
supporting Swedish competitiveness. 

the  carbon  emissions  as  well  as 

including 

Transport  is  the  prime  target  for  emissions 
reduction.  Transport 
international 
shipping  and  aviation  accounted  for  60%  of  the 
national  carbon  dioxide  emissions  in  2017  with 
domestic road transport being responsible for 34% 
(cars  represent  23%  of  total  emissions).  Whereas 
emissions  from  industry  and  domestic  transport 
have  decreased,  those  from  international  aviation 
and  maritime  have  increased.  Domestically,  too, 
transport  has  fallen  behind  industry’s  emission 
reductions.  Domestic  transport  remains  the  single 
most  important  source  of  carbon  emissions.  The 
emmissions  from  domestic  transport  (aviation 
excluded) is expected to decrease  by at least 70% 
by  2030  compared  to  2010.  In  order  to  achieve 
carbon  neutrality,  the  Swedish  Climate  Policy 
Council assessed that the transport sector needs to 
be  completely  fossil-free  by  2045.  With  current 
policies,  it  predicts  a  reduction  in  emissions  from 
some 16 million tonnes to 12-13 million tonnes of 
carbon  dioxide  equivalents  by  2030  while 
emissions need to be reduced to less than 6 million 
tonnes in order to reach the domestic  2030 target. 
Separate  analysis  by  the  National  Institute  of 
Economic  Research  (Konjunkturinstitutet)  (2019) 
confirms  that  current  policies  are  insufficient  and 
pricing instruments need to become more powerful 
and efficient. 

fossil 

roadmaps 

for 
identifying 

free 
Industry 
competitiveness  are 
investment 
needs  in  the  power  sector.  The  supporting 
analysis  for the electricity roadmap (SwedEnergy, 
2020)  projects  an  increase  in  electricity  demand 
from  140  TWH/year  to  190  TWH/year  in  2045. 
The  scenarios  in  the  report  identify  large-scale 
investments  needs  until  2045,  in  power  supply 
(SEK 560-640 billion), energy infrastructure (SEK 
441-516 billion) and in system operation.  

gas 

emissions 

Greenhouse 
vary  widely 
regionally,  mainly  due  to  differences  in  the 
business  structure.  In  Upper  Norrland,  the  steel 
industry is an important industry and emitter. It is 
in the midst of a transformation process to become 
fossil-free  by  2035  for  which  it  has  developed  a 

58 

 
4.5. Environmental sustainability 

Box 4.5.5: Fossil free Sweden initiative 

The  government  launched  the  Fossil  Free  Sweden  initiative  (Fossilfritt  Sverige)  in  2015.  It 
invites all business sectors to produce roadmaps on how to become climate neutral by 2045 while 
also  increasing  their  competitiveness.  So  far,  13  industry  sectors  have  presented  such  roadmaps, 
including several of the Sweden’s most energy-intensive sectors such as steel, cement and mining. 
In  their  roadmaps,  the  industries  describe  when  and  how  they  will  be  fossil  free,  what 
technological  solutions  need  to  be  developed,  what  investments  have  to  be  made  and  what 
obstacles need to be removed to support the transformation.  

In  October  2019,  the  coordinator  for  Fossilfritt  Sverige  presented  27  measures  to  promote 
‘fossil  free  competitiveness’  in  Swedish  industry  based  on  the  13  roadmaps.  The 
recommended  measures include reviewing the  system  for taxes and other economic instruments, 
streamlining regulations and permit processes for new installations and low-carbon technologies, 
and launching national strategies to promote electrification and the bioeconomy, as well as carbon 
capture, utilisation and storage (CCUS).  

low  carbon  economy  and  resource 
Lab  on 
efficiency 
in  North-Central  Sweden,  which 
addresses  the  regional  challenges  in  the  areas  of 
broadening  and  diffusing  innovation  (particularly 
in relation to SMEs) and building a more effective 
industrial ecosystem (to attract talent, research and 
innovation resources, and investments). 

The government is also supporting measures to 
reduce  GHG  emissions  on  local  and  regional 
level  through  the  Climate  Leap  programme. 
The Climate Leap helps municipalities to invest in 
charging infrastructure  for electrical  vehicles, fuel 
switching  to  biofuels  and  district  heating,  as  well 
lanes  and  other  infrastructure  for  cycling.  A  total 
of  SEK  4.7  billion  was  approved  for  such 
investments  in  2015-2018,  In  2019,  the  Climate 
Leap  was  allocated  a  total  budget  of  SEK  1.5 
billion  and  was  budgeted  a  further  SEK  1.8  -1.9 
billion per year for the period 2020-2022. 

The  Swedish  government  promotes  energy 
efficiency.  Investments  are  needed  towards  the 
2030. Appropriate mechanisms put in place by the 
Swedish  government  in  line  with  EU’s  ‘Smart 
finance  for  smart  buildings  initiative’  can  unlock 
investments  and  attract  private  financing  for 
energy  efficiency  investments.  There  is  potential 
for  Sweden  to  use  more  intensely  the  European 
local  energy  assistance  (ELENA)  program,  or  to 
put  in  place  similar  instruments  at  national  or 
regional 
level.  The  building  sector  has  an 
important  role  to  play  in  the  fulfilment  of  energy 
efficiency  and  climate 
targets  for  2030  and 
beyond.   

The  Just  Transition  Fund  (see  annex  D)  could 
help  develop  of  new  and  innovative  solutions 
bringing together academia, public authorities and 
industry  in  more  innovative  environments  to  help  
from 
stimulate 
different  industries  and  regions.  A  good  example 
on  how  this  could  work  might  be  the  Transiton 

intersections  between 

ideas 

59 

 
 
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (41) 

2019 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 investment in 
residential construction where shortages are most 
pressing,  in  particular  by  removing  structural 
obstacles to construction. Improve the efficiency 
of  the  housing  market,  including  by  introducing 
more  flexibility  in  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 interest 
payments or increasing recurrent property 
taxes.  

Stimulate investment in 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 
announced  to  reduce  the  tax  deductibility 
of  mortgage 
to 
increase recurrent property taxes  

interest  payment  or 

  Limited  Progress  Sweden  has  integrated 
its policy ambitions for the housing market 
into  the  January  agreement  of  early  2019. 
This 
the 
for 
construction of new rental housing.  

includes 

subsidy 

a 

Improve the efficiency of the housing 
market, including by introducing more 
flexibility in rental prices and revising the 

  No  Progress  The  government  marginally 
changed the capital gains tax - a deferral of 
the  capital  gains  tax  liability  on  housing 

(41)  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  

o 
o 

o 

in the national reform programme, 
in  any  other  official  communication  to  the  national  Parliament/relevant  parliamentary  committees  or  the 
European Commission, 
publicly (e.g. in a press statement or on the government's website); 

 
 

no non-legislative acts have been presented by the governing or legislative body; 
the  Member  State  has taken  initial  steps  in  addressing  the  CSR,  such  as commissioning  a  study  or  setting  up  a  study 
group to analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). 
However, it has not proposed any clearly-specified measure(s) to address the CSR. 

Limited progress: The Member State has:  

 
 

 

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

 
 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that  address  the  CSR,  but  a  fair  amount  of  work  is  still  needed  to  fully  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.  

60 

 
 
                                                           
 
A. Overview table 

design of the capital gains tax.  

CSR  2:  Focus  investment  related  economic 
policy  on  education  and  skills,  maintaining 
investment  in  sustainable  transport  to  upgrade 
the  different 
in  particular 
transport  modes, 
railways  ,  and  research  and  innovation,  taking 
into account regional disparities.  

Focus investment related economic policy 
on education and skills,  

maintaining investment in sustainable 
transport to upgrade the different transport 
modes, in particular railways,  

and research and innovation, taking into 
account regional disparities.  

CSR  3:  Ensure  effective  supervision  and  the 
laundering 
enforcement  of 
framework.  

the  anti-money 

remains 

transactions 
possible  when 
changing  houses,  while  the  maximum 
deferrable  amount  increased  to  SEK  3 
million.  However,  this  is  de  facto  a 
tightening 
the  cap  had  been 
temporarily removed previously. There has 
been no change in the setting of rents.  

since 

Sweden  has  made  Some  Progress  in  addressing 
CSR 2  

  Some  Progress  While  some  measures 
have  been  taken,  for  example  in  the  2020 
Budget  Bill,  there  is  a  continued  need  for 
investments in education and skills.  

  Substantial Progress The implementation 
of  the  national  plan  for  infrastructure 
2018-2029  adopted 
is 
underway  according  to  plan  confirmed  by 
the  73-point  program  presented  by  the 
government and its two supporting parties 
which 
support 
transport infrastructure.  

include  measures 

in  June  2018 

to 

  Some Progress Sweden continues to invest 

considerable resources in R&D and 
continues to be one of the most innovative 
economies in the EU. With 3.31% of GDP 
allocated to R&D (2018), Sweden remains 
the country with the highest R&D spending 
in the EU. However, there is a slight 
decrease in R&D Intensity (GERD as % of 
GDP) from 3.37 (2017) to 3.31 (2018), 
mainly due to a reduction in the business 
enterprise expenditure on R&D (BERD) as 
% of GDP from 2.4 (2017) to 2.35 (2018). 

Sweden  has  made  Some  Progress  in  addressing 
CSR  3:  Sweden  has  made  substantial  progress  in 
terms  of  new  legislative  measures  that  will  form 
the basis for a strengthened anti-money laundering 
framework. It has achieved some progress through 
to  promote 
the  creation  of  a  special  body 
collaboration 
competent 
different 
authorities.  Sweden  has  made  some  progress  to 
ensure more effective supervision and enforcement 
by  allocating  additional  human  resources  to  both 
the  Financial  Supervisory  Authority,  which  will 
enable  the  authority  to  develop  a  new  risk 
classification  tool,  and  the  Financial  intelligence 

between 

61 

 
A. Overview table 

Unit,  which  will  allow  it  to  process  information 
more effectively. Sweden also made some progress 
in  relation  to  reviews  of  major  Swedish  banks’ 
governance  and  control  of  anti-money  laundering 
measures  in  Baltic  subsidiaries  and  initiated  two 
new  investigations  at  the  end  of  2019.  However, 
there is limited progress in other areas, notably the 
FSA’s  staffing  dedicated  to  supervision  remains 
low compared to the size of the Swedish financial 
sector and the FIU still needs to make better use of 
the  system 
requests  and  exchange  of 
information  between  EU  FIUs  (FIU.net)  and 
strengthen its analytical capacity.  

for 

Sweden has passed its target in 2014 and remained 
above  target  ever  since  registering  an  82.4% 
employment  rate  in  2018  and  82.0%  rate  in  the 
first three quarters. 

Sweden remains the country with the highest R&D 
spending  in  the  EU.  However,  there  is  a  slight 
decrease in R&D Intensity (GERD as % of GDP) 
from  3.37  (2017)  to  3.31  (2018),  mainly  due  to  a 
reduction in the business enterprise expenditure on 
R&D  (BERD)  as  %  of  GDP  from  2.4  (2017)  to 
2.35  (2018).  Sweden  will  reach  its  national  target 
for R&D intensity only if the stagnation in public 
R&D  intensity  can  be  overcome  and  if  business 
R&D intensity can be increased. 

Between  2005  and  2018,  Sweden’s  greenhouse 
gas  emissions  in  the  non-ETS  sectors  dropped  by 
25%.  They  are  projected  to  decline  by  32%  by 
2020, thus overachieving the national target by 15 
percentage points. 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 80 %.  

R&D target set in the NRP: 4 % of GDP  

National  greenhouse  gas  (GHG)  emissions  target:  
- 17 % in 2020 compared with 2005 (in sectors not 
included in the EU emissions trading scheme)  

2020  renewable  energy  target:  49  %  of  final 
energy consumption 

At  55%,  Sweden  has  already  exceeded  its  2020 
target 

Energy  efficiency,  2020  energy  consumption 
targets:  

Sweden's  2020  energy  efficiency  target  is  43.4 
Mtoe  expressed  in  primary  energy  consumption 
(30.3 Mtoe expressed in final energy consumption)  

Sweden's  primary  energy  consumption  in  2017 
was 46.8 Mtoe, an increase compared to 46.4 Mtoe 
in  2017.  Final  energy  consumption  in  2018 
reached 32.0 Mtoe, a decrease compared to 32.3 in 
2017.  More  efforts  are  needed  to  meet  the 
indicative national 2020 target.  

Early school/training leaving target: below 7 %.  

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  2018  was  9.3%.  It  has  risen 
continuously since 2014, and more sharply (by 1.6 
pps)  between  2017  and  2018  (2017:  7.7%;  2016: 

62 

 
 
A. Overview table 

7.4%; 2015: 8%; 2014: 6.7%). 

The  share  is  2.3  pps  above  the  national  target  of 
7%. 

educational 

Tertiary 
of 
population  30-34  having  successfully  completed 
tertiary education) in 2018 was 52% (2017: 51.3%; 
2016: 51%; 2015: 50.2%; 2014: 49.9%). 

attainment 

(share 

Tertiary education target: 45 - 50 % of population 
aged 30-34.  

Target for reducing the number of people at risk of 
poverty  or  social  exclusion:  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.  

The  target  of  45-50%  has  been  achieved  and  the 
trend remains good  

The  corresponding  indicator  has  continued  to 
decrease,  reaching  10.8%  in  2018,  according  to 
feedback  from  national  authorities  (2017:  11.4%; 
2016:  12.0  %;  2015:  12.4  %;  2014:12.6  %;  2013: 
12.7  %).  While  the  target  has  been  reached,  the 
decreasing  trend  is  likely  to  change,  as  long-term 
unemployment is on the rise.   

63 

 
 
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

64 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio38.834.633.432.030.528.726.724.822.920.919.017.115.4Changes in the ratio (-1+2+3)-2.0-4.1-1.2-1.4-1.6-1.8-2.0-1.9-1.9-1.9-1.9-1.9-1.7of which(1) Primary balance (1.1+1.2+1.3)1.30.80.70.70.91.11.31.31.31.41.41.41.3(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)0.80.71.11.21.21.21.31.31.31.41.41.41.3(1.1.1) Structural primary balance (bef. CoA)0.80.71.11.21.21.21.21.21.21.21.21.21.2(1.1.2) Cost of ageing0.00.10.10.10.10.20.20.30.4(1.1.3) Others (taxes and property incomes)0.10.10.20.30.30.40.50.50.5(1.2) Cyclical component0.50.1-0.3-0.5-0.3-0.20.00.00.00.00.00.00.0(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)-1.3-0.8-0.2-0.4-0.7-0.7-0.7-0.6-0.6-0.6-0.5-0.5-0.4(2.1) Interest expenditure0.50.60.60.50.50.50.40.40.40.30.30.30.3(2.2) Growth effect-0.9-0.4-0.3-0.4-0.7-0.6-0.6-0.5-0.5-0.5-0.4-0.4-0.3(2.3) Inflation effect-0.9-0.9-0.5-0.6-0.6-0.6-0.6-0.5-0.5-0.4-0.4-0.4-0.3(3) Stock-flow adjustments0.6-2.6-0.3-0.20.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. 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). 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.[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 and the DSM 2019.[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. 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 after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five 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. 0510152025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -SEBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario0102030405020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -SEp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline0510152025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -SEBaselineHistorical SPB scenarioSGP scenario0510152025303540455020172018201920202021202220232024202520262027202820292030Debt 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 (2030)15.411.716.716.217.3Debt peak year20192019201920192019Percentile rank36.0%30.0%Probability debt higher4.6%Dif. between percentiles11.4LOWLong termLOW(S2 = 1.2)S1S2Short termLOW(S0 = 0.2)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -5.4) 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 - 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 - 2019. 
(3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

65 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)285.2282.3282.3289.9272.5282.1Share of assets of the five largest banks (% of total assets)58.557.856.358.254.3-Foreign ownership of banking system (% of total assets)(2)6.97.28.27.322.320.2Financial soundness indicators:(2)              - non-performing loans (% of total loans)1.31.31.21.31.01.1              - capital adequacy ratio (%)22.224.126.325.920.720.2              - return on equity (%)(3)11.811.211.910.912.212.0Bank loans to the private sector (year-on-year % change)(1)5.14.47.36.94.74.6Lending for house purchase (year-on-year % change)(1)6.48.57.67.35.65.1Loan-to-deposit ratio(2)161.8177.8178.0172.7190.7182.2Central bank liquidity as % of liabilities(1)0.00.00.00.00.00.0Private debt (% of GDP)193.3191.5192.0197.9200.0-Gross external debt (% of GDP)(2) - public21.720.116.814.512.911.9    - private54.953.050.450.251.450.8Long-term interest rate spread versus Bund (basis points)*55.322.345.033.325.528.6Credit default swap spreads for sovereign securities (5-year)*9.99.514.210.96.97.3 
 
 
 
  
 
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 and/or living in households with zero or very low work intensity. 
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.   
(3) Gross disposable household income is defined in unadjusted terms, according to the draft 2019 joint employment report.     
(4) Reduction in percentage of the risk-of-poverty rate, due to social transfers (calculated comparing at-risk-of-poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation). 
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap. 
Source: Eurostat 

66 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)6.77.07.47.77.5:Gender employment gap (pps)4.64.23.84.04.24.8Income inequality, measured as quintile share ratio (S80/S20)4.24.14.34.34.1:At-risk-of-poverty or social exclusion rate(1) (AROPE)18.218.618.317.718.0:Young people neither in employment nor in education and training (% of population aged 15-24)7.26.76.56.26.0:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)80.080.581.281.882.482.2Unemployment rate(2) (15-74 years)7.97.46.96.76.36.8Long-term unemployment rate (as % of active population)1.41.51.31.21.11.0Gross disposable income of households in real terms per capita(3) (Index 2008=100) 111.4113.0115.6116.6118.3:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)256122589225992:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)2.331.791.47:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)48.045.345.846.143.3:Children aged less than 3 years in formal childcare56.864.051.052.749.4:Self-reported unmet need for medical care1.71.31.61.41.5:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):72.069.077.0:: 
 
 
  
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.  
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with 10 or more employees, without restrictions for age and hours worked, are included.   
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.   
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2015 refer to mathematics and those for 
2018 refer to reading.      
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.  
Source: Eurostat, OECD 

67 

Labour market indicators201420152016201720182019 5Activity rate (15-64)81.581.782.182.582.783.2Employment in current job by durationFrom 0 to 11 months17.818.318.919.519.3:From 12 to 23 months10.010.010.711.812.3:From 24 to 59 months17.617.317.117.118.3:60 months or over53.953.652.650.949.4:Employment growth* (% change from previous year)1.41.51.92.51.60.7Employment rate of women(% of female population aged 20-64)77.678.379.279.880.279.8Employment rate of men (% of male population aged 20-64)82.282.583.083.884.484.6Employment rate of older workers* (% of population aged 55-64)74.074.575.576.478.077.8Part-time employment* (% of total employment, aged 15-64)24.524.323.923.322.622.2Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)16.816.616.116.115.915.8Transition rate from temporary to permanent employment(3-year average)40.038.437.737.740.1:Youth unemployment rate (% active population aged 15-24)22.920.418.917.817.420.0Gender gap in part-time employment24.122.822.421.019.918.6Gender pay gap(2) (in undadjusted form)13.814.013.312.6::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)29.229.429.630.431.4:Underachievement in education(3):20.8::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)49.950.251.051.351.8:Variation in performance explained by students' socio-economic status(4):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 

68 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare7.47.57.47.57.4:Disability3.63.43.33.13.1:Old age and survivors13.012.712.412.512.5:Family/children3.13.03.03.02.9:Unemployment1.21.11.01.01.0:Housing0.50.50.40.40.4:Social exclusion n.e.c.0.70.70.91.41.1:Total29.428.928.528.928.2:of which: means-tested benefits0.80.80.70.70.7:General government expenditure by function (% of GDP)Social protection21.020.620.220.520.0:Health6.96.96.86.96.9:Education6.56.56.46.66.7:Out-of-pocket expenditure on healthcare15.515.515.515.315.0:Children at risk of poverty or social exclusion (% of people aged 0-17)*20.220.519.819.919.420.6At-risk-of-poverty  rate(1) (% of total population)16.015.616.316.215.816.4In-work at-risk-of-poverty rate (% of persons employed)7.67.78.06.76.97.0Severe material deprivation rate(2)  (% of total population)1.91.01.10.81.11.6Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan0.50.50.50.50.80.6Tenant, rent at market price4.15.06.86.76.17.2Proportion of people living in low work intensity households(4) (% of people aged 0-59)9.49.08.78.58.89.1Poverty thresholds, expressed in national currency at constant prices*118780119560122901124757125922126607Healthy life yearsFemales13.816.716.816.615.8:Males12.915.215.715.115.4:Aggregate replacement ratio for pensions(5)0.60.60.60.60.60.6Connectivity dimension of the Digital Economy and Society Index (DESI)(6):67.769.872.275.5:GINI coefficient before taxes and transfers*43.944.744.248.248.2:GINI coefficient after taxes and transfers*24.925.425.227.628.0: 
 
 
  
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators. 
(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) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers. 
(9) 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). 
indicators); SAFE (for outcome of SMEs' applications for bank loans). 

69 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry-2.220.846.683.10-0.491.77Labour productivity growth in construction-4.510.983.59-2.12-0.41-0.18Labour productivity growth in market services2.883.283.260.440.071.58Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry4.021.93-4.030.882.373.27ULC growth in construction6.821.43-0.667.83-0.784.44ULC growth in market services-0.64-0.840.162.571.422.49Business environment201320142015201620172018Time needed to enforce contracts3 (days)483483483483483483Time needed to start a business3 (days)16.016.07.07.07.07.5Outcome of applications by SMEs for bank loans40.570.710.380.360.450.62Research and innovation201320142015201620172018R&D intensity3.273.113.233.253.373.31General government expenditure on education as % of GDP6.506.506.406.606.70:Employed people with tertiary education and/or people employed in S&T as % of total employment525455565758Population having completed tertiary education5313334353637Young people with upper secondary education6868787878685Trade balance of high technology products as % of GDP0.09-0.06-0.11-0.09-0.21-0.60Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall1.501.611.521.11OECD PMR7, retail0.720.600.600.53OECD PMR7, professional services80.770.550.550.51OECD PMR7, network industries92.302.201.871.35 
 
 
  
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)         
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)         
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)         
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)         
          Waste intensity: waste (in kg) divided by GDP (in EUR)         
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.          
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.         
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).         
Real unit energy cost: real energy costs as % of total value added for the economy.         
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).         
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.         
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.         
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.         
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.         
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.         
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.         
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.         
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.         
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.   
* European Commission and European Environment Agency - 2018 provisional data.  
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

70 

 
 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR SWEDEN 

Building  on  the  Commission  proposal,  this  Annex (42)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Sweden.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Sweden, assessed in the report. This Annex 
provides the basis  for a dialogue between Sweden and the Commission services as  well as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Sweden (43). 

In  Sweden,  the  sparsely  populated  regions  of  Norrbotten  and  Västerbotten  within  the  region  Upper 
Norrland  rely  on  industries  using  fossil  fuels  where  process  related  greenhouse  gas  emissions  intensity 
significantly exceed the EU average. 

The  carbon  intensity  of  the  steel  industry  in  Upper  Norrland  region  highlights  the  scale  of  the 
decarbonisation  challenge,  suggesting  that  the  sector  would  be  likely  to  undergo  by  2030  significant 
restructuring in its industrial processes. There is a risk of a negative impact on the around 4,000 people 
directly  employed  in  the  production,  as  well  as  further  impact  on  the  subcontractors  and  the  regional 
economy. A restructuring that takes into account social aspects would need new innovative solutions for 
the whole value chain.  Based on this preliminary assessment, it appears warranted that the Just Transition 
Fund concentrates its intervention on that region. 

The smart specialisation strategy (44) provides an important framework to set priorities for innovation in 
support of economic transformation. In order to tackle these transition challenges, investment needs have 
been identified for diversifying and making the regional economy more modern. Key actions of the Just 
Transition Fund could  target in particular: 

• 

• 

• 

• 

• 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 

investments in the creation of new firms, including through business incubators and consulting 
services; 

investments  in  research  and  innovation  activities  and  fostering  the  transfer  of  advanced 
technologies; 

investments in the deployment of technology and infrastructures for affordable clean energy, in 
greenhouse gas emission reduction, energy efficiency and renewable energy;  

investments in enhancing the circular economy, including through waste prevention, reduction, 
resource efficiency, reuse, repair and recycling; 

• 

upskilling and reskilling of workers. 

(42)  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  Just  Transition  Fund  2021-2027  (COM(2020)  22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020) 23) 

(43) SWD(2019) 1026 final 
(44) As  defined in Article 2(3) of Regulation EU1303/2013 (CPR) 

71 

 
 
  
                                                           
D. Investment guidance on Just Transition Fund 2021-2027 for Sweden 

Steel  production  sites  in  this  region,  performing  activities  listed  in  Annex  I  to  Directive  2003/87/EC 
employ  a  substantial  number  of  workers  and  their  activity  is  at  risk  due  to  their  high  greenhouse  gas 
emissions.  Support  to  investments  to  reduce  the  emissions  could  be  considered,  provided  that  they 
achieve a substantial reduction of emissions (going substantially below the relevant benchmarks used for 
free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the  investments  are  compatible 
with the European Green Deal. 

72 

 
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Sweden’s short-term progress towards the SDGs (45) 

Table E.1 shows the data for Sweden and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (46). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Sweden’s progress towards the SDGs 

 (45) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(46)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

73 

 
 
 
                                                           
 
  
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

74 

 
 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

75 

 
 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

76 

 
 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

Source: Eurostat 

77 

 
 
 
   
 
 
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