REPORT FROM THE COMMISSION Sweden Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Sweden, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 539 final  REPORT FROM THE COMMISSION Sweden  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Sweden 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.    The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  Swedish  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government surplus in Sweden reached 0.5% of GDP in 2019, 
while  general  government  gross  debt  stood  at  35.1%  of  GDP.  According  to  the  2020 
Convergence  Programme,  Sweden  plans  a  deficit  of  3.8%  of  GDP  in  2020,  while  debt  is 
planned at 39.9% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Sweden’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio in 2019 is below the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP) 

2016 

2017 

2018 

2019 

1.0 

1.4 

0.8 

0.5 

2020 
COM 

-5.6 

2021 
COM 

-2.2 

42.2 

40.8 

38.8 

35.1 

42.6 

42.5 

Deficit 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based on the 2020 Convergence Programme, Sweden’s general government deficit in 2020 is 
planned to reach 3.8% of GDP, above and not close to the Treaty reference value of 3% of 
GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP in 2020 by 6.1%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary  based  on  the 
Commission 2020 spring forecast, which projects the general government deficit to fall under 
3%  of  GDP  in  2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high 
degree of uncertainty.  

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS 

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

In the current  situation,  a key  additional factor to  take into consideration regarding 2020 is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary situation and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

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3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2  Medium-term economic position  

Economic  growth  reached  1.2%  in  2019,  mainly  due  to  the  robust  performance  of  net 
exports.  However,  due  to  the  COVID-19  pandemic,  the  Commission  2020  spring  forecast 
projects  Sweden’s  GDP  to  decline  by  6.1%  in  2020,  reflecting  the  disruption  in  economic 
activity  caused  by  the  lockdown  measures  and  an  unprecedented  fall  in  external  demand. 
Private  consumption  is  projected  to  be  hit  due  to  an  increase  in  unemployment,  and  weak 
consumer  confidence.  Investment  is  also  set  to  fall  strongly  in  2020  as  uncertainty  mounts 
and expectations of lower demand are likely to  have an impact  on firms’ investment  plans. 
That  outlook  is  marked  by  an  exceptional  degree  of  uncertainty  on  the  duration  of  the 
pandemic  and  its  economic  impact.  The  sharp  drop  in  GDP  is  a  mitigating  factor  in  the 
assessment of Sweden’s compliance with the deficit criterion in 2020. 

3.3 

 Medium-term budgetary position 

Based on outurn data and the Commission 2020 spring forecast, Sweden has overachieved its 
medium-term budgetary objective in 2019. 

Sweden  has  adopted  substantial  measures  to  contain  the  pandemic  and  to  support  the 
economy.  The  Convergence  Programme  estimates  the  budgetary  impact  of  those  direct 
support  measures  at  2.4%  of  GDP  in  2020.  According  to  the  Programme,  the  general 
government  balance should  improve mainly  driven by a reversal  of these support measures 
once the crisis is over.   

Against the background of an exceptionally high degree of uncertainty on the medium-term 
economic  prospects,  the  fiscal  outlook  is  surrounded  by  similarly  large  margins  of 
uncertainty.  That  uncertainty  also  pertains  to  projections  of  the  cost  of  fiscal  support 
measures to cushion the downturn.  

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3.4 

Other factors put forward by the Member State 

On  11  May  2020,  the  Swedish  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factor put forward by the authorities.  

4. 

CONCLUSIONS 

According to the Convergence Programme, Sweden’s general government deficit in 2020 is 
planned to increase to 3.8% of GDP of GDP, above and not close to the 3% of GDP Treaty 
reference value. The planned excess over the reference value is considered to be exceptional  
and currently considered to be temporary. 

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors. Overall, since the planned deficit is well above 3% of GDP and taking into account 
all relevant factors, the analysis suggests that the deficit criterion as defined in the Treaty and 
in Regulation (EC) No 1467/1997 is not fulfilled.  

4