Columbia International Affairs OnlineatlasEconomist Intelligence Unit

Sweden

Politics:

  • Analysis

    Sweden politics: Quick View - Sweden outside EU banking union

    Event

    The Swedish government has accepted a compromise regarding the creation of a common EU banking supervisor, agreed at a summit on December 12th-13th and seen as a major step towards the creation of a banking union. Sweden is, however, unlikely to join the banking union at its launch, planned for 2014.

    Analysis

    Sweden has expressed scepticism over the proposed EU banking union, which among other things will increase the control of the European Central Bank (ECB) over the banking sector. Membership of the union is compulsory for euro countries, but optional for non-euro countries, such as Sweden and the UK. The creation of the union must, however, be approved by all 27 EU countries.

    The Swedish scepticism has two main reasons. First, there are fears that it may commit non-euro countries to contribute to bail-outs of crisis euro countries. Second, Sweden fears that membership of the union could loosen the capital coverage requirements on Swedish banks, which are currently stricter than in most other EU countries. These concerns were not resolved by the compromise, and Sweden is therefore currently not planning to join the banking union.

    Sweden has also, however, been highly critical of the lack of influence that countries outside the union will have on decision-making within it, as the banking union will affect non-member countries' banks if they have large operations in countries that are members of the banking union. At least three major Swedish banks' activities in euro zone countries are of a scale that they meet the criteria for ECB scrutiny: Nordea in Finland, SEB and Swedbank in Estonia. Although it momentarily appeared possible that Sweden would veto the creation of a union, the country has accepted a compromise which, in effect, gives EU countries outside the banking union the right to appeal against decisions taken by it.

    The compromise was welcomed by the Swedish government, which supports greater EU co-operation, despite facing domestic public opinion that is sceptical of further integration. The government appears to be attempting to balance action that will maintain its international reputation as a "good EU citizen" with catering to domestic public opinion that pushes it to represent domestic interests strongly in EU negotiations. The compromise on the banking union was a temporary solution to this dilemma, but new challenges of a similar nature are likely to continue to appear.

    December 17, 2012

  • Background

    Sweden: Political and institutional effectiveness

    Government effectiveness is facilitated by a consensual political culture, characterised by pragmatism and broad agreement between parties. The main limit to political effectiveness over the forecast period is the government's lack of an absolute majority, which means that it will be restricted in passing new legislation in situations where the centre-left parties and the Sweden Democrats independently vote against the government (for example, preventing the government from selling a number of state assets). Nevertheless, key economic decisions are not likely to be affected and budgetary policy cannot be overturned.

    Political effectiveness will be limited by the government's lack of a majority

    Until recently, Sweden was characterised by the traditional dominance of the SAP in government, and the party's strong links with the trade unions, which contributed to largely peaceful labour market relations. Since entering office in 2006, the centre-right Alliance has implemented a number of reforms aimed at tightening the rules on welfare eligibility, in line with its key policy aim to make finding work more financially attractive than accepting welfare income. Although the measures have attracted criticism from the left and increased the risk of confrontation with the trade unions, they have not led to any significant deterioration in industrial relations, and we expect this to remain the case over the forecast period. The trade unions do not have militant leaderships, and the reorientation of the Moderate Party under Mr Reinfeldt's leadership towards a more pragmatic view on labour market relations, with its defence of the collective-bargaining model, has had a calming effect. The new leader of the SAP, Stefan Lofven, also has a reputation as centrist within the SAP and is likely to adopt a non-confrontational approach to business interests.

    Standards of ethics are generally high, but corporate misbehaviour is far from unheard of. A series of scandals over recent years has tainted Sweden's long-established image of business transparency and openness (one example being trading irregularities by Carnegie, a large investment bank in the Nordic region, which came to light in 2007). The civil service has traditionally been largely free of corruption. There is often less bureaucracy than in continental Europe and, by law, a great deal of official information is made available to the public. Traditions of independence apply to the legal system, and the quality of the judiciary is high. Although social solidarity is a feature of Sweden, this is combined with a belief in the efficacy of free markets, both domestically and internationally, which the courts are inclined to uphold. These well-established traditions provide a considerable degree of assurance that the legal and institutional framework will remain generally favourable for business.

    June 08, 2012

  • Structure

    Sweden: Political structure

    Official name

    Kingdom of Sweden

    Form of state

    Constitutional monarchy

    Legal system

    Based on the constitution of 1974

    National legislature

    Unicameral Riksdag (parliament) of 349 members directly elected for a four-year term; in the event of an early dissolution, the new parliament serves only the remainder of the previous parliament's term

    Electoral system

    Universal direct suffrage over the age of 18; under the Swedish system of proportional representation (modified Saint-Laguë system), 310 seats are allocated on a constituency basis in 28 multimember constituencies; the remaining 39 seats are divided nationally; in order to win parliamentary representation, a party must poll 4% overall (to receive a seat from the national allocation) or 12% in any one constituency

    National elections

    Next parliamentary election in September 2014

    Head of state

    King Carl XVI Gustaf; the king plays no role in government

    National government

    Cabinet headed by the prime minister, who is responsible to the Riksdag. A centre-right coalition government comprising the Moderate, Centre, Liberal and Christian Democratic parties is in office, although it lacks an overall majority.

    Main political parties

    Social Democratic Party (SAP); Moderate Party (M); Centre Party ©; People's Party Liberals (L); Christian Democrats (CD); Left Party; Greens; Sweden Democrats (SD)

    Prime minister: Fredrik Reinfeldt (M)

    Government ministers

    Children & the elderly: Maria Larsson (CD)

    Communications: Catharina Elmsater-Svard (M)

    Culture & sport: Lena Adelsohn Liljeroth (M)

    Defence: Karin Enstrom (M)

    Education (also deputy prime minister): Jan Bjorklund (L)

    Employment: Hillevi Engstrom (M)

    Enterprise & energy: Maud Olofsson ©

    Environment: Andreas Carlgren ©

    EU affairs: Birgitta Ohlsson (L)

    Finance: Anders Borg (M)

    Financial markets: Peter Norman (M)

    Foreign affairs: Carl Bildt (M)

    Gender equality: Nyamko Sabuni (L)

    Health & social affairs: Goran Hagglund (CD)

    Information technology & regional affairs: Anna-Karin Hatt ©

    Integration: Erik Ullenhag (L)

    International development co-operation: Gunilla Carlsson (M)

    Justice: Beatrice Ask (M)

    Migration & asylum policy: Tobias Billstrom (M)

    Public administration & housing: Stefan Attefall (CD)

    Rural affairs: Eskil Erlandsson ©

    Social security: Ulf Kristersson (M)

    Trade: Ewa Bjorling (M)

    Central bank governor

    Stefan Ingves

    December 01, 2012

  • Outlook

    Sweden: Key developments

    Outlook for 2013-17

    • The Economist Intelligence Unit expects the minority four-party centre-right Alliance for Sweden to hold together and serve a full term to September 2014. It should face a strong challenge from the opposition bloc at the next election.
    • The government's policy programme will focus on supporting employment, reforming tax policy and increasing flexibility in the housing market over the near term. Fiscal policy is likely to be slightly expansionary in 2013.
    • Public debt is expected to remain low, falling from just below 40% of GDP in 2012 to around 30% of GDP in 2017, and the government budget should move from a small deficit during 2012-13 into surplus thereafter.
    • The Riksbank (the central bank) cut the repo rate from 2% in December 2011 to 1.5% in February 2012 and 1.25% in September. We expect it to maintain low rates over 2012-13 before tightening monetary policy during 2014-17.
    • Real GDP growth has moderated to an estimated 1% in 2012. We expect a pick-up to 2% in 2013 and 2.5% on average in 2014-17, as external demand and domestic consumer confidence recover.
    • We estimate that inflation (EU harmonised measure) has fallen from 1.4% in 2011 to 1% in 2012. The rate should have returned to exceed the central bank's target of 2% by 2017 as the economy recovers.

    Review

    • The opposition Social Democratic Party (SAP) adopted a welfare policy platform that would continue to allow private health and care companies to make profits, indicating that the party's pro-business factions dominate.
    • The Swedish government adopted a cautious position on proposals for an EU banking supervisor, discussed at the EU summit in mid-October. Nonetheless, it is conceivable that Sweden could eventually join such a banking union.
    • Inflation remained stable at 0.4% in October on the national measure, and rose to 1.2% on the EU harmonised measure. As interest rates were not cut, inflation is expected to remain at a similarly low level during November.
    • Producer price growth has been much lower than consumer price inflation throughout 2012, and fell by 1.6% year on year on average in the third quarter.
    • We expect another interest-rate cut by 0.25 percentage points to 1% before the end of 2012, because of low price pressures and poor performance on many economic indicators.
    • Industrial production volumes fell sharply in September and new orders, although up month on month, were down by 5.3% on a year earlier. This corroborates our analysis of a more subdued second half of 2012.

    December 01, 2012

Economy:

  • Background

    Sweden: Country fact sheet

    Fact sheet

    Annual data2011aHistorical averages (%)2007-11
    Population (m)9.5Population growth0.8
    GDP (US$ bn; market exchange rate)539.5bReal GDP growth1.5
    GDP (US$ bn; purchasing power parity)391.3Real domestic demand growth1.9
    GDP per head (US$; market exchange rate)56,877Inflation1.8
    GDP per head (US$; purchasing power parity)41,255Current-account balance (% of GDP)7.9
    Exchange rate (av) Skr:US$6.49bFDI inflows (% of GDP)3.8
    a Economist Intelligence Unit estimates. b Actual.

    Download the numbers in Excel

    Background: Sweden has been a constitutional monarchy since 1809, and universal suffrage was granted in 1921. A new written constitution was introduced in stages during the 1970s. Sweden maintains one of the world's most advanced social welfare systems, based largely on legislation introduced in the early post-war period. The country became a member of the EU in 1995, but rejected adopting the single currency in a referendum in September 2003.

    Political structure: The single-chamber parliament, the Riksdag, is elected for four years by proportional representation by all Swedish citizens over 18 years of age. Of the 349 seats in parliament, 310 are allocated to the 29 constituencies and 39 are adjustment seats distributed at the national level in order to obtain a nationally proportional result. A party must gain 4% of the national vote or 12% of a constituency vote to enter parliament. Coalitions and minority governments are the norm.

    Policy issues: A considerable degree of consensus exists over an economic and social model that looks relatively successful. Differences focus on labour market policies, notably incentives to work (including the level of unemployment benefit); the marginal levels of tax; the future of nuclear energy; the extent to which private companies should be allowed to provide public services; and whether state holdings in companies should be reduced. Liberal immigration policies are being challenged by the far-right Sweden Democrats (SD). Improving financial sector regulation has also been important in recent years, with ongoing tightening of mortgage lending standards as well as stricter capital and liquidity rules.

    Taxation: The rate of corporation tax was lowered from 28% to 26.3% in 2009, and may be reduced further to 22% in 2013. Personal taxation is based on worldwide income from employment, business and investments, and largely raised by local government. Including central government taxes, the top rate is 60%. Capital gains tax is levied at a 30% rate. The basic rate of value-added tax (VAT) is 25%, with reduced rates on food (12%) and items including books and personal transport (6%).

    Foreign trade: The economy is open, with exports equivalent to over 50% of GDP in 2011 and imports worth around 45%. Europe remains Sweden's most important trading zone, accounting for 72% of exports and 84% of imports in early 2012. The current-account surplus was US$38.3bn in 2011, equivalent to 7.1% of GDP, and is forecast to exceed 8% in 2013-17.

    Principal exports 2011% of totalPrincipal imports 2011% of total
    Machinery and transport equipment39.3Machinery and transport equipment36.3
    Chemicals and related products10.3Mineral fuels, lubricants, and related materials14.0
    Mineral fuels, lubricants, and related materials7.8Chemicals and related products10.9
    Raw materials6.6Food, drinks and tobacco8.0
     
    Main destinations of exports 2011% of totalMain origins of imports 2011% of total
    Germany9.9Germany18.2
    Norway8.8Denmark8.1
    UK7.0Norway7.7
    Denmark6.1Netherlands6.0
    EU2756.1EU2768.8

    Download the numbers in Excel

    Download text file (csv format)

    December 01, 2012

  • Structure

    Sweden: Economic structure

    Data and charts: Annual trends charts


    December 01, 2012

  • Outlook

    Sweden: Country outlook

    Sweden: Country outlook

    FROM THE ECONOMIST INTELLIGENCE UNIT

    POLITICAL STABILITY: The governing centre-right Alliance for Sweden--consisting of the Moderate Party (the largest member), the People's Party Liberals, the Christian Democrats and the Centre Party--was returned to office in September 2010, but fell short of an absolute majority. This means that a defeat of the coalition on important issues could trigger a premature dissolution of the Riksdag (parliament) and a new election. However, the Economist Intelligence Unit believes that an early election is unlikely, owing to the reluctance of all the main parties to co-operate with the far-right Sweden Democrats (SD). Parliamentary dissolution would require the collaboration of the centre-left--the Social Democratic Party (SAP), the Greens and the Left Party--with the SD, which the main parties have ruled out. Moreover, constitutional rules reduce the attractiveness of parliamentary dissolution for the opposition, as a new government would only serve the remainder of the current term, giving it just about a year before the next election campaign. As a result, we expect the coalition to serve its full term to September 2014.

    ELECTION WATCH: The next general, county and municipal elections are due in September 2014. There is a small chance of an early dissolution of parliament triggering an early election, but this is unlikely. Opinion polls in September showed the red-green opposition bloc (the SAP, Greens and the Left Party) ahead of the centre-right government coalition, but with the next general election two years away, its outcome remains open.

    INTERNATIONAL RELATIONS: The main political parties support active EU membership, and this stance is expected to continue. Although not a member of the euro zone, Sweden demonstrated its support by backing the currency area indirectly through contributions to the IMF in December 2011 and by joining the "fiscal compact" as a symbolic signatory in February 2012. It is cautious about supporting an EU banking supervisor and may delay implementation of this in alliance with other countries such as Germany. The red-green opposition parties are slightly less EU-friendly than the governing coalition, but we expect formal EU relations to remain on a similar level should the SAP take office in 2014. Sweden also co-operates closely with its Nordic neighbours in the Nordic Council of Ministers on issues such as the environment, energy policy and infrastructure projects strengthening trade links between the countries.

    POLICY TRENDS: The Alliance will try to continue its multi-year reform programme, but its ability to pass new legislation is limited by its lack of a parliamentary majority. To mitigate the impact of the economic slowdown, economic policy is prioritising employment creation, in particular for young people, through new temporary jobs and incentives to promote education among unemployed workers. The government has also announced measures to make housing more affordable, including cutting property tax, facilitating subletting and stimulating housing construction. Basic state pension rises of 4.1% were agreed for 2013, but in 2014 increases are expected to be more subdued because of slowing income growth.

    ECONOMIC GROWTH: We estimate growth of 1% for 2012 as a whole, with an acceleration to 2% growth in 2013, based in particular on a recovery in exports. For 2014-17, we forecast average growth of 2.5%.

    INFLATION: Inflation has weakened in 2012 to 0.4% (national measure) and 1.2% (EU harmonised measure) in October, and averaged 1.1% in the first ten months of the year. Meanwhile, producer prices contracted by 1.6% on average year on year in the third quarter. We expect the national measure of inflation (which, unlike the EU measure, includes mortgage interest rates) to average only 1% in 2012 owing to the ongoing effects of the strong currency and a weakening economy. During 2013 inflation should remain subdued as domestic demand pressures are still low and the currency continues to be strong. We forecast a return to the central bank's target of 2% (national measure) in 2014-17 as the economy recovers.

    EXCHANGE RATES: After weakening to a historic low of Skr11.65:EUR1 in 2009, the krona has appreciated considerably and reached a ten-year high of Skr8.21:EUR1 in mid-August 2012. It has since depreciated slightly and hovered around Skr8.60:EUR1 in October to early November, due to both action by the European Central Bank (ECB) which strengthened the euro, and weaker Swedish economic performance. Nonetheless, Sweden's robust macroeconomic fundamentals, including low government debt, little bank exposure to peripheral countries and strict banking regulation, are likely to maintain elevated demand for the currency. The krona is expected to remain strong in 2013 and to weaken slightly at the end of the forecast period, to around Skr9.15:EUR1 in 2017.

    EXTERNAL SECTOR: Sweden should continue to run strong current-account surpluses estimated at 7.1% of GDP in 2012 and forecast to widen to 8.6% on average in 2013-17. The trade and services surpluses will shrink slightly (in value terms) during 2012 and resume growth from 2013. Sweden will maintain large surpluses on the income balance and deficits on the transfers balance.

    December 01, 2012

  • Forecast

    Sweden: Country forecast summary

    Country forecast overview: Highlights

    • The four-party centre-right Alliance for Sweden coalition returned to government in September 2010, falling just short of an absolute majority. Although a premature dissolution of parliament would be possible were the government to be defeated on core policy issues, this remains unlikely. The Alliance should hold together and serve its full term. The improved performance of the opposition Social Democrats (SAP) in polls has increased the possibility of a left-wing government after the next general election, due in September 2014.
    • The government will prioritise supporting employment, particularly among young people, and has allocated extra funding for training schemes in the 2012 and 2013 budgets. It also intends to enhance flexibility in the housing market. The 2013 budget includes a large corporate tax rate cut, infrastructure investment, and a rise in the lower threshold for income tax. In addition, some corporate tax loopholes used in tax avoidance schemes are to be closed. However, the opposition is likely to prevent the government from selling any stakes in partly or wholly state-owned companies.
    • Internationally, Sweden will remain officially neutral but continue to co-operate with NATO members. The government will stay committed to EU membership, but will not join the euro. It has agreed to contribute financially to IMF reserves that will be used to support euro zone countries if necessary, and joined the European "fiscal compact" to provide symbolic support for the treaty.
    • With public debt at less than 40% of GDP, well below the EU average, and the government budget likely to record only small deficits during 2012-13, sharp fiscal tightening is not needed. Budget surpluses should return to up to 2% of GDP in 2014-17.
    • We estimate that GDP growth will slow to 1% in 2012 as the euro zone recession depresses export demand and reduces consumer confidence. It will pick up to 2% in 2013 as the government provides modest stimulus and external demand increases. Growth is forecast to average 2.5% in 2014-17. Sweden is at risk of a deeper slowdown if exports fall more sharply than expected—for example, if the euro zone breaks up. Nonetheless, Sweden should continue to perform better than the EU average owing to its sound economic fundamentals, including a strong banking system and low public debt. The banking sector is well capitalised, but would be vulnerable to a potential sharp drop in housing prices.

    December 01, 2012

Country Briefing

Total area

450,295 sq km, of which 9% water, about 8% agricultural land, and 52% forest.

Population

9.48m (November 30th 2011)

Main cities

Population (December 31st 2010)

Stockholm (capital): 847,073

Vasteras: 137,207

Gothenburg: 513,751

Orebro: 135,460

Malmo: 298,963

Norrkoping: 130,050

Uppsala: 197,787

Helsingborg: 129,177

Linkoping: 146,416

Jonkoping: 127,382

Climate

Temperate; summers are warm, but short, and winters can be extremely cold

Weather in Stockholm (altitude 44 metres)

Hottest month, July, 14-22°C (average daily minimum and maximum); coldest month, February, -5/-1°C; driest month, March, 26 mm average rainfall; wettest month, August, 76 mm average rainfall

Languages

Swedish; Finnish and Sami (Lapp) are used by minorities in the north

Weights and measures

Metric system

Currency

Krona (Skr) = 100 ore

Fiscal year

Calendar year

Time

1 hour ahead of GMT in winter, 2 hours ahead during summer time

Religion

Evangelical Lutheran (about 90%)

Public holidays

January 1st (New Year's Day), 6th (Epiphany); April 6th, 8th and 9th (Easter); May 1st (May Day); May 17th (Ascension) and 27th (Whit Sunday); June 6th (National Day) and 23rd (Midsummer's Day); November 3rd (All Saints' Day); December 25th, 26th (Christmas) and 31st (New Year's Eve)

March 05, 2012

© 2008 Columbia International Affairs Online | Data Provided by the Economist Intelligence Unit