Sweden

Politics:

• Analysis

  Sweden politics: Reform of inter-regional revenue distribution postponed

  For many years, Sweden has operated a system of inter-regional redistribution, which transfers money from municipalities with a better-than-average economic situation to less wealthy municipalities. In response to criticism that the redistribution away from economic hotspots is too emphatic, a multiparty commission has proposed changes to the system, due to enter into force this year. The government's proposed amendment to the commission's plans-which is likely to postpone the implementation of the reform-is itself under fire amid claims that it panders to conservative-led counties.

  The variation of tax revenue between Swedish counties has increased over time, owing to a more rapidly rising tax base through higher wages and costs of living in populous urban areas than in rural areas. Counties such as Stockholm, Malmo and Gothenburg have seen faster revenue growth, while differences in cost increases have not been as pronounced. Although there is widespread acceptance of the principle of redistribution, some believe that a proposed reform of the reallocation of resources away from economic hotspots may be too stark and that regions that would find the economic stimulus from the revenue most valuable would see their funds reduced.

  A new reallocation system, proposed by a multiparty commission in 2011, would change the way that taxes are distributed by updating models from the 1990s that determine the revenue redistribution. One of the biggest problems of the current modelling is that it does not take into account significant changes in the make-up of Sweden's counties over the past 10-15 years, such as growth in childcare and early education needs, which affect the costs that they need to cover.

  Reform will target the extremes of redistribution, but most counties will be largely unaffected

  The commission's proposal is unlikely to change tax revenue much for most counties, as the reform is designed to change the redistributive system at the extremes. The counties that stand to benefit most from the proposal are rural, sparsely populated ones, which could see an increase in tax revenue per head of as much as US$340 annually. The counties that are likely to see a loss in revenue are Stockholm and Malmo, where tax revenue could decrease by US$135-200 per head each year.

  The new system had been intended to come into effect this year, but 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-has suggested amendments to the proposal after heavy criticism from some of the wealthiest, conservative-led counties. The scheme's critics argue that rich counties would carry too much of the redistributive burden, stunting their growth-a consequence that the Swedish economy can ill afford at this point. In reaction, the Moderate Party has proposed adding Skr1bn (US$154m) from a future reform budget to the redistribution pool, in order to reduce the effect on the highest-paying counties. The amendment would lower the fees paid by counties that have tax revenue of 115-125% above the national average.

  Government's amendment seems likely to benefit its electoral base

  Some critics believe that the amendment is misguided in trying to support growth in economic hotspots, as the multiparty commission has concluded that the new system would not have any impact on counties' growth. The opposition, meanwhile, claims that the government has engineered the amendment to ensure that the economic consequences for counties ruled by the Moderate Party are more favourable. Moreover, criticism from within the governing Alliance stems from fears that the revenue of some rural areas, which form the electoral bases of the two junior coalition partners, the Christian Democrats and the Centre Party, would be negatively affected by the changes.

  The amended proposal has been sent to all counties for review and may now not enter into effect until January 1st 2014. The impact of the reform on counties' finances is likely to be gradual, as the commission's proposal includes limits to how much tax revenue a county may gain or lose per head each year. According to its estimates, the full change in revenue distribution will not be reached until six years after the reform is implemented.

  January 15, 2013

• 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

  Last parliamentary election held September 2010; next parliamentary election due 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 Alliance for Sweden 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

  March 04, 2013

• 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 will 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 an estimated 38% of GDP in 2012 to around 28% of GDP in 2017, and the government budget should move from a small projected deficit in 2013 into surplus thereafter.
  • The Riksbank (the central bank) cut the repo rate from 2% in three stages in 2012: to 1.5% in February, 1.25% in September and 1% in December. We forecast low, stable rates for the first half of 2013, followed by a gradual tightening.
  • Real GDP growth moderated to an estimated 1% in 2012 and we expect it to remain subdued, at 1.4%, in 2013. A gradual pick-up in external demand and domestic confidence should support average growth of 2.6% per year in 2014-17.
  • Average inflation fell from 3% (national measure) in 2011 to 0.9% in 2012, and is forecast at only 0.6% in 2013. Inflation is expected to exceed the Riksbank's 2% target for much of the rest of the forecast period as the economy recovers.

  Review

  • The latest opinion polls by Sifo, an opinion and social research firm, show the Christian Democrats and the Centre Party each with only 3.6% of voter support, below the 4% threshold to enter parliament.
  • The Riksbank held its policy interest rate stable at 1% at its February meeting.
  • After remaining fairly stable at around Skr8.60:EUR1 from September 2012 to January 2013, the krona strengthened steadily to Skr8.45:EUR1 as of late February.
  • There was no inflation in January, after slight deflation of 0.1% in November and December 2012.
  • Unemployment came in at 8% of the labour force in January, stable from the previous month, but there are expectations of further job cuts in the near term that could push the rate up in the first half of 2013.
  • Industrial capacity in the fourth quarter of 2012 declined. However, business production improved strongly in December and surveys suggest that output may have continued to rise into the first quarter of 2013.
  • Business and consumer confidence improved in February, underscoring our expectation that growth will accelerate in the first quarter of 2013.

  March 04, 2013

Economy:

• Background

  Sweden: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	9.5	Population growth	0.8
  GDP (US$ bn; market exchange rate)	539.1b	Real GDP growth	1.5
  GDP (US$ bn; purchasing power parity)	391.1	Real domestic demand growth	1.9
  GDP per head (US$; market exchange rate)	56,835	Inflation	1.8
  GDP per head (US$; purchasing power parity)	41,225	Current-account balance (% of GDP)	7.9
  Exchange rate (av) Skr:US$	6.49b	FDI inflows (% of GDP)	3.6
  a Economist Intelligence Unit estimates. b Actual.

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  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. Improving financial sector regulation has 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 could be reduced further to 22% in 2013. Personal taxation is based on worldwide income from employment, business and investments, and is 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 is 25%, with reduced rates on food (12%) and items such as books and personal transport (6%).

  Foreign trade: The economy is open, with exports equivalent to 50% of GDP in 2011 and imports worth around 44% of GDP. Europe remains Sweden's most important trading zone, accounting for around 70% of exports and over 80% of imports. The current-account surplus was US$38.3bn in 2011, equivalent to 7.1% of GDP.

  Principal exports 2011	% of total	Principal imports 2011	% of total
  Machinery & transport equipment	39.2	Machinery & transport equipment	36.3
  Chemicals & related products	10.3	Mineral fuels, lubricants & related materials	13.9
  Mineral fuels, lubricants & related materials	7.8	Chemicals & related products	11.0
  Raw materials	6.6	Food, drinks & tobacco	8.0
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  Germany	9.9	Germany	18.1
  Norway	8.8	Denmark	8.1
  UK	7.0	Norway	7.7
  Denmark	6.1	Netherlands	6.0
  EU27	56.1	EU27	68.8

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  March 04, 2013

• Structure

  Sweden: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 04, 2013

• 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 over most of 2012 have shown the red-green opposition bloc (the SAP, Greens and the Left Party) slightly ahead of the centre-right government coalition, but with the next general election almost 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. Nonetheless, it is a supporter of prudent EU spending and pushed for further cuts to the EU 2013 budget in November. It is also 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: For 2012 we estimate 1% growth in real GDP, based on moderate growth averaging 1.3% in the first half of the year, followed by a slowdown in the third quarter that is expected to continue into the fourth. For 2013, we have revised our forecast down significantly to only 0.9%, based on a downwards revision of both our investment and export growth forecasts, which have decelerated sharply since early 2012 and are expected to remain subdued in at least the first half of 2013. For 2014-17, our forecast is for a solid recovery to growth exceeding 2% each year, based on Sweden's strong fundamentals and a gradual recovery in its main export market, Europe.

  INFLATION: Inflation has weakened in 2012 and dropped to -0.1% year on year in November (on the national measure). Producer prices had already contracted in the third quarter by 1.6% year on year. The EU harmonised measure of consumer prices, which excludes mortgage interest rates, remained in positive territory (0.8%) in November. We estimate inflation to average 0.9% (domestic measure) in 2012 and forecast it to remain at the same low level in 2013, owing to weak domestic demand pressures and a strong currency. The economic recovery from 2014 should push price growth back up to the 2% targeted by the central bank.

  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 stabilised at around Skr8.60:EUR1, owing to both action by the European Central Bank (ECB) that has strengthened the euro, and to weaker Swedish economic performance. Nonetheless, Sweden's robust macroeconomic fundamentals, including low government debt, little bank exposure to peripheral euro area 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% of GDP in 2012 and forecast to widen to 8.6% on average in 2013-17. The trade and services surpluses are estimated to shrink slightly in 2012 and resume growth in 2013. Sweden will maintain large surpluses on the income balance and deficits on the transfers balance.

  January 01, 2013

• 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 is expected to hold together and serve its full term. The opposition Social Democratic Party's improved opinion-poll showing has increased the prospects of a left-wing government after the election due in September 2014.
  • The government will prioritise supporting employment, particularly among younger workers, and has allocated extra funding for training schemes in the 2013 budget. The budget includes a large corporate tax rate cut, infrastructure investment and a rise in the lower threshold for income tax. Some corporate tax loopholes used in tax avoidance schemes are to be closed. The sale of stakes in partly or wholly state-owned companies will be opposed by opposition parties.
  • Internationally, Sweden will remain officially neutral but will continue to co-operate with NATO members. The government will stay committed to EU membership, but it will not join the euro. Sweden 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 as a symbolic signatory, but is unlikely to join the single supervisory mechanism for banking supervision.
  • With public debt at less than 40% of GDP, well below the EU average, and the government budget likely to record only a small deficit in 2013, sharp fiscal
  • tightening is not needed. Budget surpluses should return from 2014.
  • The Economist Intelligence Unit estimates that GDP growth slowed to 1% in 2012 as the euro zone recession hit export demand and consumer confidence. The economy is improving but activity will remain fairly subdued, despite some stimulus from government spending: we forecast 1.4% growth in 2013. In 2014 GDP growth is forecast to accelerate to just over 3%, followed by annual average growth of 2.4% in 2015-17. Sweden is at risk of a much weaker outturn if exports fail to recover as forecast—such as in the event of another major financial shock or a euro zone break-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 sharp drop in housing prices.

  

  March 04, 2013

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Country Briefing

Total area

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

Population

9.51m (June 30th 2012)

Main cities

Population (December 31st 2010):

 Stockholm (capital): 847,073

 Gothenburg: 513,751

 Malmo: 298,963

 Uppsala: 197,787

 Linkoping: 146,416

 Vasteras: 137,207

 Orebro: 135,460

 Norrkoping: 130,050

 Helsingborg: 129,177

 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

One hour ahead of GMT in winter, two 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)

January 04, 2013