GDP is gradually recovering after a plunge of about 8% in the second quarter of 2020, due to pandemic-related distancing measures and reduced mobility, as well as plant closures. The automotive industry was particularly affected, including through disruptions in global value chains, notably by missing inputs from China. Despite the adoption of softer distancing measures, especially during the first COVID-19 wave, Sweden’s output contraction in 2020 was broadly similar to that of its Nordic neighbours, albeit somewhat milder than in most of Europe (Figure 1.1). GDP bounced back 6.4% in the third quarter, with a strong recovery in industrial production, pulled by rising exports, while service activity remained weak. The second COVID-19 wave in the autumn had a minor impact on industry, but the tightening of restrictions on activity dealt a further blow to services.
OECD Economic Surveys: Sweden 2021
1. Key policy insights
COVID-19 has hit the economy hard
Figure 1.1. GDP contracted less than in many other OECD countries
Real GDP growth, 2020
Note: Mainland GDP for Norway.
Source: OECD Economic Outlook database.
Sizeable fiscal and monetary expansion has been decisive in protecting households and keeping businesses afloat. Several relief measures were extended to 2021 and complemented by other steps to mitigate the lasting effects of the pandemic. Nevertheless, unemployment has risen, despite the extensive use of the short-time work scheme, and activity remains well below normal levels, especially in sectors requiring face-to-face interaction (Figure 1.2). As the pandemic lingers, return to normal activity will be slow. Furthermore, the pandemic has hit the most vulnerable, particularly those relying on temporary jobs, most severely and has accelerated economic restructuring, notably towards on-line activities. Digitalisation and the move towards a greener economy offer great opportunities to boost productivity, but the transition will require adaptation efforts and investments in education and infrastructure, which the government needs to support. Regional inequality, albeit low in OECD comparison, has been rising over the past decades, which calls for upgrading the sub-national government fiscal framework, enhancing public service efficiency and promoting regional convergence further. Against this background, the key messages of this Survey are:
Continue to support, in a targeted manner, people and businesses severely affected by the pandemic until the COVID-19 pandemic subsides.
Implement the labour market reforms agreed by the social partners to support employment.
Lay the foundations for a sustainable recovery throughout the country by promoting digital and green developments, both through direct public investment and enhancing conditions for private investment. Strengthen multi-level governance and strategic cooperation between government entities, as well as the role of universities as knowledge hubs, to support regional development.
Figure 1.2. Activity remains very low in some sectors
Percentage loss in sales compared to normal
Note: Latest refers to 10-12 May 2021. Trough refers to the minimum value in bi-monthly surveys since 11-13 May 2020.
The percentage loss in sales has been calculated by taking the midpoint of the response options: reduced by 1–25, 26–50 etc.
Source: National Institute of Economic Research.
Vaccines bring hope for a gradual return to normality
Sweden’s first COVID-19 case was reported on 4 February 2020 and the number of cases increased until July, especially in the capital region and other densely populated cities, with a high concentration of casualties in nursing homes (Swedish Government, 2020b). The first wave of the pandemic was contained without going into lockdown. COVID-19 mortality rates exceeded the EU average slightly and were much higher than in the other Nordic countries. The number of deaths in the second wave of the pandemic peaked at a level roughly similar to that of the first wave. Excess mortality in 2020 compared to the 2016-19 mean, was below the EU average, albeit higher than in the other Nordic countries (Eurostat, 2021). To address the second wave, Sweden introduced stricter distancing measures. Vaccination began in late 2020, bringing hopes for a gradual return to normal economic conditions.
In the first half of 2020, Sweden sought to keep more of society open than other European countries to contain the spread of COVID-19 in a sustainable manner, taking into account the high uncertainty surrounding the duration of the pandemic. The overarching goal of the authorities was to safeguard lives and health, by reducing the spread of the virus and flattening the contamination curve, rather than to achieve herd immunity (Swedish Government, 2020a). The strategy relied both on recommendations (e.g. teleworking and online education for students above 16) and legally-binding measures (e.g. ban on events gathering more than 500 and later 50 persons and on visits to elderly care homes, distancing restrictions in restaurants, shops and public transport). Most schools up to grade nine and nurseries remained open, while upper-high schools for children over 16 and universities switched to online classes. While people were urged to work from home and keep distancing from each other, most businesses, including shops, bars, restaurants and gyms remained open, albeit with restrictions. The authorities did not impose wearing masks in public. The first wave of infections was brought under control during summer 2020, with the number of daily infections dropping to below 100 by August 2020 (Figure 1.3).
Figure 1.3. The number of new infections has fallen only recently
New daily cases and deaths in Sweden, 7-day moving average
Source: Public Health Agency in Sweden.
From late October 2020, COVID-19 infections spread again and the recorded infection caseload rapidly exceeded that of the first wave, though this largely reflects more widespread testing. The daily death toll also matched that of the first wave. As pressure on hospital intensive care units mounted, tougher restrictions were introduced. On 18 December, the sale of alcohol after 8pm in restaurants and bars was prohibited. People were urged to wear face masks on public transport at rush hours from 7 January 2021 and to stay at home when a family member was infected. Although Sweden resisted the temptation to lock down, these stricter restrictions sharply reduced business activity. Mobility trends for retail and recreation activities, such as restaurants, cafés, shops and museums dropped to almost 30% below their February 2020 level (Figure 1.4). In January 2021 the Swedish parliament passed a new pandemic law, which gives the Swedish health authorities powers to impose tougher measures on the public to address the virus spread, including reducing business hours, limiting visitor numbers in shops and other public places, and closing business activities.
Figure 1.4. Mobility dropped sharply during the second wave
Note: The Oxford Government Response Stringency Index captures the strictness of ‘lockdown style’ policies that primarily restrict people’s behaviour. It is a composite measure based on nine response indicators including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest response). Mobility change is a comparison relative to a baseline day before the pandemic outbreak. Baseline days represent the median value for that day of the week over the five‑week period from 3 January to 6 February 2020.
Source: Google LLC, Google COVID-19 Community Mobility Reports; Hale, T. et al. (2020), Oxford COVID-19 Government Response Tracker, Blavatnik School of Government.
Vaccination began in late December 2020 and the authorities aim to vaccinate all adults and all children under 18 who are considered at high risk of serious illness by August 2021 (Public Health Agency of Sweden, 2020a). The government covers the vaccine costs. People considered at high risk of serious illness or death are vaccinated first. They include those who live in elderly care facilities, those who receive home care, health care workers and close household contacts to people in home care (Public Health Agency of Sweden, 2020b). The vaccination of the most vulnerable seems to have strongly contributed to lowering mortality since early 2021. Insofar as the epidemiological situation allows easing distancing measures, normal life will resume and the economy will rebound, although scars are likely to remain for the most affected sectors and individuals. On 27 May 2020, the government announced a step-by-step lifting of distancing measures, starting in June and with most restrictions expected to be removed by September.
Growth is picking up but uncertainty remains high
The economy will gather momentum when the COVID-19 outbreak is brought under control and restrictions are eased (Table 1.1). If vaccination plans are implemented as foreseen, the situation could normalise gradually after the summer. Fiscal and monetary policy should nonetheless continue to support the economy. As distancing measures are lifted, pent-up demand and high savings will drive private consumption up. In addition, wages, which were largely frozen in 2020 due to the pandemic-related postponement of wage bargaining negotiations from the spring to the autumn, will increase, albeit at a relatively modest pace. The collective wage agreement reached in October 2020 sets a benchmark increase of 5.4% over 29 months, amounting to a 1.8% per year rise over the three-year period to March 2023. Nevertheless, high unemployment and lingering uncertainties may dampen the rebound in consumption. Improvement in employment will also be slow, as employers will raise working hours of existing employees before hiring. The recovery is likely to be slow in some sectors, especially those related to international travel. Exports of goods have largely normalised and should strengthen as demand from neighbouring countries rises. However, limited travel and international transport activity will still hamper the exports of services for some time.
Table 1.1. Macroeconomic indicators and projections
Annual percentage change, volume, unless otherwise specified¹
1. Annual data are derived from quarterly seasonally and working-day adjusted figures.
2. Contribution to changes in real GDP.
3. As a percentage of potential GDP.
4. The break in the time series resulting from the adaptation of the Swedish Labour Force Surveys (LFS) to the new EU framework regulation from 2021 onwards has not been taken into account in the projections (i.e. the numbers for 2021-22 are as they would have been without the change in methodology).
5. As a percentage of the labour force.
6. CPI with a fixed mortgage interest rate.
7. As a percentage of household disposable income.
8. As a percentage of GDP.
Source: OECD Economic Outlook 109 database.
The main risks to the outlook, both on the upside and downside, are linked to the evolution of the pandemic, which remains very uncertain. Faster vaccination in Sweden and abroad would allow a swifter resumption of normal activity than expected. Conversely, setbacks in vaccination campaigns and spread of new variants of the virus could delay the recovery. The evolution of the pandemic will also affect world trade, which has a major impact on growth in an export-oriented economy like Sweden, even though product diversification mitigates downside risks (Figure 1.5, Panel A). Although the impact of Brexit on Swedish exports has so far been modest, despite some weakening in service exports, a stronger medium-term impact cannot be ruled out, as the Swedish economy is relatively vulnerable to obstacles to trade with the United Kingdom (Bisciari, 2019). Disruptions in supply chains are an additional risk, as illustrated by the recent global shortage of semiconductors, which affected in particular the automotive industry. The speed of the recovery in the Nordic region, which accounts for more than a quarter of Swedish exports, is particularly relevant (Panel B). Other unpredictable shocks and risks that Sweden can be exposed to include those stemming from an intensification of global trade tensions, spillovers from global financial instability or a real estate market crash (Table 1.2).
Figure 1.5. Exports of goods by commodity and market
Share of total exports of goods, 2020
Source: Statistics Sweden.
Table 1.2. Events that could lead to major changes in the outlook
Extensive policy support has mitigated the impact of the crisis
The government has taken a wide range of measures to mitigate the impact of the COVID-19 crisis, totalling nearly 29% of annual GDP including loans and guarantees, of which 8.5% of GDP in budget measures over 2020-21. The short-time work scheme plays a key role in preserving jobs, even though the amount spent in 2020 was only about half what had been anticipated. Since January 2021, employers are eligible to financial support for investment in the skills of their employees on reduced working hours. This will strengthen the competences of individual employees and companies and raise the supply of skills nationwide, which will facilitate labour reallocation and strengthen competitiveness. Reorientation support, which is a scheme covering a large part of fixed costs of companies having lost a sizeable portion of their turnover, reduced employer social contributions and tax deferrals help keep companies afloat (Box 1.1). Only about a quarter of OECD countries provide general fixed cost subsidies to businesses like those put in place in Sweden, notably Germany, Austria, the Netherlands, some Nordic and Eastern Europe countries and Israel. The vast majority of OECD countries extend subsidies to businesses but in most cases they are not directly related to specific expenses. Several countries, however, among which Canada, Japan, Turkey and some Eastern Europe countries, subsidise businesses’ rents. In Sweden, the sectors most affected by the pandemic received the highest support per employee. Short-time work, tax deferrals and reduced social contributions provided significant support to most sectors, while compensation for high sick pay costs benefitted health and education sectors the most. Reorientation support mainly went to arts, entertainment and recreation, accommodation and food services, and to a lesser extent transport and storage (Figure 1.6).
Figure 1.6. Government support went primarily to the most vulnerable sectors
As of January 2021
Source: Ministry of Finance (25 January 2021).
Box 1.1. Main fiscal measures taken during the pandemic
The government passed a range of measures in 2020 and 2021. The most prominent ones are:
A new short-time work scheme, with higher subsidies than in the scheme previously in force, was introduced on 7 April 2020, with retroactivity to 16 March. The subsidy, whose normal level is 33%, was set to 75% for 2020 and the first quarter of 2021 and 50% for the second quarter of 2021. The maximum working hour cut, normally 60%, was increased to 80% during May-July 2020 and January-September 2021. With a 60% (80%) reduction in working time, employees receive 92.5% (88%) of their wages and the employer’s wage costs are reduced by 53% (72%). Since January 2021, employers are eligible for financial support covering 60% of the cost of initiatives to develop or validate the competences of employees on reduced working hours.
Reorientation support: Between March 2020 and January 2021, businesses having lost a sizeable share of their turnover (between 30% and 50% depending on the period of the year) were eligible to reimbursement of a share of their fixed costs, up to 70% (with exceptions), subject to ceilings. On 20 January 2021, the government announced that during the period of business closures imposed by the Pandemic Act (which started on 10 January 2021), businesses are entitled to receive compensation for up to 100% of fixed costs, up to a maximum of SEK 75 million (EUR 7.4 million) per business and month.
Employer social contributions were reduced from March to June 2020, with only old-age pension contributions payable, for up to 30 persons per company and up to a monthly salary of SEK 25 000 (EUR 2 470), providing monthly relief of up to SEK 5 300 (EUR 525) per employee.
Health care spending has been raised substantially to help hospitals and other medical institutions cope with the COVID-19 burden, as well as for testing, vaccination and prevention. Funding for elderly care has also increased significantly.
Education and labour market measures include an expansion of places in education and training, funding for more summer courses at universities and other higher education institutions (22 000 places in total), targeted education and training for vulnerable groups in the labour market and more introduction jobs and matching services.
Additional grants to municipalities to cope with COVID-19 related costs.
Table 1.3. Cost of crisis-related budget measures in 2020 and 2021
1. Includes 2021 budget, supplementary budgets and spring budget 2021.
2. Numbers may not exactly add up due to rounding.
3. Includes additional health care, testing, vaccination and prevention costs and additional funds for elderly care.
Source: Ministry of Finance (15 April 2021).
The government also provides liquidity measures, mainly in the form of tax deferrals, increased guarantees, and injected equity in state-owned companies.
Table 1.4. Crisis-related guarantees, liquidity measures and capital injections
Source: Ministry of Finance (15 April 2021).
Public finances are robust but debt will rise with population ageing
Sweden entered the COVID-19 crisis with a general government budget surplus of 0.6% of GDP, above the 1/3% of GDP surplus target over the business cycle, and gross government debt of 35% of GDP, the level of the debt anchor defined in the fiscal policy framework which entered into force in 2019 (OECD Economic Survey of Sweden, 2019). Even after the large-scale interventions to fight the crisis, the budget deficit is only about 3% of GDP, one of the lowest in the OECD (Figure 1.7, Panel A). The government gross debt-to-GDP ratio rose in 2020 for the first time since 2014, but remains among the lowest in Europe (Panel B). Strong fiscal support should be maintained until the recovery is well established. If the economy recovers as projected, the budget balance should move back towards the surplus target over the medium term. However, if the recovery proves weaker than expected, there is room for more expansionary fiscal policy, especially as margins for further monetary easing are limited (see below).
Figure 1.7. The government’s deficit and debt remain modest
Source: OECD Economic Outlook database.
Ageing-related costs, notably health and long-term care costs, are projected to rise over time (Figure 1.8). Meeting these costs without tax increases, savings in other areas or structural reforms would require deviating from the current 1/3 per cent of GDP surplus target. This would push up debt. Under the assumption of unchanged policies and fully debt-financed increases in age-related spending, the debt ratio would be around 60% in 2050 and close to 100% in 2060. However, structural reforms would help contain this rise (see below). An increase in the retirement age by two-thirds of the increase in life expectancy, in line with the reform for 2023 announced in the latest budget bill (see below), would lower the debt ratio by about 20 percentage points in 2060. Combined with labour market reforms planned or recommended in this Survey, including a reduction in tax wedges and reformed employment protection, the extension of working lives would keep the debt ratio below 50% in 2060.
Figure 1.8. Ageing will push up government debt over time in the absence of reforms
Note: (1) Based on no policy change and age-related costs as estimated in the OECD long-term model baseline (Guillemette et al., 2017); (2) The minimum pensionable age increases by two-thirds of the increase in life expectancy; (3) A package of labour market reforms is implemented before 2030. Calculations are based on Guillemette et al. (2017) and recalibrated in accordance with planned policy reforms and recommendations in this Survey (see Box 1.4).
Source: Authors’ calculations based on the OECD Long-term model.
Monetary and financial policy has buttressed the financial system
Highly expansionary monetary policy is supporting the recovery (Figure 1.9). While the Riksbank had raised its policy rate back to zero shortly before the outbreak of the pandemic to avoid potential adverse effects of keeping negative rates for a long time, it had also signalled that the repo rate was likely to stay at zero over a long period, which now extends to at least end-2023. As market-based financing was difficult at the onset of the COVID-19 crisis, the authorities have taken a wide range of measures to ensure liquidity and enhance credit availability (Box 1.2). Financial conditions gradually normalised from the summer and turned somewhat more expansionary than before the crisis towards end-2020 (Figure 1.10, Panel A). The exchange rate also appreciated from a low level, as monetary policy was loosened in other countries (Panel B). In early 2021, headline consumer price inflation briefly overshot the 2% mark, partly due to higher energy prices and supply bottlenecks in certain sectors, and inflation expectations have moved up (Figure 1.11).
Monetary policy needs to remain accommodative until inflation is durably close to the target, with activity on course to expand at a robust pace. The scope for further loosening in the case of adverse economic developments is limited. Negative policy rates may lower bank rates only marginally and would likely primarily affect the exchange rate. The scope for expanding security purchases is also limited, even though some further interventions are possible, notably if liquidity deteriorates. The government bond market is relatively narrow, with the Riksbank holding nearly 45% of the outstanding stock as of end-2020 (Sveriges Riksbank, 2021a). Large-scale mortgage and corporate bond-buying could fuel excessive risk taking, notably in property markets. The distributional effects of monetary policy are ambiguous, as it both raises asset prices, which are concentrated among wealthy households, and economic activity and employment, which supports lower income households (Sveriges Riksbank, 2020). In any case, accommodative monetary policy is necessary to support the recovery and potential undesirable distributional effects can be addressed through other instruments, notably taxes and benefits. As the use of cash is declining rapidly in Sweden, the Riksbank has launched a pilot project for a central bank digital currency, the e-krona (OECD Economic Survey of Sweden 2019, Sveriges Riksbank, 2021b), which has the potential to improve payment efficiency, limit substitution by private cryptocurrencies and ensure inclusiveness of digital payments (IMF, 2021).
Figure 1.9. Zero policy rates are complemented by sizeable bond buying
Source: OECD Economic Outlook database and Sveriges Riksbank.
Figure 1.10. Financial conditions have again turned supportive but the krona has appreciated
Note: Credit conditions are expressed as standard deviations. Higher values indicate more expansionary financial conditions.
Source: OECD Economic Outlook database and Sveriges Riksbank.
Figure 1.11. Inflation and inflation expectations have moved up
Note: CPIF is CPI with a fixed mortgage rate.
Source: OECD Economic Outlook database and Sveriges Riksbank.
Box 1.2. Main measures taken by the financial authorities during the crisis
The central bank (Riksbank)
Programme for corporate lending via banks. The Riksbank is providing long-term loans of up to SEK 500 billion at the repo rate, under certain conditions, against collateral to banks to stimulate onward lending to Swedish non-financial companies.
Extended purchases of securities. The Riksbank’s security purchase plan has been extended due to the pandemic, with additional purchases of government bonds, treasury bills, covered bonds (mortgage bonds), municipal bonds and corporate securities (commercial paper and corporate bonds) with a total amount of up to SEK 700 billion until 31 December 2021.
Enhanced access to liquidity. The Riksbank is offering banks the opportunity to borrow at the repo rate an unlimited amount on a weekly basis against collateral at three and six month maturity. Collateral requirement are eased, especially for covered bonds.
Loans in US dollars. The Riksbank is offering loans in US dollars to banks against collateral.
Temporary extension of monetary policy counterparties. Swedish credit institutions under the supervision of the Financial supervisory authority (e.g. saving banks) were given the opportunity to become temporary monetary policy counterparties to the Riksbank and to participate in the programme for lending to non-financial companies via banks.
Reduced overnight lending rate to banks. The overnight lending rate for banks has been reduced from +0.75% prior to the pandemic to repo rate + 0.10%.
Table 1.5. Main pandemic-related measures by the Riksbank
Source: Sveriges Riksbank.
The Financial Supervisory Authority (FSA)
The countercyclical capital buffer was lowered from 2.5% to 0% in March 2020. This amounts to SEK 45 billion and creates new lending capacity of around SEK 900 billion (about 18% of GDP).
Since April 2020, banks may grant both new and existing mortgages temporary exemption from the requirement on amortisation.
The FSA recommended restrictions on dividend payments during the spring of 2020, following the European Systemic Risk Board recommendation. It advised insurance and pension companies to use buffers if needed rather than selling assets, to avoid triggering a negative spiral in asset markets. It also made clear that the crisis constituted the type of situation where the liquidity coverage ratio requirement on both an individual currency and all currencies may be breached.
Source: Sveriges Riksbank and Finansinspektionen.
Some financial vulnerabilities remain
The Swedish banking sector is large and interconnected, which creates vulnerabilities, particularly in a period of high uncertainty for the global economy. So far, interventions by the authorities have stabilised financial markets and bankruptcies have mainly affected companies that were already weak before the crisis. However, the longer the pandemic lingers, the greater the risk of business failures and repayment difficulties for indebted households. Swedish banks have high risk-weighted capital ratios (Figure 1.12, Panel A). However, as mortgages with relatively low risk weights account for a large share of their loan portfolio, their overall leverage ratio is weaker (Panel B). The Nordic banks have a narrow deposit base (Panel C) and rely heavily on wholesale funding, which can entail liquidity risks in periods of market turmoil.
Banks are heavily exposed to the property sector. Like in several other OECD countries, easy financing conditions and changing preferences have pushed up housing prices sharply during the pandemic (Figure 1.13, Panel A). In contrast with previous recent upswings, houses have gained more value than flats in 2020, likely reflecting demand for space, as people spend more time at home than before the pandemic (Panel B). Average housing prices relative to income are close to the OECD average, but higher than in the other Nordics (Figure 1.14, Panel A). Average loan-to-value and loan-to-income ratios increased in 2020 (FSA, 2021). Defaults on mortgages have historically been low in Sweden, even during economic crises, and despite a high aggregate household debt level (Figure 1.14, Panel B), mortgage delinquency risks remain limited according to stress tests (FSA, 2021). However, a fall in housing prices could weaken private consumption and slow economic growth (Flodén, 2014).
Macroprudential instruments can limit the build-up of financial vulnerabilities, particularly in periods when low interest rates may lead to excessive borrowing and risk-taking. Several general and targeted macro-prudential measures have been introduced over the past decade or so. A systemic risk buffer of 5% was introduced in 2011 and a countercyclical buffer was set at 1% in 2014 and gradually raised to 2.5% in 2019. To contain the rise in household debt, the mortgage loan-to-value ratio has been capped at 85% since 2010. A mortgage risk-weight floor of 15% was introduced in 2013 and increased to 25% in 2014. From 2016, amortisation of 2% and 1% per year was required on mortgages with a loan-to-value ratio respectively exceeding 70% and between 50% and 70%. The amortisation requirement was tightened in 2018 for mortgages amounting to more than 4.5 times gross income, which became subject to additional amortisation of 1%, 2% or 3%, for loan-to-income ratios respectively below 50%, between 50% and 70%, and above 70%. After the COVID-19 outbreak, the countercyclical buffer was set to zero and the amortisation requirement suspended. To slow the rise in housing prices and household debt, the mortgage amortisation requirement will be reinstated in September 2021. If housing prices continue to rise rapidly, macroprudential policy should be tightened.
Figure 1.12. The banking system seems solid although not without vulnerabilities
2019 or latest
Source: IMF, Financial Soundness Indicators database.
The share of commercial real estate loans, which are generally riskier than mortgages, in bank lending is one of the highest in the OECD (Figure 1.12, Panel D). To contain risks, the Financial Supervisory Authority (FSA) has raised capital requirements on bank loans for commercial real estate from January 2020. The pandemic may have a lingering negative impact on commercial real estate. Demand for office space is likely to be lower, as telework has gained ground. At the same time, retail space may shrink with the acceleration of e-commerce, though this pushes up demand for warehouses.
Climate change also entails risks for financial stability, which calls for better reporting of climate-related financial exposures. Both the Riksbank and the FSA take part in the Network for Greening the Financial System (NGFS), a global network of 89 central banks and financial supervisors, launched at the 2017 Paris One Planet Summit. They are promoting better disclosure by both financial and non‐financial corporations and integrating climate-related risks in their financial stability monitoring (Sveriges Riksbank, 2019; Thedéen, 2019). The FSA is also leading the International Organization of Securities Commissions (IOSCO) taskforce on sustainable finance. Together with the International Financial Reporting Standards foundation (IFRS) and other stakeholders, IOSCO is developing a comprehensive global corporate reporting system for sustainability-related information that meets the needs of capital markets and serves the public interest. Beyond its importance for financial stability, disclosure of climate risk is a powerful instrument in the fight against climate change by orienting savings to investments contributing the environmental transition (OECD/The World Bank/UN Environment, 2018).
Figure 1.13. House prices have been rising at a fast pace
Note: Panel A displays quarterly data adjusted for inflation using the private consumption deflator, up to 2020Q4. Panel B displays nominal monthly data, up to April 2021.
Source: OECD, House Price database and Valueguard.
Figure 1.14. The house price-to-income ratio is close to the OECD average but household debt is high
Note: In panel A, number of years of per capita gross disposable income needed to buy a 100 square metre dwelling (for more detail, see Bricongne et al., 2019). In panel B, data for Chile, Colombia, Japan, Luxembourg, Norway, New Zealand, Norway, Poland and United States refer to 2018. Income refers to net household disposable income.
Source: Houselev; OECD, House price database and OECD, National Accounts database.
Weak money laundering controls have been an issue in some banks’ foreign subsidiaries
Major Swedish banks have been subject to interventions from the Swedish supervisor, including sanctions amounting to hundreds of millions of euros, for deficiencies in anti-money laundering governance and controls in their subsidiaries in the Baltic countries. This may be seen in light of Sweden being one of the 11 countries that have received a high effectiveness rating by the Financial Action Task Force (FATF). The authorities have taken action to step up the fight against money laundering (Forsman, 2020). Regulatory changes in recent years pertain inter alia to an overhaul of the central legislative acts in this area; the introduction of registers of beneficial owners and bank accounts; improved sanctioning and investigative powers and resources for several supervisory authorities; stricter requirements on the provision of information from financial companies to law enforcement authorities, as well as feedback from the Financial Intelligence Unit to reporting entities; and the anti-money laundering regulation of virtual currencies. Furthermore, several state public enquiries have recently delivered or are expected to deliver further proposals for reform in the near future (Swedish government, 2021a). The FSA has stepped up its supervision, with extra funding of SEK 20 million per year, and strengthened its cooperation with Nordic and Baltic country authorities on a strategic level (FSA, 2019) as well as on an institute-specific level, by setting up and participating in several dedicated Anti-Money Laundering/Combating the Financing of Terrorism colleges. Other agencies involved in the fight against money laundering also received additional funding. National and international authorities pursue cooperation to track ever-evolving fraudulent practices. However, effectively preventing money laundering also requires vigilance from national authorities in other countries, as they have the relevant investigation powers.
More generally, corruption is perceived as being very low in Sweden. The level of perceived corruption is among the lowest in the OECD, together with the other Nordics, New Zealand and Switzerland (Figure 1.15, Panel A and B). Control of corruption has remained steady over time (Panel C) and is strong in all sub-categories (Panel D). Sweden is fully compliant on exchange of tax information (Figure 1.16, Panel A). As concluded by the FATF, most anti-money laundering indicators are at least on par with the OECD average (Panel B).
Figure 1.15. Corruption is very low
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy
Institute; University of Gothenburg; and University of Notre Dame.
Figure 1.16. Tax transparency is high and anti-money laundering is relatively effective
Note: Panel A summarises the overall assessment on the exchange of information in practice from peer reviews by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Peer reviews assess member jurisdictions' ability to ensure the transparency of their legal entities and arrangements and to co-operate with other tax administrations in accordance with the internationally agreed standard. Panel B shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: OECD Secretariat’s own calculation based on the materials from the Global Forum on Transparency and Exchange of Information for Tax Purposes; and OECD, Financial Action Task Force (FATF).
Facilitating resource reallocation is essential for the recovery
While most businesses will survive the pandemic, not least thanks to temporary government support, and will be able to resume business as usual after distancing measures ease, some will face more difficulties. The pandemic dealt a further blow to already weak businesses and accelerated some changes in consumer behaviour and business models, notably the move towards digitalisation. Reallocation has generally been effective in Sweden in recent years, with workers tending to move primarily to higher-productivity firms (Andrews and Cingano, 2014) and despite a long period of very low interest rates, the share of zombie firms in the Swedish economy consistently decreased over 2010-16. The number of bankruptcies increased during the first half of 2020, but has been lower than the historical average in the second half of 2020 and the beginning of 2021, partly owing to the support measures put in place by the government.
An efficient insolvency framework is essential to promote smooth restructuring. OECD indicators point to room for improvement in Sweden’s insolvency framework (Figure 1.17, Adalet McGowan et al., 2017). The integration of the EU Directive on Preventive restructuring frameworks, approved by the EU Council in June 2019, into Swedish legislation should facilitate early-stage restructuring. An inquiry tasked with proposing amendments to incorporate the provisions of the Directive into Swedish law released its conclusions in March 2021 (Swedish Government, 2021b). It recommended establishing a permanent national business emergency support centre with a focus on micro, small and medium-sized enterprises heading for financial crisis, under the responsibility of the Swedish Agency for Economic and Regional Growth. It also proposed a new company restructuring act to ensure that necessary measures to address a company’s financial problems can be confirmed in a binding restructuring plan. Other proposed adjustments to the insolvency framework include an enhanced viability test before entering a restructuring procedure, a streamlined debt settlement procedure for companies without need for further restructuring measures, the concentration of restructuring in fewer courts to facilitate the resolution of difficult cases and stricter supervision standards. Reforms along these lines would improve prevention and facilitate restructuring. Nevertheless, the personal costs to failed entrepreneurs are likely to remain high, as in many European countries and in contrast to Canada and the United States.
Figure 1.17. There is room for improvement in the insolvency framework
Scores in selected aspects of insolvency schemes: higher scores indicate worse systems
Source: OECD (2017), Confronting the Zombies: Insolvency and Financial Reform, Corporate Restructuring and Productivity Growth.
Unemployment started rising before the COVID-19 crisis (Figure 1.18), as the economy decelerated. The matching problem was already serious before the pandemic, with labour shortages coinciding with high unemployment for some categories of workers, notably immigrants (OECD Economic Survey of Sweden, 2019). This problem was worsened by the crisis, which reduces demand for low-skilled workers, who are often employed in occupations requiring face-to-face interaction. To support low-skilled and foreign-born workers, the government plans to introduce two new schemes in 2021, as negotiated with the social partners: the Entry agreements scheme targeting immigrants and long-term unemployed, which combines subsidised employment with adult education; the Integration year scheme for newly-arrived asylum seekers, which combines vocational education and training with a Swedish language learning programme. A pilot programme for the integration of foreign-born women in the labour market is showing promising results and should be expanded (Box 1.3). The youth suffered more from the crisis than prime-age workers, with a gender difference reflecting the sectoral composition of employment. While young male employment declined most in the second and third quarters of 2020, which saw disruptions to industrial activity, young women still suffer disproportionately, presumably because they are over-represented in the service sectors most affected by the pandemic (Figure 1.19).
In this context, it is essential to invest in skills to facilitate labour market integration and transitions. Sweden has a strong vocational education and training (VET) system, which provides students with sound foundation and occupational skills. However, enrolment in upper-secondary VET has been falling, which may be related to negative perceptions of VET and perceived weak pathways to higher education. Collaboration between schools is limited and social partner engagement to better match skills with labour market needs is uneven at the local level. The government plans to strengthen vocational education and training structures at the regional level to ensure better planning and cooperation between providers and better adaptation to labour market needs. Sweden VET schools are small by European standards. Consolidation in highly specialised technical areas requiring expensive equipment would help achieve economies of scale and provide more labour market-relevant education (Kuczera and Jeon, 2019). Given the increasing need for re-skilling and up-skilling due to technological change, which the COVID-19 crisis is likely to accelerate, adult education should also be developed further, in cooperation with the social partners, including for people in unconventional forms of work (OECD Economic Survey of Sweden, 2019).
Regional inequality, although low compared to most other OECD countries, has been rising over the past decades. Ensuring that the recovery benefits all regions and continuing to provide equal public services across the country in the face of strong demographic headwinds in some regions will require some adjustments to the sub-national government fiscal framework, as well as strengthening multi-level governance and strategic cooperation between government entities and with other stakeholders. Reinforcing the role of universities as knowledge hubs would support regional development (Chapter 2).
Figure 1.18. Unemployment has risen markedly
1. Labour Force Surveys (LFS), population aged 15-74. There is a break in the LFS unemployment and employment time series resulting from the adaptation of the Swedish LFS to the new EU framework regulation from 2021 onwards.
2. Swedish Public Employment Service, population aged 16-64.
Source: OECD Economic Outlook database; Swedish Public Employment Service.
Figure 1.19. Young women have seen the most persistent fall in employment
Change in employment rate from previous year (% points)
Source: Statistics Sweden.
Box 1.3. A pilot job matching programme for foreign-born women
The employment rate of foreign-born women aged 16-64 lagged that of natives by more than 20 percentage points in 2020. A major obstacle to their employment is often a lack of documented qualifications and work experience, which makes their applications unattractive to employers. In response, the Public Employment Service initiated in March 2019 a pilot programme (Equal Establishment) to improve job matching for foreign-born women, with support from the European Social Fund. The programme documents the informal skills and motivations of jobseekers to match them with employer demand.
The project is run as a randomised experiment, to allow evaluation. After two years, over a third of the 3710 participants in the trial were employed, which is 10 percentage points (or 30%) higher than in the control group, consisting of jobseekers having received traditional jobseeker support. The new matching method does not generate higher costs than traditional support. Hence, opportunities for scaling up the programme look very promising.
Source: Swedish Public Employment Service.
Education policy measures are starting to bear fruit but challenges remain
The downward trend in education performance seems to have been halted, as indicated by some encouraging recent international test results (Figure 1.20). Nevertheless, scores in the latest OECD Programme for International Student Assessment (PISA) are only slightly above the OECD average, which points to further room for improvement. Furthermore, gaps between students in reading and science continued to widen (OECD, 2019). The government is taking many steps to improve the education system and reduce educational inequalities, notably on teacher pay and training, school selection and curricula (Table 1.6).
The pandemic has challenged the education system, even though school closures were more limited than in most other OECD countries. The government took swift measures to allow education institutions to deliver distance learning. Nevertheless, some students, notably from disadvantaged socio-economic or immigrant backgrounds, may adapt less well than others to distance learning. This calls for carefully monitoring student results, in particular through the existing national tests, and providing support to those lagging, so that they can catch up. To respond to increased demand during the crisis and its aftermath, the government has allocated significant resources for increasing the number of places in vocational training and tertiary education.
Figure 1.20. School results have started to improve
Sweden’s test results in international skills surveys for children of school age
Note: The score points in PISA, TIMSS and PIRLS are not on the same scale and cannot be directly compared.
Source: OECD, PISA database; and TIMSS and PIRLS International Study Center – International databases.
Table 1.6. Past recommendations on education policy and action taken
Structural reforms could boost long-term growth
Structural reforms will be necessary to increase employment and prevent the rise in the government debt-to-GDP ratio in the long run. Employment protection in Sweden is stricter than the OECD average (Figure 1.21; OECD, 2020a). However, the social partners have reached an agreement for broad labour market reforms, which is by and large expected to be implemented by mid-2022, after the Government submits a bill to Parliament. The social partners’ agreement contains various amendments regarding employment protection. One such amendment allows all companies to exempt three workers from the order of lay-off rules (last in-first out), whereas currently only companies with up to ten employees are allowed to exempt two employees, although exceptions can be negotiated between the social partners (Uddén Sonnegård, 2018).
Loosening employment protection legislation facilitates workers’ move towards more productive jobs (Scarpetta, 2014). A 2001 reform of employment protection rules in Sweden, which enabled firms with up to ten employees to exempt two workers from the lay-off rules, is estimated to have raised labour productivity by 2% to 3% (Bjuggren, 2018). Swedish legislation is among the strictest in the OECD for “Fair reasons for dismissal for personal reasons” and “Compensation for the employee following an unfair dismissal”. In particular, insufficient performance is rarely considered a fair reason in Sweden, contrary to two-thirds of OECD countries. Compensation for the employee following an unfair dismissal is the second highest among OECD countries together with Portugal and only second to Italy. The agreement between the social partners facilitates dismissal for insufficient performance. Employers will no longer be compelled to offer a new position to workers who are still objectively underperforming after being offered a new assignment.
At the same time the social partners’ agreement offers more security to workers. For instance, one type of fixed-term contract is proposed to be converted to a permanent contract after 12 months, instead of 24 currently. The agreement also proposes the establishment of a publicly-funded basic transition service, as well as that of a new public study aid aiming at facilitating re-training and up-skilling. The new study aid would apply for a maximum of 220 study days. To qualify, the individual must, in particular, have worked 16 hours per week on average for at least 96 months. The aid is provided for training that bolsters the applicant’s future prospects in the labour market. The grant is to cover up to 80% of salary losses while studying. The social partners also agreed that a public inquiry investigates the possibility of setting up a collectively-agreed unemployment insurance, covering private sector workers, including those with low or irregular income and guaranteeing employees at least 80% of their previous salary.
Reducing the labour tax wedge, which is among the highest in the OECD (Figure 1.22), would help raise employment, particularly for the low-skilled. Taxation has gradually shifted from taxes on labour to environmentally-related taxes in recent years. Carrying on with this strategy would gradually bring down the tax wedge. In addition, higher recurrent taxes on immovable property could be used to offset lower labour taxation. Sweden combines generous mortgage interest deductibility with a recurrent tax on residential immovable property that is capped at a relatively low level, making it regressive. The marginal effective tax rate for owner-occupied, debt-financed housing investments is the third lowest in the 27 OECD countries for which data are available, after the Netherlands and Denmark (Brys et al., 2021). Recurrent property taxes are among the least detrimental to growth (Arnold et al., 2011; Cournède et al., 2018). The OECD Economic Survey of Sweden 2019 recommended reforming the recurrent tax on immovable property to better align tax charges with property values and phasing out the deductibility of mortgage interest rate payments. Over the long run, lowering the tax wedge to the OECD average would increase GDP per capita by around 3% (Box 1.4).
To prevent an ageing-related government debt increase in the coming decades, longer working lives will be needed. Reforms implemented from the mid-1990s ensure the financial viability of the public pension system (Lundberg, 2020), which comprises two main elements: a means-tested basic pension (guarantee pension) and an earnings-related pension. The guarantee pension is a minimum pension benefit for residents aged 65 or over who have not accumulated enough earnings-related pension rights to earn a decent living. It can be complemented by a housing benefit. Elderly people with very low incomes and few years of residence are eligible to maintenance support.
Public earnings-related pensions are based on lifelong contributions and consist of two components (income and premium pension). The main element is the income pension, a distribution system with a balancing mechanism. The income pension is adjusted annually according to an index of average income across society. The balancing mechanism ensures the financial sustainability of the system, through reductions in the annual pension increases when the amount of assets falls below the value of liabilities, as happened in 2010, 2011 and 2014. The minimum age for receiving earnings-related pension payments was 61 in 2019. Employees retiring later receive a pension adjusted on an actuarial basis. Employees are protected from forced retirement until age 68 as of 2020 (maximum age for the right to remain in employment). The income pension is complemented by the premium pension, which is a fully-funded defined-contribution pension, where the insured has a wide choice of investment funds. The contributions to the income and premium pensions are respectively 16% and 2.5% of wages (net of contributions), up to a ceiling. In addition to the state pension, the vast majority of workers is covered by occupational pensions, which are governed by collective agreements and are especially important for high-income earners (Ministry of Health and Social Affairs, 2016).
While the design of the pension system ensures its financial sustainability, a failure to lengthen working lives as life expectancy increases could lead to insufficient pension income and labour supply shortages. Hence, a gradual increase in the minimum age to receive state old-age pension benefits is being phased in. From 2020, it increased to 62; from 2023, it will increase to 63 and from 2026 it will rise to 64. The maximum age for the right to remain in employment has also risen from 67 to 68 in 2020 and will rise to 69 in 2023. The reform also introduced a “target age for retirement”, based on average life expectancy at 65. The minimum age for receiving the basic pension will be linked to this target age from 2026 and onwards. OECD simulations suggest that under a scenario where the minimum pensionable age rises by two-thirds of the increase in life expectancy, the long-term fiscal balance improves by 1.3% of GDP, helping stabilise government debt.
Figure 1.21. Permanent workers’ employment protection is relatively strong
Index of protection of permanent workers against individual dismissals, 2019
Note: The index ranges from 0 (no regulation) to 6 (detailed regulation).
Source: OECD Employment Protection Database.
Figure 1.22. The labour tax wedge is high
Tax wedge for a two-earner married couple, one at 100% of average earnings and the other at 67%, with two children
Source: OECD Taxing wages.
Table 1.7. Past recommendations on labour market policy and action taken
Box 1.4. Potential impact of structural reforms
This box summarises potential long-term impacts of selected ongoing and recommended structural reforms on GDP per capita (Table 1.8). The quantified impacts are merely indicative and do not incorporate behavioural responses to the reforms. They are also expected to materialise gradually over the long term. The GDP impacts of some key recommendations are not quantified because they are very small. The potential impact of pension and labour market reforms on the government debt-to-GDP ratio is shown in Figure 1.8.
Easing employment protection legislation
Easing EPL by 0.1, which would broadly be in line with changes negotiated by the social partners, could potentially raise GDP by more than 2% in the long run, mainly through higher productivity. The associated measures to facilitate re-training and up-skilling could raise productivity further, although their effect is difficult to quantify.
Reducing the tax wedge by gradually shifting from labour levies to environmentally-related taxes and recurrent taxes on immovable property
The tax wedge on labour is assumed to be gradually reduced to the OECD average by 2030. Reduced income from taxes on labour is fully offset by higher income from environmentally-related and property taxes. Nevertheless, the positive impact on employment may improve the fiscal position.
Increasing the pension age
The maximum age for the right to remain in employment and the minimum age for receiving state old-age pension benefits and the basic pension are assumed to be raised by two-thirds of the increase in life expectancy, which is estimated to increase the effective retirement age by three years by 2060, as in Guillemette et al. (2017).
Easing rental regulations
The estimates assume that the strictness of rent control moves to the level of Norway, where the initial rent level can be freely negotiated (although the Norwegian Tenancy Act asserts that the rent may not be unreasonable) and rent increases are regulated. In the long term (2050), the reform would increase the housing stock by nearly 6% and increase housing affordability, with the housing price-to-income ratio reduced by 0.8 year of disposable income. These estimates are derived from a residential investment equation estimated on a panel of 27 OECD countries from 1980 to 2017. The model includes an indicator of rent control, an interaction term between rent control and real housing prices, as well as real construction costs, real housing prices, indicators of land availability and land-use restrictiveness, and country fixed effects (Cournède et al., 2020). The estimates reflect an average effect in the country sample over the period of estimation. The response of supply to rent deregulation may deviate substantially from the norm in some countries. For example, while rent deregulation has contributed to the expansion of the private rental sector in the United Kingdom since the 1980s, there is no conclusive evidence of a link to an overall increase in housing supply.
Table 1.8. Estimated impact of main recommendations (%, unless otherwise specified)
1. The EPL index ranges from 0 (no regulation) to 6 (detailed regulation); The rent regulation index ranges from 0 (least restrictive) to 1 (most restrictive).
2. Contribution to GDP per capita growth.
Source: Calculations based on Égert and Gal (2017), Cournède et al. (2020) and Guillemette et al. (2017).
Strict rental regulations (Figure 1.23) tend to discourage mobility, notably for low-income households, and may contribute to spatial segregation by lowering the supply of rental dwellings in some locations (OECD Economic Survey of Sweden, 2019). They have led to long waiting lists for rental housing, especially in Stockholm, where getting access to a rented flat requires on average eight to ten years (Figure 1.24). This hampers labour mobility and is likely to reduce output and employment, although the magnitude of this effect is impossible to quantify. The government plans to liberalise rents for new dwellings, which will be more easily accepted than measures applying to existing dwellings. It has also launched a number of inquiries on different aspects of rent setting. OECD estimates suggest that easing rental regulation to the level of Norway, where rent increases rather than levels are regulated, could increase the housing stock by nearly 6% in the long term, which would significantly improve housing affordability over time through an increase in supply which would lower housing prices by on average more than nine months of household income (Box 1.4). This could facilitate labour mobility, which is hampered by high housing prices. A recent OECD study estimates that 1% higher house prices in Sweden reduce regional migration by nearly 1% (Cavalleri et al., 2021). Easing rent control could also facilitate access to better housing for some low-income and young households, as the current system favours sitting tenants, irrespective of their income.
Figure 1.23. Rent control is very strict
Index
Note: The index ranges from 0 (least restrictive) to 1 (most restrictive).
Source: OECD calculations.
Figure 1.24. Rental regulations lead to long queues
Waiting time for an apartment in Stockholm in 2020
Source: Stockholm Housing Agency.
Land-use planning inefficiencies and low incentives for municipalities to encourage construction remain a source of housing shortages, despite recent amendments to the Planning and Building Act. Hence, it would be desirable to enhance cooperation in land-use planning between central and local government further and increase incentives for municipalities to facilitate the timely release of development land. Land-use planning procedures should also be simplified, balancing economic, environmental and social considerations.
Table 1.9. Past recommendations on housing policy and action taken
Wider diffusion of digitalisation would boost productivity
Among OECD countries, Sweden takes the lead in the diffusion and use of digitalisation among individuals and firms (OECD, 2020b). The telecommunication infrastructure and services are well developed. Internet usage is almost generalised, online activities are diverse and the age gap in Internet use is one of the lowest among OECD countries. Innovation is high, with numerous patents, high-quality scientific publications and ICT specialists, as well as high business R&D intensity (OECD, 2018a). Sweden is also a frontrunner in frontier technologies like the Internet of Things. These determinants contribute to explaining Sweden’s relatively strong productivity level. However, like other OECD countries, Sweden is experiencing declining productivity gains (Figure 1.25). Firms can raise their productivity by adopting digital technologies (Gal et al., 2019). Adequate capabilities and incentives can enhance digital technology diffusion across firms (Andrews et al., 2018). Digitalisation can also help providing public services more efficiently throughout the country. To fully reap the benefits of digitalisation, the government needs to strengthen its role in enhancing the infrastructure for data and information sharing and to provide adequate technical support to municipalities and regions in need (chapter 2). The European Union Recovery and Resilience Facility (Swedish government, 2021c) provides funds for enhancing digital capabilities, with some measures already budgeted for 2021-23. In total, Sweden is expected to receive around SEK 34 billion (0.7% of GDP), in grants only, of which some 24% are to be allocated to the digital transformation.
Figure 1.25. Productivity gains have slowed
Average annual growth rates, USD per hour, constant prices and PPP (base year 2015)
Source: OECD Productivity Database.
Swedish firms use digital tools more than their counterparts in other OECD countries, be it basic tools like website, social media and high-speed broadband, or advanced tools like cloud computing. However, there are sizeable gaps between large and small firms (Figure 1.26). The use of broadband is widespread across firms, but the use of high-speed broadband remains mostly the privilege of large firms. Gaps with SMEs are especially large for business process tools like supply chain management (SCM), enterprise resource planning (ERP) and customer relationship management (CRM). Such digital tools help making business processes more efficient internally and in relations with suppliers and customers. Nevertheless, numerous Swedish firms outsource ICT tasks and use cloud computing for advanced applications like CRM, which may explain the lower use of digital business process tools (OECD, 2018a). As for advanced tools, like big data analysis and radio frequency identification (RFID), and frontier technologies like artificial intelligence and 3D printing, Sweden lags behind OECD best performers.
The diffusion of digitalisation across Swedish firms is hindered by several obstacles. First, in terms of capabilities, there is scope for improvement in ICT skills. Innovation is increasingly driven by big data analysis and firms with a high share of data specialists are more likely to innovate and experience higher productivity gains (OECD, 2018a). However, in Sweden, the supply of data specialists, as measured by the share of tertiary graduates in ICT and data analysis, is rather low (Figure 1.27, Panel A). This contributes to holding back the diffusion of big data analysis and limits firms’ digital and data-driven innovation. Likewise, firms do not provide enough training to ICT specialists to upgrade their skills (Panel B). As digitalisation keeps evolving rapidly, the lack of training not only hinders the adoption of next generation digital tools and productivity growth, but may also leave behind some vulnerable workers. Second, R&D expenditure in information industries is relatively low. The share of business expenditure in R&D is the fourth highest among OECD countries, after Israel, Korea and Japan (2.4% GDP), but only a fifth is allocated to ICT industries (OECD, 2020b). Finally, Sweden needs to improve public trust in digitalisation by strengthening cybersecurity. A significant number of Swedish firms are reporting security breaches (OECD, 2021). These ICT incidents lower trust in ICT tools, potentially slowing their adoption. The share of enterprises making ICT risk assessments, which are at the core of digital security risk management, is relatively high in large enterprises but, as in other OECD countries, much lower among small firms (OECD, 2020b). Campaigns should raise awareness in small firms of the necessity to implement ICT risk assessments on a periodical basis and more training should be proposed to help them do so. In addition, there should be more training to improve workers’ awareness of their obligations related to ICT security, especially in small enterprises.
Figure 1.26. Digital gaps between small and large firms are wide
Percentage of enterprises with ten or more employees, 2020 or latest year available
Note: RFID stands for radio frequency identification; CRM for customer relationship management; ERP for enterprise resource planning; SCM for supply chain management.; high-speed broadband corresponds to broadband with a speed higher than 100Mbits/s; cloud computing covers cloud computing services for advance application (accounting software applications, CRM software, computing power). Big data analysis, cloud computing and SCM come are sourced from Eurostat and cover 2020 (2018 for Greece and United Kingdom). E-purchasing covers 2017 or 2016. RFID covers 2016 of 2017. Other ICT tools cover 2018 or 2019.
Source: OECD ICT Access and Usage by Businesses Database; Eurostat ICT Usage in Enterprises Database.
Figure 1.27. ICT skills need to be further improved
Share of all tertiary graduates (A) and of enterprises with ten or more employees (B)
Note: The fields of studies in Panel A include ICTs, natural sciences, mathematics and statistics.
Source: OECD Science, Technology and Industry Scoreboard; Eurostat ICT Usage in Enterprises Database.
Like in many OECD countries, the digital divide between men and women is also sizeable. The share of female ICT specialists is the second highest after Finland among European countries, but the share of male ICT specialists is more than three times higher (Figure 1.28). Overall, the gender gap in ICT specialists is the highest among European countries (8 percentage points). The under-representation of women in ICT professions matches their education choices. Women represent 30% of ICT graduates (Figure 1.29). Education choices are determined by personal preferences. They are also influenced by social norms, resulting in the self-selection of women in education fields they think are most likely to offer them job and career opportunities. Sweden has already implemented several projects to address gender stereotypes in schools and pre-schools (2017 OECD Economic Survey of Sweden). Such projects should be further supported and developed, for instance by raising teachers’ gender awareness and knowledge of STEM-related studies and professions, like in the Netherlands, and promoting female role models in the digital economy like Sheryl Sandberg’s “Lean in” campaign (OECD, 2018b).
Figure 1.28. The gender gap in ICT specialists is the highest in Sweden
Percentage of male and female workers, 2020
Note: 2019 for United Kingdom. ICT specialists are defined by Eurostat as “workers who have the ability to develop, operate and maintain ICT systems, and for whom ICT constitute the main part of their job”.
Source: Eurostat Digital Economy and Society Database; Eurostat Labour Force Survey.
Figure 1.29. The share of women graduating in ICT is still low
Share of women graduating by field of education, 2018
Note: Level of education: total tertiary education (ISCED2011 levels 5 to 8).
Source: OECD Education at a Glance.
Table 1.10. Past recommendations on business regulations and competition policies
The green economy offers new growth opportunities
Sweden is a frontrunner in the fight against climate change and an example of best practice for other countries. Its territorial CO2 emissions per capita peaked as early as 1970 and have declined by about two-thirds since (Figure 1.30). Economic incentives and policy instruments played a major role in this achievement. In particular, Sweden was among the first countries in the world to introduce a carbon tax in 1991, which increased gradually thereafter. Many initiatives at regional and municipal level have improved the environment, while benefitting local economic actors (Chapter 2). The objective of reducing GHG emissions outside the EU Emissions Trading System (EU ETS) by 40% relative to the 1990 level by 2020 has been achieved, even abstracting from the temporary effects of the pandemic on emissions (Swedish Climate Policy Council, 2021). Sweden has set the ambitious objective of achieving net zero carbon emissions by 2045, which implies reducing domestic emissions by at least 85% relative to the 1990 level. The surplus of emissions rights generated, which reflects the government’s will to meet its national climate goal for 2020 with domestic measures only, has been removed every year since 2014, instead of being sold to other countries. In total, withdrawals of emission rights reduced GHG emissions by approximately 130 million tonnes of CO2 equivalent, more than twice Sweden’s 2019 total emissions. The 2017 climate policy framework set out the modalities of the implementation of the Paris Agreement in Sweden and created an independent climate policy council to assess every year the adequacy of policies to meet the climate goals (Ministry of the Environment and Energy, 2018). Sweden’s climate act, which entered into force in January 2018, requires the government to present an annual climate report in its budget bill and an action plan every four years in accordance with the various climate targets, notably the zero net GHG emissions by 2045 announced in its 2017 climate policy framework (Swedish Government, 2020c).
Figure 1.30. Carbon dioxide emissions per capita are declining steadily
Note: Carbon dioxide emissions refer to emissions from burning fossil fuels to produce energy and cement.
Source: Sveriges Riksbank, based on Our World in Data (OWID).
Renewable energy is growing rapidly and its share in electricity generation was 52% in 2019, with nuclear accounting for another 39% and conventional thermal power for less than 10%. Sweden has set the objective of having fossil-free electricity by 2040, with possible contribution from nuclear. The objective looks achievable, even though it will require capacity investments to replace ageing nuclear plants and wind turbines after 2030 and investments in the power grid to allow adjusting production to demand at all times (Swedish Climate Policy Council, 2020). Widespread district heating based on biomass contributes to limiting greenhouse gas (GHG) emissions from buildings, even though enhancing energy efficiency through renovation, with government support, will help reduce them further. Having largely picked the low-hanging fruit, Sweden needs to reduce GHG emissions in more challenging areas. The largest emitters are road transport, industry, notably metal and cement, and agriculture (Figure 1.31).
To reduce domestic transport emissions, which account for about a third of Sweden’s total emissions, the government has reformed the vehicle bonus-malus system, imposed more renewable fuels through a low-carbon fuel standard (i.e. capping emissions per energy unit, forcing suppliers to blend gasoline and diesel with biofuels), and increased investment in railways. Electric vehicles are becoming increasingly popular and accounted for about a third of new registrations in 2020. An electrification commission has been set up, led by the Minister for infrastructure, to implement measures for a rapid electrification of the transport system and a transition to sustainable renewable fuels, along with increased transport efficiency. Nevertheless, the timeline for electrification of road transport and its articulation with policy measures remains unclear (Swedish Climate Policy Council, 2020). Countries like Norway and the Netherlands were early promoters of transport electrification and have achieved large increases in their electric vehicle fleets, but at the price of costly subsidies. Hence, the Swedish government should elaborate a more precise roadmap for achieving CO2 emission reduction in road transport in a cost-efficient way. This would also give visibility on investment needs, notably for charging stations and biofuel production. The European Union Recovery and Resilience Facility also supports the climate transition, to which 40% of the funds to be received are linked (Swedish government, 2021c).
Maritime transport is another sector where GHG emissions need to be reduced. New advances in technology can improve energy efficiency. Cleaner fuels, including biofuels, electricity, hydrogen and ammonia offer solutions for reducing emissions, provided they are produced using low-carbon processes, which calls for the introduction of international regulations on lifecycle emissions (ITF, 2020). Price signals will also need to be strengthened to reach emission targets (Vierth et al., 2020). Some measures have been put in place in Sweden, as in the other Nordic countries, including environmentally differentiated port and fairway charges. However, the Swedish carbon tax does not apply to domestic shipping and maritime fuel benefits from tax exemptions, as in most OECD countries, with exceptions for domestic shipping in Canada, Colombia, Iceland and the US state of California (ITF, 2020). The September 2020 European Parliament decision to support the inclusion of CO2 emissions from the maritime sector in the EU ETS and use revenues to support investment in innovative green maritime technologies and infrastructure is welcome.
Figure 1.31. Road transport, industry and agriculture are the largest GHG emitters
Million tonnes of CO2-equivalent
Note: transport refers to domestic transport.
Source: Naturvårdsverket.
Emissions from industry have historically been under-priced compared to those from other sectors, but the carbon tax rate for industries outside the EU ETS is now aligned on the general rate. ETS prices have risen to above EUR 30 in early 2021, but this level still corresponds to a low-end estimate of GHG emissions’ current climate cost (OECD, 2018c). The Swedish authorities need to continue to work with the European Commission to ensure that the ETS provides the right price signals to achieve the desired emission reductions. Decarbonising sectors of Swedish industry like steel and cement is technically challenging, involves high economic risks, and requires huge investments (Bataille, 2020). The government has initiated the Industrial Leap programme in 2018 to support the development of technologies and processes aimed at reducing process-related GHG emissions from Swedish industry. Financial support, which is administered by the Swedish Energy Agency, may be provided for research, feasibility studies, pilot and demonstration projects, as well as full-scale investments. Projects related to mitigation, as well as to negative emissions, are eligible for funding. The target group for support is industries with process-related emissions, along with universities and research institutes. The 2021 budget also introduced green credit guarantees for large-scale industrial investment projects contributing to reaching environmental and climate policy goals. A consortium of steel and mining companies is developing a technology for producing fossil-free steel by 2035, with support from the Swedish Energy Agency. The project could reduce Sweden’s CO2 emissions by 10%. Although fossil-free steel would be 20 to 30% more expensive than traditional steel at current electricity, coal and carbon prices, it is expected to become competitive in the future, as carbon prices rise.
Agriculture accounts for around 15% of total GHG emissions, including about 2% related to fossil fuels used in machinery. Fuels for agriculture, forestry and fishery machinery benefit from reductions in carbon and energy taxes, which should be phased out. If necessary, government support should be provided in a way that is consistent with reducing GHG emissions. The government has commissioned an inquiry on measures and instruments for fossil-free agriculture. Reducing non-fossil fuel emissions (e.g. methane) from agriculture is particularly challenging, as they result from biological processes in animal husbandry and agricultural land use. Knowledge on ways to tackle such issues is limited and on current conditions and announced policies, about two-thirds of current GHG emissions from agriculture would remain by 2045 (Swedish Climate Policy Council, 2020). The government has taken measures to reduce methane leakage from manure management, but reducing agricultural GHG emissions further will require developing more sustainable agricultural models. Better connections between research and the agriculture and food sector, further efforts to provide targeted and tailored advice to farmers on sustainable technologies and practices, and more systematic application of the polluter-pays-principle would all help (OECD, 2018d). Sweden should also ensure that its European common agricultural policy strategic plan shows strong ambition for the climate.
Table 1.11. Past recommendations on environmental policy and action taken
Key policy insights recommendations
Key recommendations in bold
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