Sweden Economy

Sweden Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

The Swedish economy is characterized by its diversity and high competitiveness, which stems from its openness and liberal attitude to trade and business. Sweden regularly ranks high in business climate, sustainability, global competitiveness, economic productivity and innovation. It is innovation, advanced technologies, new trends in information and communication technologies and the digital skills of the population that will continue to be among the main pillars of the development of the Swedish economy. The Nordic model provides favorable conditions for the creation of a sustainable economic ecosystem and shared prosperity. Sweden is a mix of an industrial country and a modern innovative economy. Important sectors are the automotive industry and telecommunications. Although a very solid industrial base is the backbone of the Swedish economy,

According to cheeroutdoor.com, Sweden is traditionally an export-oriented country and consistently achieves trade balance surpluses – more than half of all products are exported abroad. The country’s foreign trade in goods and services is now at a higher level compared to the pre-crisis period. A significant part of Sweden’s exports is engineering products. The main items include machinery, electronics, means of transport or products made of wood or chemicals. Engineering products, chemicals, fossil fuels and food and beverages play a major role in the commodity structure of Swedish imports. Oil and oil products remain essential trade items in trade outside the EU. Furthermore, Sweden trades cars, vehicle parts, gas turbines and packaged medicines with countries outside the EU. In 2021, trade activity with China, the United Arab Emirates, Norway and Vietnam increased significantly.

The Swedish economy is growing at a dynamic pace, supported by a recovery in consumption and private investment. In 2022, GDP growth of up to 3.3% is expected. Swedish household demand is supported by falling unemployment and dynamically rising nominal wages. Sweden is the largest Nordic economy and its economic growth has been outpacing that of the Eurozone in recent years. Per capita income is higher than in France, but lower than in Germany. The war in Ukraine will have a rather limited economic impact on Sweden through trade ties, but will boost commodity prices and subsequently reduce consumer purchasing power and spending.

Inflation is expected to peak above 3% in 2022 before returning to the monetary policy target of 2%. Rising inflationary pressures persist, mainly due to rising global oil prices and rising domestic electricity prices resulting from increased demand and supply-side disruptions. Inflation has risen to its highest level since the 1990s and will maintain its high values ​​in the future.

Sweden’s gross public debt, expressed as a percentage of GDP, is still among the lowest in the EU member states. The budget deficit will be reduced to 0.4% of GDP in 2021 and public debt is estimated at around 37.2% of GDP. An expansionary fiscal and monetary policy will have a positive effect on the growth of domestic consumption, support adaptation to climate change and strengthen the social security system. Monetary policy will continue to be more accommodative, despite the gradual increase in the main interest rate, which is currently in slightly positive values. In a three-year horizon, the main interest rate of the central bank could rise to 2%.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 1.4 -3 4.9 3.3 1.9
GDP/population (USD/PPP) 58,013.40 56,382.00 60,620.00 64,810.00 67,240.0
Inflation (%) 1.7 0.5 2.4 3 1.8
Unemployment (%) 6.8 8.3 8.8 7.6 6.9
Export of goods (billion USD) 161.1 150.2 196.3 210.3 215.2
Import of goods (billion USD) 158.8 144.1 191.7 208.2 217.5
Trade Balance (Billion USD) 18.3 25.1 29.2 28.5 24.7
Industrial production (% change) 2.2 -4.5 7.7 4 3
Population (millions) 10.1 10.1 10.2 10.3 10.3
Competitiveness IX.63 VI.63 II.64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -1.7
Public debt (% of GDP) 38.8
Current account balance (billion USD) 31.7
Taxes 2022
AFTER 20.6%
F.O 30-52%
VAT 25%, 12%, 6%

In June 2016, an agreement was reached between parties across the political spectrum on changes to the fiscal policy framework. The agreement includes a commitment to achieve balanced state budgets, while at the same time setting a surplus target of 0.33% of GDP. A debt anchor of 35% of GDP was also introduced according to the Maastricht criteria and a ceiling on government spending was set. Questions of the national debt are dealt with by a special office under the competence of the Ministry of Finance. The National Debt Office (Riksgälden) is an executive institution which, based on the approval of the parliament, authorizes the government to borrow to cover the state budget deficit.

Sweden’s public finances are exceptionally sound, underpinned by a strong fiscal framework and political commitment to debt sustainability. Sweden’s gross public debt, expressed as a percentage of GDP, is still among the lowest in the European Union. The budget deficit will be reduced to 0.4% of GDP in 2021 and public debt is estimated at around 37.2% of GDP. A deficit of approximately 0.4% of GDP is expected in 2022, followed by fiscal surpluses in subsequent years supported by the fiscal consolidation process and continued economic growth. The share of public debt to GDP will gradually decrease in the next period, as the public budget will be in surplus.

The parliament rejected the government’s budget proposal for 2022. The opposition center-right parties pushed through their alternative budget in the parliament, which includes new measures. The alternative budget reduced petrol and diesel taxes and set lower payroll taxes compared to the government budget. Taxes for pensioners were reduced and the housing allowance was increased. The opposition budget also scrapped the proposal for family leave (an extra week of paid leave for parents) in favor of more funding going to police forces and the judiciary. In connection with the Russian-Ukrainian war, the government approved additional spending directed at households (to mitigate the effects of rising energy prices) and spending on the military.

Banking system

Sweden has a developed and stabilized banking sector. There are currently 157 banks operating on the Swedish market, which can be divided into 4 categories: commercial, foreign, savings and cooperative banks. The role of the central bank is performed by the National Bank of Sweden ( Riksbanken ), whose functions are identical to those of the CNB. In terms of the development of the central bank’s interest rates, the situation remains unchanged – the discount rate holds the value of -0.10%, the Lombard rate 0.10% and the repo rate 0%.

The category of commercial banks mainly consists of the three largest Swedish banks, Swedbank, Handelsbanken and SEB. Together with the Nordea bank based in Finland, they represent the largest banks in Sweden – the so-called strong four. It completely dominates the banking market. Their focus is universal and they provide a comprehensive portfolio of financial services. The four largest banks together control almost 70% of the Swedish loan and deposit market.

  • Swedbank provides its services to approximately 8 million clients through more than 400 branches and offices in Sweden, Estonia, Latvia, Lithuania, Norway, Finland, Denmark, USA, China, Luxembourg and South Africa.
  • Handelsbanken owns 350 branches throughout Scandinavia, Finland and Great Britain.
  • SEB is the oldest active bank. It is 77.4% owned by Swedish shareholders, 10.7% by American owners and the rest of the shares by international capital. It operates mainly in Sweden, the Nordic countries, Germany and the Baltic republics.

Savings banks are particularly active in the regions. Most of these banks are usually linked to cooperation with Swedbanka. From the category of foreign banks, Nordea is by far the most important bank. This is a Swedish bank that moved its address to Finland in 2017. It operates in 16 countries around the world, its core assets are approximately EUR 176 billion. It serves 10 million individual clients and almost a million legal entities. Its shares are traded on stock exchanges in Stockholm, Helsinki and Copenhagen. Danske Bank, which is the largest Danish bank, is also worth mentioning. It also operates in other Nordic countries. After Nordee, it is the largest financial concern in the region.

Tax system

Sweden is a country with a long-standing and deep-rooted tradition of a welfare state with a high level of taxation that is one of the highest in the world. Although a high level of taxation can be seen as a negative, in Sweden it is tolerated and even welcomed thanks to a well-functioning social system. Tax fraud is very severely punished. It is a very stable system that enjoys a high level of trust among residents. However, it is relatively complex, which is why it is often criticized by the OECD.

An individual may be subject to both national and municipal income tax. Municipal or municipal income tax varies depending on permanent residence and its amount is decided by the municipality itself. The rates are of a progressive type between 30-52%. The average rate is around 32%. Taxable income in excess of SEK 540,700 is subject to national income tax of 20%. Taxes can be declared on a form, electronically or by phone. They are paid in advance.

Corporate income tax is imposed on the company’s profit. The corporate income tax rate is 20.6%.

Basic VAT is 25%. Since 2002, there has been a 12% reduced tax on food and food ingredients (with the exception of alcoholic beverages above 2.25%, tobacco and others) and a 6% tax on newspapers, printed matter and books, passenger transport, entrance fees to cultural performances, etc. Zero rate refers to health care, social services, education and others.

Sweden Economy