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PRESS RELEASE NO. 24/80


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IMF EXECUTIVE BOARD CONCLUDES 2024 ARTICLE IV CONSULTATION WITH SWEDEN

March 11, 2024



Washington, DC: On March 7, 2024, the Executive Board of the International
Monetary Fund (IMF) concluded the Article IV Consultation[1] with Sweden, and
endorsed the staff appraisal without a meeting on a lapse-of-time basis.

After a strong post-pandemic rebound, the Swedish economy has slowed
appreciably. GDP is estimated to have declined by 0.3 percent in 2023, driven by
declining private consumption and residential investment, amid a significant
tightening of financial conditions and eroding real incomes. Activity is
expected to remain subdued during 2024 and pick up gradually thereafter.

Inflation has been declining at a faster clip in recent months, with the lion’s
share of the disinflation driven by energy prices. In turn, core inflation is
also receding, though it still remains high at 5 percent y/y in December 2023.
Inflation is expected to return to the target by mid-2025.

The labor market is showing signs of cooling, and employment growth has
moderated. Wage growth has been modest. Private credit is declining, and real
estate and equity prices have fallen from their 2022 peaks. Corporate
bankruptcies have picked up sharply. In particular, the commercial real estate
sector is severely hit, with highly leveraged and lowered-rated firms seeing
their debt-carrying capacity indicators deteriorate significantly. The banking
system remains resilient with strong profitability and sizeable capital and
liquidity buffers. The current account surplus is projected to have widened in
2023, on the back of higher net exports of goods and services. Based on
preliminary data, the external position is assessed to be substantially stronger
than the level implied by medium-term fundamentals and desirable policies.

Executive Board Assessment[2]

In concluding the 2024 Article IV Consultation with Sweden, Executive Directors
endorsed staff’s appraisal, as follows:

The near-term economic outlook is subdued. Growth is projected to average 0.2
percent in 2024, and gradually recover thereafter to average 2.3 percent in
2025. The balance of risks to growth is tilted to the downside, with the main
risk arising from larger-than-projected effects from the tight financial
conditions. Inflation is expected to average
2.6 percent in 2024 and reach target by mid-2025. Inflation risks are balanced,
with upside risks from still elevated core inflation and a slower adjustment in
inflation expectations or global supply-side disruptions offset by faster
disinflation from weaker growth. The uncertainty around the outlook remains
high.

The monetary policy stance is appropriately restrictive and would have to remain
in place during the first half of 2024 to ensure that inflation returns to
target. The Riksbank should remain ready to adjust monetary policy settings in
case risks to the inflation outlook materialize on either side, while continuing
to maintain a clear, forward-looking communication strategy to ensure that
inflation expectations remain anchored.

Macroprudential policy settings should remain tight amid elevated systemic
risks. Elevated levels of debt and high financial sector exposure to both RRE
and CRE risks stand as the main sources of systemic risk. While the banking
system is strong and should be able to weather severe shocks, close monitoring
of systemic risks by banks and their supervisors is crucial given the heightened
uncertainty. The increase in the CCyB and the extension of risk weight floors
for banks’ RE and CRE loan exposures were timely to further enhance bank
resilience.

Progress in the adoption of key FSAP recommendations is commendable, and
momentum should continue. This would require improving the collection of
granular household balance sheet data and standardized disclosures for the CRE
sector, continuing to improve risk analyses, increasing onsite and intrusive
supervision, and continuing to strengthen crisis management strategies. Over the
medium-term higher capital requirements on banks’ CRE exposures should be
introduced to contain systemic risks. BBMs could also be tightened contain risks
related to high household debt. Ongoing improvements to the AML/CFT framework
are timely and will continue to support financial stability.

The planned broadly neutral fiscal policy stance in 2024 is appropriate. The
2024 budget includes well-targeted measures to support vulnerable populations.
If the recession deepens, available substantial fiscal space provides the room
for further fiscal support, though measures should be well designed to avoid
inflationary pressures and targeted towards the vulnerable.

Sweden’s strong fiscal framework has underpinned sustainable public finances and
has served the economy well. In the medium term, fiscal policy needs to address
structural and demographic-related spending pressures and new investment needs
to support the green transition. Other fiscal priorities include tax reforms to
rationalize dividend taxation, lower labor income taxes, reduce interest tax
deductibility and improve property taxation. In this context, a small deviation
from the surplus target, while preserving the key elements of the framework,
would allow to pay for strong growth-enhancing public investment and social
spending needs over the medium term.

Structural reforms will be instrumental to strengthen medium-term growth and
support social inclusion and the green transition. Efforts focused on upskilling
and education opportunities and strengthening working incentives are welcome.
Bolstering active labor market policies, tailored training and reskilling
programs would address skill gaps and mismatches. Addressing housing market
challenges, easing restrictions on new construction, including building and
permit regulations, and easing rent control, are not only important for raising
the supply of housing but also encouraging labor mobility. Continued efforts to
increase the supply of renewable energy and green infrastructure are welcome,
although more measures would be needed to meet Sweden’s ambitious climate goal
targets.

 

Table 1. Sweden: Selected Economic Indicators, 2021–29

 

 

 

Est.

Projections 4/

 

2021

2022

2023

2024

2025

2026

2027

2028

2029

Real Economy (percent change)

 

     

 

 

 

 

 

     Real GDP

6.1

2.9

-0.3

0.2

2.3

2.2

2.2

2.1

2.1

     Final domestic demand

5.7

2.4

-0.6

0.5

1.9

1.8

1.8

1.8

1.8

     Private consumption

6.3

1.8

-1.7

1.1

2.2

2.3

2.2

2.2

2.2

     Public consumption

3.3

-0.1

2.2

1.2

1.1

1.0

1.0

1.0

1.0

     Gross fixed investment

7.1

6.0

-1.5

-1.2

2.0

1.7

1.7

1.7

1.7

     Net exports (contribution to growth)

0.2

-0.6

1.7

0.7

0.2

0.3

0.5

0.5

0.5

     Exports of G&S

11.1

7.3

2.9

2.0

2.7

3.2

3.5

3.5

3.5

     Imports of G&S

11.6

9.2

-0.4

0.9

2.6

2.9

3.0

3.0

3.0

     HICP inflation (average) 1/

2.7

8.1

5.9

2.6

2.0

2.0

2.0

2.0

2.0

     HICP inflation (Q4 on Q4) 1/

3.9

10.3

3.0

2.4

2.0

2.0

2.0

2.0

2.0

     HICP core inflation (average) 1/

1.6

5.5

7.4

3.5

2.2

2.0

2.0

2.0

2.0

     HICP core inflation (Q4 on Q4) 1/

1.9

7.8

5.3

3.0

2.0

2.0

2.0

2.0

2.0

     Unemployment rate (percent) 2/

8.9

7.5

7.7

8.4

8.2

7.7

7.5

7.5

7.5

     Gross national saving (percent of GDP)

32.9

34.2

33.1

32.6

33.0

33.3

33.5

33.4

33.6

     Gross domestic investment (percent of GDP)

25.9

28.3

27.0

26.6

27.7

28.6

29.1

29.4

29.6

     Output gap (percent of potential)

1.2

1.5

-0.2

-1.5

-0.9

-0.4

-0.1

0.0

0.0

Public Finance (percent of GDP)

 

     

 

 

 

 

 

     Total revenues

48.1

48.1

47.1

47.4

47.9

48.9

48.9

48.9

48.9

     Total expenditures

48.1

46.8

47.2

48.0

48.1

48.6

48.6

48.6

48.6

     Net acquisition of nonfinancial assets

1.3

1.4

1.4

1.4

1.6

1.6

1.5

1.5

1.5

     Net lending

0.0

1.3

-0.1

-0.7

-0.2

0.3

0.3

0.3

0.3

     Structural balance (as a percent of potential GDP)

-0.5

0.7

0.0

0.0

0.2

0.5

0.4

0.3

0.3

     General government gross debt, official statistics

36.5

32.9

34.0

34.5

33.5

32.4

31.3

30.3

29.4

Money and Credit (year-on-year, percent change, eop) 2/

 

     

 

 

 

 

 

     M3

10.7

2.7

-1.4

...

...

...

...

...

...

     Bank lending to households

6.7

3.5

0.3

...

...

...

...

...

...

Interest Rates (percent, end of period) 2/

 

     

 

 

 

 

 

     Policy rate

0.0

2.5

4.0

...

...

...

...

...

...

     Ten-year government bond yield

0.3

1.5

2.5

...

...

...

...

...

...

     Mortgage lending rate

1.4

3.4

4.7

...

...

...

...

...

...

Balance of Payments (percent of GDP)

 

     

 

 

 

 

 

     Current account

7.1

5.8

6.1

6.0

5.3

4.7

4.4

4.0

4.0

     Foreign direct investment, net

1.3

2.6

2.4

2.1

1.8

1.6

1.4

1.1

1.1

     International reserves, changes (in billions of US dollars)

6.0

7.8

...

...

...

...

...

...

...

     Reserves coverage (months of imports of goods and services)

2.8

2.6

2.7

2.6

2.5

2.3

2.2

2.1

2.0

     Net international investment position

19.0

30.9

31.7

32.4

33.0

33.6

34.1

34.6

35.1

Exchange Rate (period average, unless otherwise stated) 2/

 

     

 

 

 

 

 

     SEK per euro

10.3

11.0

11.2

...

...

...

...

...

...

     SEK per U.S. dollar

9.1

10.4

10.3

...

...

...

...

...

...

     Nominal effective rate (2010=100)

93.7

88.0

83.0

...

...

...

...

...

...

     Real effective rate (ULC) (2010=100) 3/

96.8

89.9

84.4

...

...

...

...

...

...

     REER ULC long run average deviation

-5.5

-11.9

-16.8

...

...

...

...

...

...

     Real effective rate (CPI) (2010=100) 

90.3

84.8

83.1

...

...

...

...

...

...

Fund Position (December 31, 2023)


 

     

 

 

 

 

 

     Quota (in millions of SDRs)

4,430

     

 

 

 

 

 

Reserve tranche position (in percent of quota)

28.2

     

 

 

 

 

 

     Holdings of SDRs (in percent of allocation)

105.2

     

 

 

 

 

 

Memorandum Items

 

     

 

 

 

 

 

     CPIF inflation (average)

2.4

7.7

6.0

...

...

...

...

...

...

Other Indicators

 

     

 

 

 

 

 

GDP per Capita (2022, USD): 65,496; Population (2022, million): 10.5.

Key Export Markets: Germany, Norway, and Netherlands.

 

     

 

 

 

 

 

Sources: IMF WEO, Riksbank, Swedish Ministry of Finance, Statistics Sweden, and
IMF staff calculations.

1/ Inflations represent actual figures in 2023, core HICP defined as the HICP
excluding energy and unprocessed food.

2/ The unemployment rate, money and credit, interest rates, and exchange rate
represent actual figures in 2023.

3/ OECD based Unit Labor Cost (ULC) real effective exchange rate indicator.

4/ Staff projections based on data as of January 31, 2024.

 

 

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral
discussions with members, usually every year. A staff team visits the country,
collects economic and financial information, and discusses with officials the
country's economic developments and policies. On return to headquarters, the
staff prepares a report, which forms the basis for discussion by the Executive
Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of
the Board, summarizes the views of Executive Directors, and this summary is
transmitted to the country's authorities. An explanation of any qualifiers used
in summings up can be found here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

IMF COMMUNICATIONS DEPARTMENT

MEDIA RELATIONS

PRESS OFFICER: Camila Perez

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson

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