Is Sweden’s macroeconomic framework working well?
The performance of the Swedish economy during the recent international slowdown has demonstrated the value of a sound macroeconomic policy approach. After Swedish voters decided not to adopt the euro for the time being, the monetary framework continues as a well designed inflation targeting regime. The budgetary framework has delivered solid public finances, providing room for automatic stabilisers to work during the recent global slowdown, while monetary easing helped to stabilise activity without compromising price stability. In addition, tax cuts and other discretionary policy measures have helped to underpin output. As a result, growth in both 2002 and 2003 surpassed the European average by about one percentage point, and the OECD has projected economic growth of around 2¼ per cent in 2004 and 2¾ per cent in 2005. Despite current softness in some economic indicators, once activity has clearly picked up pace and spare capacity shrinks, monetary policy will need to be tightened in line with the inflation target. Overall, Sweden is in the enviable position of being able to focus its economic strategy towards longer term requirements, which is also the main theme of this Survey. GDP per capita has grown faster than the OECD average in recent years after a long period of slower than average growth. But maintaining Sweden’s per capita growth rate will become harder in the longer term as the dependency ratio starts to rise. Thus, the government’s renewed emphasis on policies to boost labour supply and potential growth is welcome.
Real GDP per person
Thousand US dollars, 1995 PPPs
Source: OECD.
What are the key challenges facing the Swedish economy?
As in many other OECD countries, the working age population will start to shrink towards the end of this decade unless it can be supplemented by net immigration, while the old age dependency ratio will start climbing quite sharply. In this context, the two broad economic policy challenges facing Sweden are to:
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Continue raising living standards through faster productivity growth and greater utilisation of resources available in the economy.
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Maintain the solidarity principles of the welfare state, despite a sharp increase in the dependency ratio.
Dependency ratios
Index, 2002 = 100
Source: Statistics Sweden; OECD calculations.
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The full edition of the OECD Economic Survey Sweden is available from:
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