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Economic growth has been strong, but is projected to decline. Shortages of qualified labour and constructible land will slow residential investment, while uncertainty about global demand will slow business investment. Modest real wage gains will continue to damp consumption. The unemployment rate is levelling off as difficult-to-hire low-skilled workers make up a rising share of jobseekers. Labour market tightening will help lift inflation gradually.
The current very expansionary monetary policy stance is a response to persistently below-target inflation, but has also fuelled a long housing boom which increasingly poses risks. Stronger macro-prudential policy, such as a debt-to-income cap, is called for to reduce financial and macroeconomic vulnerabilities. Easing planning and rental regulations and reforming housing taxation would help stabilise house prices, increase labour market mobility and improve equality.
Sweden has substantial fiscal space, as public debt is low and the budget is near balance. There is little need for further economic stimulus given the strength of the economy. However, the use of fiscal space to accommodate temporary migration-related costs is welcome.
Economic Survey of Sweden (survey page)