OECD Economic Surveys: Sweden 2025

Executive summary

Key messages

Sweden’s economic fundamentals are strong. Even so, after two years of economic stagnation, Sweden now faces growing risks from an insecure and swiftly changing international environment. The costs of a changing climate are increasing, while Sweden’s adaptation framework remains somewhat fragmented. Slow spatial planning, tax support for home ownership and rent controls reduce the availability of affordable housing. Adult skills are high and improving and few people have very weak skills, but vocational education is unpopular, the quality of tertiary degrees seems to have fallen and people with weak skills struggle to get jobs and feel socially and politically disaffected.

• The slightly expansionary fiscal stance is appropriate but improving fiscal oversight, increasing spending efficiency, and strengthening the tax base are needed to meet long-term spending pressures. Monetary policy should stay on hold for now, with a readiness to adjust to incoming data.

• Bolstering climate resilience requires accelerating market-based adaptation measures, improving governance and coordination, and reinforcing a long-term commitment to climate mitigation.

• Strengthening digitalisation, skills and process management in zoning, permitting and construction can boost productivity in housing construction, while tackling supply-demand imbalances in the housing market would also require phasing out rent controls and tax subsidies to homeowners.

• High adult skills can be further sharpened by reforms to schools and investments in universities. Targeting of resources in active labour market policies and adult education and training to reduce the incidence of weak skills can improve matching and increase value for money.

Addressing structural challenges to secure sustainable growth

Sweden combines a range of strong economic and social outcomes. Living standards and labour force participation are high while public debt and income inequality remain low. Ensuring stable growth and high living standards in the face of population ageing, a challenging security situation and climate change risks is challenging. It requires prioritisation of public spending and policies to strengthen skills development, affordable housing supply, and climate change resilience.

Despite strong population increases, largely related to immigration, GDP per capita has expanded faster than in most OECD countries over the past decade. Education systems that promote lifelong learning and upskilling of workers, together with a robust social safety net, enable people to participate effectively in the workforce and boost productivity. Public debt is among the lowest in the OECD, reflecting a good fiscal institutional framework.

However, challenges to long-term growth remain. Sweden is experiencing more frequent extreme weather events, yet funding to make infrastructure and housing more resilient remains insufficient and unstable, leading to higher overall economic costs. The limited supply of affordable housing, especially the unavailability of rental housing in high-demand areas, hampers labour mobility. Long-term unemployment and labour shortages have increased in tandem over the past decade. Despite policy efforts, many low-skilled workers and foreign-born individuals struggle to succeed in a labour market that demands high levels of skills and productivity. Comprehensive reforms are needed to address these challenges and achieve sustainable long-term growth.

Ensuring a resilient recovery, with maintained fiscal prudence

Economic activity is set to pick up in 2025 and 2026, driven by rising real incomes, lower debt servicing costs, and a strengthening labour market. However, uncertainty remains high, with risks tilted to the downside particularly due to external trade developments. Fiscal policy should remain mildly supportive in the short term while preparing for long-term spending pressures.

Sweden’s economy has started to recover after two years of stagnation but remains fragile (Figure 1). This recent weakness is largely attributed to the country's high sensitivity to interest rates, driven by substantial household debt, largely on variable rates. Economic activity started to pick up in late 2024, supported by a rebound in household demand, and accommodative monetary policy. However, repeated changes in the international environment continue to weigh down economic sentiment.

Real GDP is set to grow by 1.6% in 2025 and 2.3% in 2026 (Table 1). In the short term, global uncertainty will continue to dampen domestic demand, but investment should recover as confidence improves. Private consumption will strengthen with rising real incomes and better employment conditions while unemployment is expected to decline as labour demand increases.

Risks remain skewed to the downside, stemming particularly from global trade tensions and geopolitical developments. While Sweden’s diversified export base may limit the direct impact of rising protectionism, weaker global growth could significantly affect its highly open economy.

Financial stability risks in Sweden have eased, but still warrant close monitoring in the wake of a real estate downturn and in view of high household debt. The existing institutional framework for macroprudential measures supports both financial stability and housing affordability and should be maintained. Strengthening the corporate bond market would help reduce risks tied to the commercial real estate sector, which has issued a significant share of Swedish bonds.

Figure 1. Growth remains subdued

Contributions to GDP

Source: Statistics Sweden.

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The slightly expansionary fiscal stance in 2025 is appropriate but tax and spending measures could be better targeted. Fuel tax cuts are regressive and will do very little to address cost-of-living pressures given the recent decline in energy costs. Lowered taxes on investment savings accounts discourage current consumption and primarily benefit relatively wealthy individuals.

Sweden’s public finances are solid, but long-term spending pressures and investment needs in defence are mounting. Transitioning from the current fiscal surplus target to the proposed balanced budget target adds flexibility but requires stronger oversight to avoid fiscal slippage in the context of ageing pressures and to ensure that additional spending is productive.

The Riksbank should maintain the policy rate at its current level for now, given the recent uptick in inflation above the 2% target despite weak domestic demand. However, it should stay flexible and adjust policy based on incoming data.

Table 1. Real GDP is set to recover in 2025 and 2026

Annual growth rates, %, unless specified

	2023	2024	2025	2026
Real GDP	0.1	0.7	1.6	2.3
Private consumption	-2.0	0.3	1.0	2.4
Unemployment rate (% of labour force)	7.7	8.4	8.7	8.3
CPIF inflation1	6.0	1.9	2.8	2.0
General government fiscal balance (% of GDP)	-0.8	-1.5	-1.4	-1.1

1CPI with a fixed mortgage interest rate.

Source: OECD Economic Outlook No. 117.

Strengthening climate resilience

Sweden faces rising temperatures, more extreme weather events, and increasing coastal erosion. While significant progress has been made in climate adaptation, challenges remain. Existing funding is insufficient and favours large-scale projects, leaving smaller municipalities without sufficient resources. Market-based mechanisms to engage the private sector lag behind many OECD countries. Adaptation governance is fragmented. Addressing these issues would not only enhance Sweden's resilience to climate change but also improve economic stability and social equity.

Funding for climate change adaptation remains insufficient and unstable, leaving many smaller municipalities struggling to implement necessary measures. Unlike climate change mitigation, adaptation is not mainstreamed into government budgeting and planning. It is also not integrated into Sweden's cost and income equalisation system, which supports resource-limited municipalities in maintaining essential public services.

Market-based incentives with the potential to accelerate private-sector investment in climate resilience remain underdeveloped (Figure 2). Many property owners neglect risk-reducing investments, despite legal responsibilities, due to a lack of awareness and the expectation that the government will cover climate-related losses. This calls for better reflecting such risks in price signals. Sweden’s insurance system lacks a clear link between premiums and risk levels, undermining the risk-signalling function.

Adaptation governance is fragmented, with responsibilities spread across multiple agencies and municipalities, leading to coordination gaps. There is no overarching national action plan that consolidates efforts. The coordinating role of County Administrative Boards is hindered by limited oversight powers and the lack of standardised metrics for assessing adaptation outcomes.

Some recent policy measures work against Sweden’s greenhouse gas reduction commitments. The 2023 climate action plan lacks concrete measures, and various policy changes are likely to increase emissions. The 2025 budget cuts fuel taxes and eliminates the aviation tax, contradicting climate goals and raising doubts about Sweden’s ability to meet its legally binding targets.

Figure 2. Mobilising the private sector can boost climate adaptation

Indicator of private sector adaptation, average for 2022 and 2023

Note: 'Strategy' refers to firms adopting an adaptation strategy for physical risks. 'Investments' denotes investments in solutions to avoid or reduce exposure. 'Insurance' indicates the purchase of insurance products to offset climate-related losses. Data is sourced from the annual EIB Group Survey on Investment and Investment Finance (EIBIS). The survey covers approximately 12 000 firms across the EU27 and 800 in the United States.

Source: Costa et al. (2024); EIB Investment Survey 2024.

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Matching housing supply and demand

Housing shortages seem to be less severe than in many OECD peers, but tax subsidies to homeowners inflate prices of land and rent controls lead to poor matches between housing needs and available units. Productivity growth in construction has been slow, while there is room to improve process management and digitalising zoning, permitting and construction.

Macro-level housing supply shortages in Sweden seem to be slightly less severe than in comparable OECD countries. The supply response to strong population growth in the past two decades was initially hampered by the Global Financial Crisis but has strengthened considerably since.

The rental market and the owner-occupied housing market are segregated by rent controls. In the owner-occupied segment, prices are set by supply and demand but are inflated by the combination of low and regressive recurrent property taxation and generous mortgage interest deductibility. Reducing tax support to home ownership would dampen the price growth of constructible land, which is the main cause of housing price increases.

Rent controls are the strictest in the OECD. Rents are in most cases set in negotiations between landlord and tenant unions. They apply to publicly and privately owned rental units, and can be tested in courts. It is possible to set higher rents for 15 years in new units. Consequently, older housing with lower rents is not available at all in a reasonable time frame in the big cities, while new units are too expensive for low-income households. Phasing out rent controls would reduce residential segregation and lower the incidences of homelessness and overcrowded living, which are the highest in the Nordics.

Speeding up zoning and permitting towards best-performing municipalities would unlock constructible land. Municipalities have full zoning and permitting authority within their borders, thereby controlling a key determinant of housing supply. Weak coordination between municipalities in response to regional challenges and a cumbersome environmental permitting procedure are complicating projects. The property tax regime could also better incentivise and enable municipalities to promote development.

Efficient process management can lower lead times. The construction process involves complex supply chains and a high degree of subcontracting. Efforts to boost standardisation and the uptake of digital tools such as construction information management systems in municipal planning would have more effect if it extended also to construction companies and was coupled with investments in skills. Valuable construction skills are lost during downturns in this highly cyclical sector.

Further boosting skills and matching them to jobs

The OECD Survey of Adult Skills shows that skills are high and improving in Sweden (Figure 3). Important school reforms are in the pipeline, but more could be done to raise equity and improve the attractiveness of upper secondary vocational education. Proven and effective interventions to address skill deficiencies are used too little and too late and value for money in adult education can improve.

Investments in skills raise productivity, boost the benefits from technological change and foster social cohesion. Sweden ranks as the country with the third-highest literacy, numeracy and problem-solving skills in the OECD, and its adults are on average more skilled today than a decade ago.

Life-long learning seems to work better in Sweden than on average in the OECD. Skills peak when people are in their 30s, ten years later than in the OECD on average. Young generations are doing well as adults despite concerns about the quality of schooling when they grew up. Older generations have higher skills and better labour market outcomes than a decade ago.

The literacy skills associated with having a tertiary degree have edged down while the labour market increasingly demands higher skills and qualifications. Upper secondary vocational education remains an unpopular choice and could be better matched to labour market demand. A fairly large share of high-skilled and highly qualified workers are not used to their full potential, reducing individual earnings and holding back productivity.

Labour shortages and long-term unemployment have increased in tandem. This macro-level mismatch of available workers and jobs is directly related to literacy and qualification deficiencies. The low-skilled constitute a low share of the Swedish population but perform relatively weakly in the labour market. A large share of people with no upper-secondary diploma and immigrants from outside of Europe and North America with weak literacy skills struggle to secure employment. Labour market gaps between foreign- and native-born are largely explained by differences in literacy skills. Cost-effective upskilling measures with proven effect exist but are often not applied in a timely manner due to bureaucratic hurdles in the public employment service.

A new programme has boosted access to education funding for experienced workers. It offers very generous levels of support and has rapidly gained popularity. So far, it has largely benefitted higher-educated individuals with low unemployment risk and low exposure to disruption from technological change and artificial intelligence. There is scope to reduce the support level to allow for higher student numbers and target support to those at risk of job loss to increase value for money.

Figure 3. Adult skills are high in Sweden

Population shares by functional skill level in literacy, 2023

1. BEL refers to the Flemish Region and GBR refers to England.

Source: OECD (2024_[1]).

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Main findings	Key recommendations
Supporting a more resilient economic recovery
Household debt remains high. The current calibration of macroprudential policies contributes to financial stability and housing affordability.	Maintain the current amortisation requirements as well as the loan-to-income and loan-to-value caps.
After a spell of disinflation through late 2024, inflation rose above the Riksbank’s 2% target in early 2025. Domestic demand remains weak while international value chain disruptions might increase prices.	Keep the policy rate at its current level for now but remain agile and respond to incoming data.
The output gap remains large and domestic demand is weak.	Maintain the slightly expansionary fiscal stance for now to support the recovery.
The current tax system incentivises income shifting.	Reduce the scope for income shifting by increasing dividend taxation and reducing the top marginal tax rate on labour income.
Strengthening climate resilience
Adaptation governance remains fragmented, partly stemming from the absence of a clear national action plan with unified guidelines.	Establish a centralised national action plan that consolidates the existing sectoral and municipal adaptation strategies into a common framework.
Public funding for adaptation is insufficient and unstable, making long-term planning difficult. Unlike mitigation, adaptation funding is not fully mainstreamed into Sweden’s budget process.	Mainstream climate change adaptation into the national budget process similarly to the approach taken for climate mitigation.
Many property owners neglect risk-reducing investments, despite legal responsibilities, due to a lack of awareness and the expectation that the government will cover climate-related losses.	Encourage insurers to adopt risk-based insurance premiums to incentivize property owners to take adaptation measures and to offer insurance discounts for property owners who invest in risk-reduction measures.
Sweden has historically been a leader in climate action but has reversed course in recent policy shifts.	Ensure that Sweden remains on track to meet its 2030 emissions targets, notably by reversing recent climate policy rollbacks, including fuel tax cuts.
Improving housing supply
Property tax revenue is low and only a minor share befalls municipalities, reducing their capacity to invest in services associated with new housing.	Delegate authority to municipalities to collect taxes on the market value of property and set their rates.
Rent controls hold back construction, tie up housing in inefficient uses, and lead to overcrowding, social segregation and weakened mobility of low-income households.	Abolish rent controls for new-built housing units and phase them out in the existing housing stock. Aid the transition by implementing a system for needs-tested social housing.
Coordination issues between municipalities and regions, resistance from incumbent property owners, and a cumbersome environmental permitting procedure are complicating infrastructure projects and regional development.	Streamline environmental permitting procedures and consider limiting the municipal veto for projects with high societal value straddling municipal borders.
Raising skills and labour market outcomes
National tests in core subjects are graded locally, which introduces biases within and between schools.	Grade national tests externally to create an objective benchmark for school performance as planned and remove differences in grading leniency.
Upper secondary vocational education and training is unpopular, and there are issues relating to coordination and over-supply of programmes with weak labour market relevance. It is less responsive to labour market needs than the higher vocational education model.	Run a pilot to coordinate upper-secondary vocational education centrally as is done in higher vocational education, with the aim to transition the whole system to the new model if successful.
Universities are key to Sweden’s ability to innovate and swiftly internalise innovations at the global scientific frontier.	Consider funding options to facilitate more research and more teaching hours per student.
Funding of active labour market policies has fallen while the number of long-term unemployed has risen. The share of funding allocated to training is very low.	Strengthen activation policies and prioritise up-skilling and re-skilling activities.
An increasing share of the unemployed have clear up-skilling needs, but red tape holds back the use of training and employment subsidies with proven effectiveness.	Organise activation policies according to effectiveness and the needs of the unemployed in risk groups rather than according to budgetary and organisational silos.
The new Transition and Retraining Programme offers experienced workers five times more generous grants than what is available in ordinary student finance.	Reduce the grant part of the new Transition and Retraining Programme to better align it with normal student finance and make it available to more participants.