Boosting workforce participation and better facilitating green transition key priorities for Sweden: OECD


14/06/2023 - Sweden’s economy emerged from the pandemic in relatively good shape, but is now under pressure from high living costs and rising interest rates, according to the new OECD Economic Survey of Sweden.

While Sweden’s direct trade and financial links with Russia and Ukraine are limited, the energy crisis triggered by Russia’s war of aggression against Ukraine drove up inflation and interest rates, lowering real wages and causing a drop in housing prices of almost a fifth from a March 2022 peak.

Consumer and business confidence have fallen, with rising borrowing costs also taking a toll on household incomes and property companies facing challenges refinancing debts.

The Survey projects Sweden’s GDP growth to resume in 2024 to 1.4% after a mild contraction of 0.3% in 2023. CPI Inflation peaked at a 30-year high of above 12% in December 2022, and is projected to ease gradually to 2.4% in 2024, though projected to average 6.6% in 2023, remaining high in the near term. Sweden should stand ready to further tighten monetary policy if necessary.

The Swedish economy would benefit from structural reforms to boost work incentives, better match skills to demand, encourage labour mobility and better integrate underutilised groups such as foreign-born women into the labour market.

© OECD Economic Surveys: Sweden 2023 - Inflation has peaked at a 30-year high“Inflationary pressures remain broad-based in Sweden and are expected to remain high this year. Monetary policy tightening has helped to contain long-term inflation expectations. Further measures, informed by careful monitoring of the economic data coming through, will be necessary until there are clear signs that underlying inflationary pressures are durably lowered,” OECD Secretary-General Mathias Cormann said, presenting the Survey in Stockholm alongside Minister of Finance Elisabeth Svantesson. “While responding to the immediate economic challenges, it will be important for Sweden’s policy makers to increase workforce participation by reforming employment services, taxes and benefits, and ensure climate policies and emissions reduction incentives continue to drive the green transition.”

Sweden also needs to keep up its long track record as a frontrunner on reducing greenhouse gas emissions. While climate-conscious companies are propelling a green industrial revolution, the government should further support this with ambitious action to boost investment in green power supply. Sweden needs to expand electric vehicle use to cut transport emissions, and find ways to bring down emissions from agriculture, after recent policy changes threaten to put the country’s 2030 emission-cutting target out of reach.

Sweden has more than halved its greenhouse emissions since the 1970s, one of the biggest drops among OECD countries, and has effective climate policies in place that include carbon pricing, green subsidies and regulations. However, a recent proposal to reduce the requirement of mandatory biofuel blending over cost concerns, and other proposed policy changes, would make it difficult for Sweden to meet its 2030 emissions reduction target.

A green industrial revolution is taking place in Sweden’s North which has already produced the world’s first vehicle made from fossil-free steel. This momentous transformation will roughly double electricity demand by 2045. While the region has an abundant supply of clean energy sources today, investment is urgently needed in renewable and nuclear power as well as storage and transmission. Simplifying complex planning and permitting procedures would help to unleash such investment. There is also a need to improve skills and draw talent from across Sweden and abroad, to fill demand for workers in industry and related public services in a part of the country that has suffered from demographic decline. Municipalities spearheading the green transition should invest in housing, services and infrastructure.

Sweden’s progress towards its climate change goals could also be enhanced with further improvements to its public governance system, according to a Public Governance Monitor of Sweden launched in parallel with the Economic Survey. The Governance Monitor suggests putting in place more robust mechanisms for coordinating and managing progress towards Sweden’s commitments in crosscutting areas ranging from climate and digitalisation to gender equality and integrity. Sweden’s framework for public sector integrity should also be strengthened to improve integrity across levels of government, particularly at the regional and local level. In addition to improving mechanisms for public participation, this would contribute to strengthening trust in government, thus facilitating the implementation of reforms.

More generally across Sweden, persistent long-term unemployment in the wake of the COVID-19 pandemic has coincided with a high level of job vacancies; with unemployment set to increase as Sweden’s economy contracts in the near term. Many low-skilled, foreign-born and elderly people find it difficult to succeed in a labour market where a compressed wage distribution demands excellent skills and productivity. High labour taxes and recent changes to the pension system also tend to reduce incentives to work.

The Economic Survey recommends reforms to taxes and benefits to strengthen work incentives and careful implementation of the employment services reform to try and bring more under-utilised workers into employment. Relaxing rent controls could help to improve labour mobility.

Correcting the large differential between labour taxes and taxes on capital income would give people with high earnings less incentive to reclassify labour income as capital income. Property taxes, which are currently low, could also be raised. A recalibration in favour of earnings-related pensions could help to safeguard the long-term sustainability of the pension system and extend working lives in light of an ageing population.


See an Overview of the Survey with key findings and charts (this link can be included in media articles).

For further information, journalists are invited to contact Catherine Bremer in the OECD Media Office (+33 1 45 24 80 97).

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