The Country-specific Recommendations are documents prepared by the European Commission for each country, analysing its economic situation and providing recommendations on measures it should adopt over the coming 18 months. They are tailored to the particular issues the Member State is facing and cover a broad range of topics: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, etc. The final adoption of Country-specific Recommendations prepared by the Commission is done at the highest level by national leaders in the European Council.
The Swedish economy remains one of the most competitive in the EU, and has weathered the crisis relatively well in terms of growth, employment and public finances. In April 2013, the Commission concluded that the country is experiencing macroeconomic imbalances when it comes to private sector debt and the housing market, which deserve continued attention.
Sweden has made some progress in addressing the 2012 CSRs, particularly the challenges in the labour market. Sweden has also made some efforts to address problems in the housing and mortgage markets and has adopted a well-defined innovation strategy, which should pool resources and make the country more competitive by addressing the future needs of the research sector.
Nevertheless, Sweden faces major challenges with regard to private sector debt, housing market uncertainties and the integration of vulnerable groups in the labour market. Over the medium term, research and development will remain a concern as private investment in research dwindles.
2013 European Commission's recommendations for Sweden in brief
The Commission has issued four country specific recommendations (CSRs) to Sweden to help it improve its economic performance. These are in the areas of:
- Sustainable public finances
Sweden is doing well on the fiscal front. While expansionary policies and a continued rise in unemployment are expected to lead to a deficit of 1.1% of GDP in 2013, an improvement to the deficit of 0.4% is projected for 2014 on account of accelerating economic activity. Sweden is likely to continue to meet its medium-term budgetary objective – fixed at a structural deficit of 1% of GDP. Gross government debt is projected to remain low, around 40% of GDP in 2013 and 2014. Against this background, Sweden is recommended to keep up measures to preserve a sound fiscal position and to pursue a growth-friendly fiscal policy.
- Private indebtedness (households and corporate sector)
High private sector debt (235% of GDP in 2012) continues to be a matter of concern in Sweden. The high level of household debt of around 80% of GDP (roughly 170% of disposable income) exposes households to risks related to possible drops in house prices or interest rate increases. Incentives to borrow should therefore be phased out, including the current tax deductibility of interest payments, low recurrent property taxes and low amortization requirements for mortgages. Corporate debt is also substantial, at around 149% of GDP, partly driven by a debt-bias in taxation, which should be further reduced.
- Housing market
Constraints in the housing supply remain in Sweden, and are exacerbated by rent control, cumbersome planning and limited competition in the construction sector. Together with debt-inducing housing taxation, these inefficiencies tend to create an upward-bias in house prices. At present, it often takes several years to launch a new construction project due to lengthy processes at the municipal level. Streamlining these processes would increase the flexibility of housing supply, foster competition in the construction sector and decrease construction costs. Further reforms to the rent-setting system are also needed to allow market forces to establish an optimal supply of rental housing at an adequate price.
- Labour market integration (low-skilled youth and people with migrant background)
The Swedish government has taken a number of measures to further integrate young people and people with a migrant background into the labour market, but unemployment in these groups remain high (youth unemployment increased to 25.1% in March 2013, which is above the EU average, while at 30.6%, the unemployment rate for non-EU nationals exceeds the EU average of 21.3%). The employability of these groups should be improved through stronger and better targeted measures, and efforts should be stepped up to facilitate the transition from school to work, including via a wider use of apprenticeships and other forms of contracts combining employment and education.
See how Sweden compares with other EU Member States in key areas
European Semester Documents