The Swedish economy: a snapshot 15 October, 2018 Joakim Sonnegrd - PowerPoint PPT Presentation

The Swedish economy: a snapshot 15 October, 2018 Joakim Sonnegård and Niklas Frank 1

Sweden during the Financial Crisis ▪ Despite a 5% drop in GDP in 2009 and a typically high fiscal balance elasticity, Sweden: ➢ Moderate drop in the fiscal balance; ➢ Recovered to pre-crisis GDP in 2010. ▪ Very different from the crisis in the early 1990s: ▪ Key explanations for Sweden’s good performance: ➢ Important reforms were undertaken during the 1990s; ➢ No structural imbalances – no domestic amplification mechanisms; ➢ Strong budget before the crisis; ➢ A strong Finance Minister supported by a politically well-established fiscal framework. 2

Growth and Unemployment 1970 – 2017 Percent of GDP 12 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 GDP growth (OECD) GDP growth (Sweden) -4 -4 Unemployment rate (OECD) Unemployment rate (Sweden) -6 -6 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 3

General Government Net Lending 1970 – 2017 Percent of GDP 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10 -12 -12 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Net lending Average, 2000-2017 4

General Government Gross and Net Debt 1970 – 2017 Percent of GDP 100 100 80 80 60 60 40 40 20 20 0 0 -20 -20 -40 -40 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 General Government Gross Financial Liabilities, as A Percentage of GDP General Government Net Financial Liabilities, as A Percentage of GDP 5

100 150 200 250 % of GDP -6 -4 -2 50 Public finances 2017 0 2 4 6 0 Malta Estonia Cyprus Luxe… General government net lending Gross public debt Czech Republic Bulgaria Luxembourg Czech… Sweden Roma… Germany Denm… Netherlands Lithua… Denmark Latvia Bulgaria Sweden Greece Poland Croatia Malta Lithuania Slovakia Slovenia Nethe… Estonia Finland Germ… Ireland 6 Latvia Ireland Hungary Finland Slovenia Austria Croatia Euro Area Austria EU EU Belgium United… Slovakia Euro.… Poland France United… Cyprus Hungary Spain Italy Belgium France United… Romania Portugal Portugal Italy Spain Greece Japan Japan United States 0 50 100 150 200 250 -6 -4 -2 0 2 4

A Comprehensive Makeover during the 1990s EU membership in 1995; ▪ Election periods extended to 4 years; ▪ ▪ A new tax system; ▪ A new monetary-policy framework; ▪ Tough fiscal consolidation (1993-1998, ~ 11% of GDP); ▪ A new fiscal framework; ▪ A new contributions-defined pension system; ▪ Reforms of wage bargaining; ▪ Deregulations of product and service markets; ▪ General labour market reforms (until 2010). 7

Labour participation rate and employment rate 8

Sweden: highest employment rate in EU… Procent av befolkningen 70 70 65 65 60 60 55 55 50 50 45 45 40 40 Estland Sverige Tyskland Nederländerna Storbritannien Danmark Österrike Tjeckien Litauen Lettland Irland Slovenien Finland Portugal Luxemburg EU-28 Ungern Slovakien Cypern Polen Malta Rumänien Bulgarien Frankrike Belgien Spanien Kroatien Italien Grekland Källa: Eurostat.

High employment rate in an international perspective (20-64 år, 2017) Källa: Eurostat 10

Emplyment rate: orgin and sex Procent av befolkningen, 25-54 år 100 100 95 95 90 90 85 85 80 80 75 75 70 70 65 65 60 60 55 55 50 50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Kvinnor Utrikes Män Utrikes Kvinnor Inrikes Män Inrikes Källa: SCB (AKU).

Housing prices (HOX Sweden) [2] Index, Jan -05 = 100 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12

Household sector debt 1995-2017 Share of GDP, per cent 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 13

The Swedish Fiscal Framework ▪ A top-down approach for the adoption of the budget in the Parliament; ▪ Central government expenditure ceiling set 3 years in advance; decision by Parliament; ▪ A fiscal surplus target for general government net lending of 1% of GDP, on average, over the business-cycle. From 2019 the target is 1/3 % of GDP; ▪ From 2019 a “debt - anchor”: Maastricht debt amounts to 35 per cent of GDP. ▪ Balanced budget requirement for local governments; 14

The Swedish Fiscal Framework ▪ SGP + “Six - pack”; ▪ Not member of the EURO, but has ratified the Fiscal Compact; ▪ Since 2007, a Fiscal Policy Council with a broad remit (to facilitate transparency and accountability); ▪ Note: The strength of this framework depends on the political will to respect it… 15

THE END 16

Extra material on the Council 17

The set-up of the Fiscal Policy Council ▪ Established in 2007; ▪ An agency under the Government; ▪ Six members: ➢ Academics; ➢ Policy-making experience; ▪ Supplementary activities to ordinary jobs (mainly academic positions); ▪ Small secretariat: five persons; ▪ Annual budget  1 000 000 €; ▪ Provisions to safeguard the Council’s independence, such as a stipulation that the Council itself proposes its members to the Government. 18

THE RIKSDAG GOVERNMENT (Parliament) 24 Ministers The Committee 349 members on Finance 17 members Ministry of Finance The Riksbank 470 employees The Swedish National (Central Bank) Audit Office 400 employees 300 employees The Swedish National The National Institute Swedish Financial Management for Economic Research Fiscal Policy Authority 60 employees 160 employees Council The Council The agency 6 members 5 employees Chairman: Harry Flam 19

The tasks of the Fiscal Policy Council 1. Focus on ex post evaluation, with some ex ante evaluation; 2. Evaluate whether the fiscal policy meets its objectives: ➢ Long-run sustainability; ➢ Surplus target; ➢ The expenditure ceiling; ➢ Stabilization issues. 3. Evaluate whether the developments are in line with healthy sustainable growth and a sustainable high employment; 4. Monitor the transparency of the government budget proposals and the motivations for various policy measures; 5. Analyse the effects of fiscal policy on the distribution of welfare; 6. Contribute to a better economic policy discussion in general. 20

Has the fiscal policy framework worked? ▪ Generally successful implementation: ➢ Top-down approach is followed; ➢ Spending ceilings have not been breached (albeit some minor, and politically costly, examples of creative bookkeeping); ➢ Surplus target has not been met…0,4% on average; ➢ Broad political support: opposition wanted more spending during crisis, but less than 1% of GDP; ➢ The Fiscal Policy Council has increased the transparency and facilitated a higher quality of the political discussion. 21