The Economy of Sweden - Industry & Market Trends in 2023

For the last 50 years, Sweden has been a prosperous country. Although economic growth stagnated during the last two decades of the 20th century, the past decade has seen a phenomenal surge in growth, thanks to significant gains in productivity that have placed Sweden well above the average for advanced EU nations. Furthermore, the government’s persistent efforts to expand the industry’s research and development investment, as well as Sweden’s increased strategic presence in the EU, have further brightened the country’s outlook.

Sweden is likely face a recession in this year (2023). However, growth is projected to quickly pick up its face after 2023 and grow at an average rate of 2%. Pressured put forth by the Russian invasion to the Ukraine has put further pressure on the Swedish economy.

To counter the rising inflation, the Riksbank raised its policy rate by 50 basis points to 3% at its February meeting, the highest rate in 15 years. Some low margins industry may suffer throughout the year. Some economists predict interest rate will be raised to 3.5% in the spring.

From a long term’s perspective, the following factors will have the greatest impact to the economy of Sweden.

Exceptional welfare system, and an aging society: Sweden’s working-age population is projected to rise in the near future, mainly due to net immigration. However, the proportion of the working-age population in the total population is expected to gradually decrease over the long term due to the aging population. One of the primary policy challenges in the long term is financing increasing public expenditure on healthcare.

Raising the employment rate to achieve a growing tax base and expand the effective labor supply will be difficult since Sweden already has one of the highest labor force participation rates in the OECD. However, there is room for improvement in the participation rates of specific groups, such as young people and immigrants, which could increase overall labor utilization rates. While the large-scale immigration from the Middle East in 2015-16 could potentially boost Sweden’s demographic outlook, integrating a significant proportion of the newcomers into productive sectors of the economy remains a significant challenge. Additionally, the pace of migration in 2015 raised immigration as a top concern among voters, further complicating policymaking in this area.

Liberal Sweden put to the test as protectionism rise: Sweden’s economy heavily relies on trade and would benefit from continued gradual liberalization of EU trade with other parts of the world. However, since multilateral trade liberalization talks have stalled, any progress is more likely to come through bilateral agreements at the EU level. Further liberalization of trade could help gradually boost demand for Swedish services, but Sweden’s reliance on exports also makes it vulnerable to the global business cycle and potential reshoring of supply chains.

Despite the slowdown of emerging-market growth in recent years, Sweden is likely to continue focusing on high-tech, high-skills industries and services, and can still benefit from the rising wealth in emerging economies, although it may lose some traditional export companies due to competition from lower-cost emerging markets. Although the EU’s long-term growth will be lackluster due to adverse demographic trends, constrained public finances, and slow implementation of structural reforms, liberalization of trade in services within the EU should continue slowly. As a result, Sweden’s largest export market, although large and wealthy, will remain sluggish.