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Quick Facts
- Population:
- GDP (PPP):
- $498.1 billion
- 4.1% growth
- 2.2% 5-year compound annual growth
- $49,836 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Sweden’s economic freedom score is 76.3, making its economy the 15th freest in the 2018 Index. Its overall score has increased by 1.4 points, with improvements in judicial effectiveness, government integrity, and property rights outpacing lower scores for the business freedom and monetary freedom indicators. Sweden is ranked 8th among 44 countries in the Europe region, and its overall score is above the regional and world averages.
Sweden’s enviable living standards result from an economy that performs optimally because of regulatory efficiency and open-market policies that enhance flexibility, competitiveness, and large flows of trade and investment. A transparent regulatory regime encourages robust entrepreneurial activity. Banking regulations are sensible, and lending practices have been prudent. The legal system provides strong protection for property rights, buttressing judicial effectiveness and government integrity. The government will have to proceed cautiously when executing its plan to inject significant fiscal stimulus through the 2018 budget.
Background
Sweden joined the European Union in 1995 but rejected adoption of the euro in 2003. A general election was held in 2014. After difficult negotiations, a center-left Social Democratic Party–Green Party coalition government took office. Led by Prime Minister Stefan Löfven, it has largely maintained the fiscal discipline of its center-right predecessors while promising expanded welfare spending. Large numbers of migrants have arrived over the past two years. Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Economic growth has slowed, but the unemployment rate remains below the EU average. A gruesome April 2017 terrorist attack in Stockholm brought terrorism back to the fore ahead of elections due by 2018.
Swedish law generally provides adequate enforcement of contracts and protection of all property rights, including intellectual property and real property. The rule of law is well maintained, and the judicial system operates independently, impartially, and consistently. Rates of corruption are low. Sweden was ranked fourth out of 176 countries in Transparency International’s 2016 Corruption Perceptions Index.
The top personal income tax rate is 57 percent, and the top corporate tax rate is 22 percent. Other taxes include value-added and capital gains taxes. The overall tax burden equals 43.3 percent of total domestic income. Over the past three years, government spending has amounted to 50.6 percent of total output (GDP), and budget deficits have averaged 0.5 percent of GDP. Public debt is equivalent to 41.7 percent of GDP.
Sweden’s well-trained and educated workforce, low corporate tax rates, excellent infrastructure, relatively easy access to capital, and general lack of corruption facilitate entrepreneurial activity. Transferring property was made easier in 2016. The nonsalary cost of labor is high, and dismissing a worker is costly and burdensome. There are few price controls, but the government subsidizes various renewable energy schemes.
Trade is significant for Sweden’s economy; the combined value of exports and imports equals 84 percent of GDP. The average applied tariff rate is 1.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial sector has regained much of its stability and offers a wide range of financing options. Banking regulations are sensible, and lending practices are prudent.