J ./ :. 2. b. 10. OECD ECONOMIC SURVEYS ii ;i s \ i i $ .\ i i 0 'i ; h li ! 'I 0 i 'i 'i i ') >: 0 - u V1 : ii .m i n 'i .\ 'i D n : / ; i o SWEDEN ;i S .\ I I S .\ i l il I fl : i) i) i.l V i ;l .11 I il 'I : I il : i] : I ; I i| ; i1 : .',1 i 1 I : i; n l i) '.I I il II : S APRIL 1971 BASIC STATISTICS OF SWEDEN THE LAND Area (1 000 sq.km) 450 Inhabitants in major cities, in Lakes (1 000 sq.km) 39 cluding suburbs (end of 1969), Arable area (1 000 sq.km) 31 thousands: Woodland (1 000 sq.km) 228 Stockholm 1 307 Gothenburg 661 Malmo 436 THE PEOPLE Population (end of 1970) i093000 Net natural increase per 1 000 No. of inhabitants per sq.km 18 inhabitants (average 1966-1970) Net natural increase (average 1966- Net immigration (average 1966- 1970) 34260 1970) 28600 PRODUCTION Gross Domestic Product in 1970 Gross fixed capital formation in (Kr. million) 162120 1970: GDP per head, US * 3870 Per cent of GDP 22 Per head, US S 860 Employment: Total civilian (thousands) 3863 Per cent of total: Agriculture, forestry, fisheries 8.1 Industry 28.7 Other 63.2 THE GOVERNMENT Per cent of GDP in 1970: Composition of Parliament (No. of seats): Public consumption 23 General government current reve¬ Social democrats 163 nue 50 Liberals 58 Public gross fixed capital forma¬ Conservatives 41 tion 8 Centre 71 Per cent of general government Communists 17 revenue m 1970: Public debt, end of 1970 44 350 Fiscal year: Central government: 1st July-30th Last general election: September 1970 June Next general election: September 1973 Local authorities: calendar year FOREIGN TRADE Exports of goods and services as Imports of goods and services as per cent of GDP (average 1966- per cent of GDP (average 1966- 1970) 23 1970) 24 Main exports in 1970 (per cent Main imports in 1970 (per cent of of total merchandise exports): total merchandise imports): Forestry products 23 Engineering products (excluding Engineering products (excluding ships, etc.) 30 ships) 38 Raw materials (non-edible) and Iron and steel 9 fuels 15 Iron ore 4 Metals and metal products 14 Food, beverages and tobacco 11 THE CURRENCY Monetary unit: Krona Currency units per Us $: Note An international comparison of some basic economic and demographic statistics is given in Annex Table P. OECD ECONOMIC SURVEYS SWEDEN ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT p/ The Organisation for Economic Co-operation and Developments (OECD), was set up under a Convention signed in Paris on 14th December, 1960, which provides that the OECDshallpromotepolicies designed: to achieve the highestsustainable economicgrowth and employment and a rising standard of living in Member countries, while maintaining financialsta¬ bility, and thus to contribute to the development of the worldeconomy; to contribute to sound economic expansion in Member as well as non-member countries in the processofeconomicdevelopment; to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accord¬ ance with internationalobligations. The Members of OECD are Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the UnitedStates. The Socialist Federal Republic of Yugoslavia is asso¬ ciated in certain work of the OECD, particularly that of theEconomicandDevelopmentReview Committee. The annual review of Sweden by the OECD Economic and Development Review Committee took place on 9th March 1971. The present Survey has been updated subsequently. CONTENTS Introduction I Longer-TermDevelopments 6 The 1966-1970 Survey 6 TheBalanceofPayments Problem 7 ThePattern ofForeignTrade 10 The 1971-1975 Survey 11 II RecentTrendsandProspects 16 The 1969-1970Boom 16 EconomicPolicy 20 PublicFinance 22 TheTaxReform 26 MonetaryPolicy andDevelopments 26 IncomesPolicy 30 Man Power Policy 32 Short-TermProspects 33 Exports 34 DomesticDemand 35 OutputandEmployment 38 BalanceofSupply andDemand 40 BalanceofPayments 43 TH Conclusions 44 Annex Note on Text Tables 9 and 11 47 TABLES Text: 1 Forecasts andOutcome, 1966-1970 7 2 Current Balance of Payments, 1965 and 1970 8 3 The External Capital Account, 1965 and 1970 9 4 Long-Term Trends in Population and Labour Force 13 5 LabourProductivity 14 6 ExportProspects 14 7 External Balance 1973 or 1975 15 8 Supply and UseofResources 16 9 AnalysisoftheGrowthofGDP 18 10 Trends inPublicRevenue and Expenditure 23 11 FiscalPolicyAssessment 25 12 CentralGovernmentFinance 26 13 Liquid Resources andMoney Supply 27 14 TheCreditMarket 29 15 TheMarketfor Securities 29 16 StimulationofMobility 32 17 LabourMarketMeasures 33 18 Trends inMerchandiseExports 34 19 Gross FixedAssetFormation 35 20 ConsumerPrices 38 21 Productionby Sector 38 22 Prospects for GDP in 1971 40 23 Trends inMerchandise Imports 41 24 BalanceofPayments Prospects 43 Statistical Annex: 53 A Supply andUse ofResources, currentprices 55 B Supply andUseofResources, 1959prices 56 C GrossFixed AssetFormation, 1959 prices 57 D Income and Expenditure of Households and Private Non-Profit Institutions 58 E Central GovernmentRevenue andExpenditure 59 F The National Pension Insurance Fund 60 G Balance ofPayments 61 H QuarterlyNationalAccounts 62 I LabourMarket 63 J Production, Demand and Employmentby Sector 64 K ForeignTrade, Total andbyArea 66 L Imports: Value, Volume, Prices andbyCommodityGroup 67 M Exports: Value, Volume, Prices andbyCommodityGroup 68 N Prices andWages 69 O Money and Credit 70 DIAGRAMS 1 Demand Pressure, Prices and Labour Income 17 2 UnitLabour Costs inManufacturing 19 3 Basic Policy Indicators 21 4 Household Incomes andExpenditure 36 5 BusinessTendencySurvey: Engineering 39 6 Trends inForeign Trade 42 A Swedish ImportBehaviour 52 INTRODUCTION After rapid expansion in 1969 the growth of demand and output was slower in 1970. Exports of goods and services in volume terms rose significantly less than in 1969 and the expansionary impact on the economy of the public sector was strongly reduced due to restraints on public investment and tax measures. Dwelling construction contracted and business investment was less buoyant than in 1969. The slowdown of final domestic demand seems to have started already in the early months of 1970 but exceptionally high stockbuilding in the first part of the year helped to maintain the growth of total demand. From mid-year, however, demand pressures eased rapidly and there was a major improvement in the balance of merchandise trade, from a record high deficit in the first half to a small surplus in the second. Prospects for 1971 point to a growth of GDP somewhat below capacity, with a moderate current external deficit, representingamajor improvement overlastyear's outcome. Price inflation has emerged as a major short-term problem. The rise in consumer prices accelerated in the course of 1969 and 1970 and a signi¬ ficant further rise is envisaged in 1971, partly as a result of the rise in TVA on 1st January 1971. The increase of export and import prices experienced in 1970 has been a major source of inflationary developments through the expansionary impact on profits in export industries, the demonstration effect on wage claims, and the direct price and cost effect of imports. Although a moderately expansionary fiscal and monetary policy may seem appropriate in 1971 in order to sustain a reasonable degree of resource utilisation, it is important that such a policy is carried out with due regard to theneed toreducetherateofinflation and to longer-termpolicy objectives. Medium-term forecasts prepared by the Ministry of Finance indicate that the attainment of the official objective of external equilibrium may require a restrictive demand management policy coupled, however, with selective measures to stimulate business investment in order to ensure an improvement of the balance on merchandise trade necessary to offset the envisaged secular deteriorationon services and transfers. This year's Survey is divided into two main chapters. The first is devoted to longer-term developments: an analysis of the outcome of the previous five-year period and a review of the new Medium-Term Survey which has recently been published. The second chapter deals with short-term developments and prospects for 1971, including a section on recent policy trends. Short- and longer-term policy requirements are discussed inthe Conclusions. OECD Economic Surveys I LONGER-TERM DEVELOPMENTS The 1966-1970Survey:ProjectionsandOutcome Longer-term trends and problems of the Swedish economy were last reviewed by the OECD in early 19661 on the basis of a five-year survey2 prepared by a group of economic experts of the Ministry of Finance to serve as a guide for economic policy. The projections included certain target elements and were designed to illustrate the conditions under which the economy could move towards an overall balance which would reconcile the main macro-economic policy aims. It is important to note that the forecasts were established at a time when the economy was entering the later stage of a strong boom with diminishing productivity advances, tight labourmarketconditions and ahigh currentbalanceofpayments deficit. As it happened, the Survey covered a whole business cycle with high demand pressures at the beginning and the end of the period. Between mid-1966 and mid-1968 the situation was characterised by recessionary tendencies which subsequently gave way to a new strong upswing which by the middle of last year seemed to have passed its upper turning point. In assessing the longer-term performance of the economy notably with regard to the balance of payments allowance will have to be made for differences in the cyclical position of the economy although this cannot be done with anygreatprecision. At the time of publication of the 1966-1970 Survey the Swedish economy had just experienced a severe setback in the balance of payments. Although this was related to a high level of inventory formation in 1965, the steep rise in domestic wage costs in 1964 and 1965 was also held responsible by the authorities. The return to a stronger current balance of payments, enabling a marked increase in development aid and some strengthening of the external reserve position, was therefore considered a major policy objective requiring a high rate of investment in the export industries and necessitating restrictions on the growth of other domestic demand components. The main features of the 1966-1970 developments compared with the originalprojectionswere: (i) The actual growth of GDP (3.9 per cent per annum) was roughlyinlinewith theforecast (4.1 per cent)3. (i'0 Total employment (hours worked) fell on average by 0.9 per cent per year against the original forecast of 0.3 per cent. Overalllabourproductivitythus rosemore thanexpected. (Hi) Gross fixed asset formation rose on average by 3.4 per cent, much less than the forecast 5.1 per cent. Nevertheless, capital productivity developed morefavourably than envisaged, suggesting amore efficientuse ofthe capital stockthan earlier. 1 SeeEconomicSurveyofSweden, OECD, March 1966. 2 See The Swedish Economy 1966-1970, The Ministry of Finance, Stockholm, May 1966. 3 The original forecast of 4.2 per cent has been adjusted to take account of a subsequent changeinnational accounts definitions. Sweden (iv) Exports and imports (goods and services) rose much faster than originally expected, reflecting but also contributing to more rapid structural changes and a higher degree of specialisation of the Swedisheconomy, (v) The current balance of payments showed a deficit in 1970 of as much as 1.1 per cent in terms of GNP whereas the original objective was to reach a small surplus in the course of the 1966-1970period, (vi) The external reserve position deteriorated substantially between theendof 1965 and the endof 1970. The main difference between projections and outcome concerned the balance of payments, notably the current account. An analysis of the main factors behind the apparent weakening of the external position may therefore be useful. Moreover, it is of some interest to consider the marked changes in the geographical pattern of foreign trade, especially the sharpincreaseinintra-Nordictrade. Table 1 Forecasts and Outcome, 1966-1970 Percentagevolumechangeperyear Forecasts Outcome (1965 Survey) Grossdomesticproduct 4,1 3.9 Privateconsumption 3.4 3.4 Publicconsumption 4.5 5.2 Grossfixedassetformation 5.1 3.4 Source: TheSwedishEconomy 1971-1975. Notb Due to the introduction of new national accounts definition (SNA) a detailed comparison of the original 1965 Survey's forecast with outcome for the period is not possible. The 1965 forecast given above is obtained through a rough adjustment for estimated effects of the main changes between the old and new national accounts definition and therefore differs somewhat from the figures intheoriginal 1965 Survey. TheBalanceofPaymentsProblem The 1970 deficit on merchandise trade was generated at a very high level of inventory formation which boosted the growth of imports between 1969 and 1970. Although the level of stocks at the end of 1970 was not considered to be excessively high it is nevertheless clear that the trade deficit in 1970 was strongly inflated by the abnormally high net addition to stocks and to that extent was of a temporary nature. Indeed, according to preliminary estimates stock-building in 1970 amounted to as much as 3 per cent of GNP at current prices (3.2 per cent in constant 1965 prices) which compares with an average, and perhaps normal, rate of stock formation during the 1966-1970 period of less than 1.4 per cent. Assuming an import content of inventory accumulation of about 50 per cent, which may be too low, the underlying level of imports in 1970 might have been $270 million lower than was actually recorded. This implies that the trade account fob/cif in 1970 adjusted for the impact of the stock cycle wouldhavebeenin approximatebalanceinlinewith the 1970target. OECD Economic Surveys Table2 durent Balance of Payments, 1965 and 1970 $ million 1970 196S1 1966-1970 Outcome' Survey* Merchandiseexports,f.o.b. 4011 5519 6782 Ships 271 271 355 Other 3740 5248 6427 Merchandiseimports,c.i.f. 4398 5673 7005 Trade balance -387 -155 -223 Shipping,net 309 309 400 Otherservicesandtransfers,net -174 -290 -656 Errorsandomissions4etc. 77 77 155 Current account -174 -585 -324 Current account, target 68 1 Preliminaryestimatefor 1965utilisedinthe1966-1970Survey. 2 1965prices,butonlysmallprice changeswereexpected. 3 Currentprices. 4 Officialestimateofunrecordedcurrentearnings. 5 Forecastbasedonano-policychangeassumption. Sources: TheSwedishEconomy 1966-1970andPreliminaryNationalBudgetfor1971. While there is little doubt that the abnormally high stockbuilding was an important element in the trade account deficit in 1970 any attempt to quantify this factor should be considered as highly tentative. Statistics on inventory accumulation are not very reliable and particularly uncertain as far as the 1970 estimates are concerned. Moreover the import content in stockbuilding cannot be calculated with any great precision and there is reason to assume that in 1970 it had been higher than average. On the other hand, a lower demand for inventories in 1970 would have left some scopefor afasterrealexpansion ofother components ofdemand. However, the main reason why the Swedish balance of payments failed to improve in line with the policy targets lies not with the trade balance but with the unfavourable development of net expenditure on services and transfers, excluding shipping. The strong rise in recorded net expenditure on tourism is in a large measure due to a rapid expansion of organised flights to abroad but since the payments estimates are based on statistics on sales of foreign currency, net purchases of Swedish banknotes from abroad and transfers via commercial banks, many other transactions are in fact recorded as expenditure on tourism: frontier trade (e.g. Swedish housewives shopping in Denmark where food prices are substantially lower) or transfers in the form of banknotes of savings by foreign workers. The number of gainfully employed foreign workers rose by 43 per cent from 146 000 persons in April 1965 to 209 000 in April 1970 (229 000 in January 1971). The rise appears to have been particularly pronounced in those categories of foreign labour which used to stay for relatively short 8