OECD ECONOMIC SURVEYS 3 3 3 ,13 ) 3 .1 7 ) D 3 ? D 1\ 1 3 D 3 3 ?.l ) 3 3 3 = 3 ? 3 3 .1 7 ] 3 3 .13 3 3 § 7 I 1 3 ? 3 1 3 7 SWEDEN 3 3 3 .1 3 ] 3 } 1 ) 3 3 3 3 3 3 3 ? I 1) .17 ) 3 3 11 3 1 3 J V 1 1 3 ? ? 1 ?J 3 3 7 J 3 3 3 3 D ) !) !) 3 3 APRIL 1976 BASIC STATISTICS OF SWEDEN THE LAND Area (1 000 sq. km.) 450 Inhabitants in major cities. Lakes (I 000 sq. km.) 39 including suburbs (end of 1974). Arable area (I 000 sq. km.) 30' thousands: Woodland (I 000 sq. km.) 228 Stockholm 1 353 Gothenburg 688 Malmo 454 THE PEOPLE Population (end of 1975) 8208300 Net natural increase per 1 000 No. of inhabitants per sq. km. 20 inhabitants (average 1971-1975) 3.0 Net natural increase Net migration (average 1971-1975) 1 286 (average 1971-1975) 24583 PRODUCTION Gross Domestic Product in 1974 Gross fixed capital formation in 1974: (Kr. million) 249820 Per cent of GDP 22.2 GDP per head. US» 6895 Per head. US* 1 530 Employment, 1975: Total civilian (thousands) 4062 Per cent of total: Agriculture, forestry, fisheries 6.4 Industry 29.3 Other 64.3 THE GOVERNMENT Per cent of GDP in 1974: Composition of Parliament (no. of seats): Public consumption 24 Social democrats 156 General government current revenue 51 Liberals 34 Public gross fixed capital formation 7 Conservatives 51 Per cent of general government revenue Centre 90 in 1974: Communists 19 Public debt, end of 1974 48 350 Fiscal year: Central government: 1st July-30th June Last general election: September 1973 Local authorities: calendar year Next general election: September 1976 FOREIGN TRADE Exports of goods and services as per cent Imports of goods and services as per cent of GDP (average 1970-1974) 27 of GDP (average 1970-1974) 26 Main exports in 1975 (per cent of total Main imports in 1975 (per cent of total merchandise exports): mercandisc imports): Forestry products 18 Engineering products Engineering products (excluding ships) 44 (excluding ships, etc.) Iron and steel 8 Raw materials (non-edible) and fuels Iron ore 3 Metals and metal products Food, beverages and tobacco THE CURRENCY Monetary unit: Krona Currency units per US*. average of daily figures: Year 1975 4.1514 February 1976 4.3732 NOTE An international comparison of certain basic statistics is given in an annex table. r OECD ECONOMIC SURVEYS rMcH!VES-| RfFÉPËNC£S SWEDEN ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisation for Economic Co-operation and Devel¬ opment (OECD) wassetupunderaConventionsignedin Parison 14th December, i960, which provides that the OECD shall pro¬ mote policies designed: to achieve the highest sustainable economic growth and employment and a rising standard ofliving in Member countries, while maintaining financial stability, and thus tocontributetothe developmentoftheworld economy; to contribute to sound economic expansionin Member as well as non-member countries in the process ofeconomic development; to contribute to the expansion ofworld trade on a multi¬ lateral, non-discriminatory basis inaccordance with inter¬ national obligations. TheMembersofOECDareAustralia,Austria,Belgium,Cana¬ da, Denmark, Finland, France, theFederal RepublicofGermany, Greece, Iceland, Ireland, Italy,Japan, Luxembourg, the Nether¬ lands, New Zealand, Norway, Portugal, Spain, Sweden, Switzer¬ land, Turkey, the United Kingdom and the United States. The Socialist Federal Republic ofYugoslavia is associated in certainworkofthe OECD, particularlythat ofthe Economic and DevelopmentReviewCommittee. TheannualreviewofSweden bytheOECD EconomicandDevelopmentReview Committee tookplaceon8thMarch, 1976. © OECD, 1976. Queries concerning permissions or translation right! should be addressed to: DirectorofInformation, OECD 2. rueAndré-Pascal. 75775 PARIS CEDEX 16, France. CONTENTS Introduction I 1975Developments 5 A Comparative Economie Performance 5 B Growing Domestic Demand 8 C Costs and Prices 12 D Foreign Balance 16 II Developments in the Labour Market and Employment Policy 16 Composition ofdemand and output 19 Public employment and policy measures 19 Longer adjustmentlag 20 in Demand Management Policies 21 Fiscal policy 21 Monetarypolicy 23 1976 28 IV The Outlook for 1976 29 Exports 29 Investments 31 Private consumption 33 Total demand, stock formation and output 34 Labourmarket conditions 34 Outlook for wages and prices 35 Balance-of-payments outlook 37 Medium-term outlook 37 V Conclusions 38 Annex Chronology ofMajor EconomicPolicy Events 41 TABLES Text: 1 Comparative Developments in Sweden and Selected OECD Countries 6 2 Merchandise Exports 6 3 Household Income and Expenditure 11 4 ConsumerPrices and Wages in Selected OECD Countries 14 5 Labour MarketIndicators 17 6 Public Sector Revenue and Expenditure 22 7 Monetary Policy Indicators 26 8 Supply and Use ofResources 30 OECDEconomicSurveys 9 Gross Fixed Asset Formation by Sector 33 10 Consumer Price Increases by Causal Factors 36 11 Balance ofPayments 36 StatisticalAnnex: A Supply and Use of Resources (Kr. billion, current prices) 47 B Supply and Use of Resources (Kr. billion, 1968 prices) 48 C General Government Revenue and Expenditure 49 D Balance of Payments 50 E Labour Market 51 F Production and Employment by Sector 52 G Foreign Trade, Total and by Area 53 H Prices and Wages 54 I Money and Credit 55 and 56 DIAGRAMS 1 Development ofGDP in Sweden and Major OECD Countries 7 2 Indicators ofCyclical Developments 9 3 Housing Starts 10 4 Price and Income Developments 12 5 Total Hourly Wage Costs (Manufacturing) in Selected OECDCountries 13 6 Trends in ForeignTrade 15 7 Labour Market Indicators 18 8 Actual and Estimated Development ofEmployment 20 y 9 Development in Money Supply and Foreign Reserves 25 10 Budget Deficit, Foreign Reserves, and Changein Money Supply in 1975 27 II Financial balances by Sector and the Current External Account 28 12 Investments in Manufacturing 31 13 Business Surveysin Manufacturing 32 INTRODUCTION Swedenwas one ofthefew Membercountries which did not see afall in output and employment last year. Exports declined rather more than for the average OECD country, but owing to a marked increase in domestic demand, assisted by an active counter-cyclical policy, GDP rose slightly in real terms. Moreover, helped by the nature ofthe policy measures deployed and despite the fact that the rise in output fell below potential, unemployment declined to the lowest level ex¬ perienced in the last five years. The rise inprices was no higher than the OECD average but labour costs rose more than generally elsewhere. And, inevitably in view ofSweden'srelative cyclical position, the currentexternal accountdeteriorated. Prospects for 1976 obviously depend heavily on international developments. There are indications that exports of raw materials and semi-manufactures, which weigh heavily on Sweden's foreign trade, recovered towards the end of last year, probablyinfluencedbyachangeinthestockcycleinimporting countries. And with the upturn in activity now under way inmajor OECD countries, exports shouldrise rather strongly this year. Final domestic demand may increase even more than last year, but the rise in output will probably be rather moderate, as the advance in overall demand, particularlyexports, will be partlymetby areductionin inventories built up during the recession. Despite a likely albeit small increase in unem¬ ployment,pricesand wages maydecelerate onlylittle. Atthe sametime, the upturn in exports and a rather small rise in imports should combine to bring the trade balance back into surplus and reduce the deficit on the current account. PartI ofthe present Survey reviews developments in 1975, especially the com¬ parative strength ofdemand in Sweden, thecounter-cyclicalmeasuresapplied,price/ wage developments and the deterioration of the external account. The special features of the exceptionally strong improvement in labour market conditions are discussed in Part II against the background of the higher unemployment rates prevailing in the early seventies, while Part III describes monetary and financial developments, and the policy stance adopted for 1976. Prospects for 1976 are consideredinPartIVand PartVdrawstogetherthemainconclusions ofthe Survey. I 1975 DEVELOPMENTS A Comparative Economic Performance Table 1 compares Sweden's economic performance during the last recession with that ofother Member countries. The weakening ofexports was rather more pronounced for Sweden than for the two groups of OECD countries shown in the table. In fact, following some loss of market shares in 1974, Swedish exports fell much more than markets in 19751, probably influenced by two mainfactors: 1 AccordingtoSecretariatestimatesSwedishexportmarketsrose6Jpercentin1974butfell 6percentin 1975 . OECDEconomicSurveys (a) an unfavourable composition of exports. World trade in raw materials and semi-manufactures important Swedish export items fell sharply last year, reflecting notably sizeable inventory liquidation2; (b) a deterioration of Swedish industry'srelatiye cost position. Official esti¬ mates suggestthataboutone-third ofthe 13 percentdeclineinthevolume Table1 ComparativeDevelopmentsinSwedenandSelectedOECD Countries Percentagechangesinvolumeterms OtherSelected 7majorOECD Sweden OECD countries'* countries'' 1974 1975 1974 1975 1974 1975 GNP/GDP 4.2 4 -0.6 -2i 2.8 -1* Merchandiseexports 3.9 -11 9.2 -4i 4.0 -9* Total domesticdemand 6.4 2* -1.5 -2* 1.8 -li ofwhich: Privatenon-residentialinvestment1 10.5 -2 -1.6 -11 2.0 -5 Stockbuilding1 2.5 i -0.4 -2 0.7 -1* Memoitems: Unemployment1' 2.0 1.6 1.4-5.6 1.9-8.5 0.6-3.6 1.1-5.8 CurrentaccountinpercentofGNP/GDP -1.6 -2.2 -0.7 0.2 -0.4 -0.2 Consumerprices 9.9 9.8 13.3 9.8 11.4 10.5 1 Excludingtherathervolatileinvestmentinships,thechangesforSwedenare8and2percentfor1974and 1975 respectively. (cid:9) 2 ChangeaspercentofGNP/GDPinpreviousyear. 3 Percentofcivilianlabourforce. Sinceratesarenotcomparablebetweencountries,thefiguresincolumns3-6in¬ dicaterespectivelythehighestandlowestralesfor'thecountriesconcerned. 4 Canada,UnitedStates,Japan,France,Germany,ItalyandUnitedKingdom. 5 1974GNP/GDPweightsandexchangerates. 6 Austria,Belgium,Denmark,Finland,Netherlands.NorwayandSwitzerland. Sources:ThePreliminaryNationalBudgetfor 1976andOECDEconomicOutlook,December.. 1975. Table2 MerchandiseExports 1975 1973 1974 1975* 1976* Kr.bill. Percentagechange, volumes Minerals,ironandsteel 7.9 20.5 6.5 -23.0 0-2 Forestindustries1 12.8 18.0 -5.4 -28.5 13-18 Engineeringproducts 31.5 14.0 12.4 -2.5 -4-0 Ships -" 4.0 15.7 -4.3 23.0 14 Otherproducts* 15.9 14.5 -1.4 -10.0 3-5 Total 7Z1 15.7 3.9 -11.0 2-5 Memoitems: Final goodsexcludingships* 52.8 16.5 9.4 -9.5 -1-3 Rawmaterials 15.3 13.7 -7.6 -21.5 lli-13 1 Woodproducts,pulp,paperandboard. 2 Agricultural,foodandpetroleumproducts,non-ferrousmetalsandothermanufacturedgoods. 3 Paperandboard,ironandsteel,engineeringgoodsandothermanufacturedproducts. 4 Officialestimate. 5 SecretariatforecastonthebasisofthePreliminaryNationalBudgetfor1976. Non Sinceexportvaluesaredeflatedbyunitvalueindices,volumechangesdifferfromthosepresentedinTable8. Sources:ThePreliminaryNationalBudgetfor1976andearlier. 2 In total, Swedish exports ofraw materials fell by more than 20 per cent.(Table 2) and accountedforabout halfofthedeclinein overallmerchandiseexports. Sweden ofexports ofmanufactures (excluding ships) to the OECD areamayhave been caused by an unfavourable cost position8. Including the steep fall in netfreight earnings'tvôTume) and giventhe large share of exports in aggregate demand, the deflationary impactimparted by external develop¬ ments in 1975, about 3 per cent of GDP (secondary multiplier effects not included) was thelargestrecorded in the post-war period. Duringthe 1970-1974period there was on average an expansionary impact ofaround 2\ per cent. Despite this depressive influence, real GDP rose by \ per cent in 1975 (Dia¬ gram 1) reflecting relatively buoyant private domestic demand, as well as a strong rise in public consumption4. Two features of this performance are particularly interesting. Private non-residential investment, which had risen sharply in 1974, fell slightly in 1975, but the fall was much smaller than generally elsewhere, and reflected, inter alia, a sharp decline in investment in ships, which is a particularly volatile item5. Industrial investment showed a further rise ofaround 5 per cent in volume. Secondly, stockbuilding, which constituted a major deflationary factor in most Member countries, continuedtorisein Sweden, reflecting mainly a build-up of stocks ofexportable goods. Diagram1 DevelopmentofGDPinSwedenandMajorOECD Countries Increaseoverprevioushalf-year,annualrates % % 12 12 10 10 8 A 1 6 \\ /-\ r\ /"\ 6 \ V \ / i \ 4 -s -N rJ V 1 4 I 2 Sweden I1 2 1 0 0 \ \ -2 sbjofSeven'-»V*! -2 -4 \1 -4 * -6 -t -8 . -t 1964 1965 1966 1967 1968 19S9 1970 1971 1972 1973 1974 1975J 1976J 1 UnitedStates, Canada,Japan,France, Germany,ItalyandUnitedKingdom. 2 Secretariatestimatesandforecasts. Sources:Swedish National Accounts, the Preliminary National Budget for 1976 and OECD Secretariat. 3 Including an effective appreciation ofthé Swedish Krona ofabout 3|per cent, the price increaseofSwedishmanufacturedexports(17-18percent)exceededtheriseinaverageworldprices by7-8percentagepoints. 4 Theimplicationsforemploymentconditionsandthecentral andlocal governmentbudgets ofthedevelopmentinpublicconsumptionexpendituresarediscussedinPartsIIandTIL 5 Followinganincreaseofasmuchas45percenttheyearearlier,investmentinshipsfellby 40percentin1975,mainlyasaresultoftheslumpintheinternationalfreightmarket, whichhadan exceptionally largeimpact onthe Swedishfleet. Thus, bytheend oflastyear, about one-third of themerchant fleet waslaidup, andthelay-upratefortankers(46percent) wasthehighestinthe OECDarea. OECDEconomicSurveys B Growing Domestic Demand In part, the strong increase in domestic demand in 1974 and the continuing advance in 1975 reflected policymeasurestakenalreadyin 1973. Despite an expan¬ sionary policy and rapidly growing exports, domestic demand and output expanded relativelymoderately duringtheinternational boomin 1972/73. Bythe second half of 1973, however, the cumulative size of successive policy measures to stimulate demand became substantial, and a considerable expansionary momentum had developed which lasted through 1974 and into 1975 (Diagram 2). The expansion, helped by additional measures during thelast two years, was accompanied by a sharpincrease in profits in 1974, and business confidence remained unshaken well into 1975. Two policymeasures applied lastyearareparticularlyinteresting: (a) Earlyin 1975the authorities decidedthatenterprises undertakingbuilding investments should be allowed to draw on the ordinary investmentfunds8 throughout the year and on the special investmenTTuiïdrfôrtEê^sëcônd" halfofthe year7. The release offunds was subsequently extended to all types of investments including inventory formation and by the end of January 1976 applications, corresponding to 80 per cent of total funds available, had been approved. At the same time payments into the funds continued throughout 1975. (b) In addition, the authorities took measures to stimulate stockbuilding so as to avoid a weakening of aggregate demand due to inventory adjust- r~ments. Thus, a scheme was introduced for one year with effect from 1st July, 19758, entitling firms to compensation equivalent to 20 per cent i; of the rise in stocks, the proviso being that employment was not to \(cid:9)bereduced during the period concerned*. Moreover, the co-ordination of monetary policy with fiscal and other policies has been a major factor behind the growth of domestic demand. The increase in the supply ofmediumandlong-termcapitalandthe easyavailabilityofshort-termfunds played an important role. In these circumstances business fixed investment demand remained strong in 1975, particularly in manufacturing (Table 9) which during the three years 1973- 1975 expanded its real fixed asset formation by 25 per cent. Despite the inter¬ national recession and the marked weakening ofSwedish export orders asfromthe 6 AccordingtoSwedishtaxlegislation,firmsareallowedtosetasideacertainshareofprofits for future investment. These reserves, which are deductable from taxable income, are deposited intheCentral Bankandtheirrelease normallyduringunfavourablecyclicalconditions issubject toapproval bytheauthorities. 7 As noted in last year's Survey, two compulsory as opposed to the ordinary investment funds deposhschemeswereintroducedin1974,whicheffectively"froze"35percentofnettaxable profitsonclosed"Dankaccounts. Bytheend ofJune1975 ordinaryandcompulsoryfundstotalled Kr. 6billion. 8 Thesawmillshavebeencoveredbytheschemesincethebeginningof1975. (y\ 9 Astock'Suildingsupportschemewasimplementedforthefirsttimein 1972,butthepresent arrangementdifferslnimportantrespectsfromtheearlierone: (i) thestartingperiodforthecalculationofcompensationsisflexibletoallowfordifferences intherelativecyclicalpositionbetweensectorsandindustries; (ii) thestock increase iscalculated in volumeterms rather than in currentprices and only increases over and above a "normal" (determined as the average stock level for the previousthreeyears)stocklevel aretakenintoaccount; (Hi) theemploymentrequirementsareconsiderablymorerestrictiveinthepresentscheme,as no reduction in the labourforceis allowed and even ashortening ofthe work weekis considered adisqualifyingcircumstance; (iv) to ensure that liquidity problems will not be a constraint on stockbuilding, firms can receive 75 per cent ofthe estimated compensation in advance, and borrowing for the purposeofinventoryformationiscoveredbyagovernmentguarantee.