Economic Analysis of Sweden

✓ Paper Type: Free Assignment	✓ Study Level: University / Undergraduate
✓ Wordcount: 3844 words	✓ Published: 30th Nov 2020

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Executive Summary

The purpose of this report is to write about Sweden's economic situation by highlighting different sectors of activity in which Sweden excels more or less. Each of these sectors, such as its infrastructure, human capital and labour market, face many challenges that Sweden must address as quickly as possible in order to remain one of the most competitive nations in the world. To illustrate its economic activity and the statements in this report, several tables and graphs will support Sweden's economic figures.

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The report will thus focus on different pillars, citing its performance in each of them and their challenge. As the most competitive country in the European Union, Sweden must be an example in order to remain at the highest level in several areas that are its strength. Finally, to give an idea, the figures and data in this report will be accompanied by comparisons with countries around the world and its neighbouring countries such as Norway, Denmark and the Netherlands.

Introduction

Sweden is the largest Nordic country in terms of its economy (GDP of $551 billion in 2018, for a population that exceeded 10 million in January 2017), and one of the most dynamic countries in the European Union with an average growth rate of 3% between 2014 and 2018. The country has a highly competitive productive apparatus, combining an old industrial base, built around raw materials and industry, life sciences, green technologies and creative industries.

The innovation ecosystem plays a significant role in Swedish growth and the visibility of its major players (Spotify, Mojang, King, iZettle and Klarna) sometimes gives Stockholm the title of "Silicon Valley of Europe". Sweden is one of the EU Member States that devotes the largest share of its GDP to R&D, ranking it first on the European Commission's European Innovation Scoreboard in 2019.

The main challenge for Sweden remains the overheating of housing and the excessively high level of household debt (170% of their disposable income).

How is it performing?

Developments in the area of competitiveness

Sweden has been named the ninth most competitive economy in the world in 2018 by the independent international organization WEF (World Economic Forum) which engages business, political, academic and other leaders of society to build global, regional, and industry agendas. Sweden has gained its position over more than 300 criteria from the principal factors such as competitiveness and macroeconomic environment. In recent years, Sweden has excelled in various fields, overwhelming the strong competition relative to its European neighbours. In order to be competitive, a country must perform well in different sectors of activity. To this end, Sweden has had to ensure that it creates a stable economy and an open market to the world. Sweden has a tradition of minority governments that are politically stable and subsequently promote the formation of agreements. The optimal functioning of the economy is one of the main factors in the population's sustainable standard of living through market-opening policies that improve competitiveness, flexibility and lead to significant trade and investment flows. For many years now, Sweden has enjoyed stable and positive economic development. With a highly competitive international economy, Sweden has experienced steady growth, allowing it to lower interest rates to levels below zero to ward off deflation and fears of real estate bubbles. In search of the best possible reputation, Sweden has committed itself to reducing its current unemployment rate (7%) by half by 2020. Despite the fact that many migrants were still looking for work, the country was able to react and therefore integrate a large proportion of them into the labour market. In addition, its GDP increased by 2.3% in 2017 (OECD Data, 2019), which once again shows how Sweden's economy is doing in recent year

The 3 Pillars

Enabling Environment (infrastructure)

Air transport in Sweden contributes to nearly 200,000 jobs, it is one of the main assets of the Swedish economy which represents 3.8% of the Sweden GDP.

The table below shows the total amount invested in millions of euros from 2004 to 2017 in airport infrastructure in Sweden. During this period, investments in airport infrastructure increased sharply by almost 430%, from €80.6 million in 2004 to €426 million in 2017. This government initiative clearly demonstrates their desire to grow and be as competitive as possible with their direct competitors.

Aviation provides significant advantages to the Swedish economy. However, significant obstacles to the growth of air connectivity remain and could prevent Sweden from fully exploiting its potential. With the objective of reducing their ecological footprint with aviation, Sweden has decided to implement a new tax. Unfortunately, these new environmental taxes seem to be ineffective, and this tax represents additional costs for customers, making Sweden more expensive and

therefore, less attractive to all types of tourists. Consequently, the introduction of this tax has reduced Sweden's position in relation to its neighbours (Finland, Norway,

Denmark, and the Netherlands). If airlines companies see their fuel access costs increase, such as a new tax on the possible reduction of fossil fuels or a quota system for biofuels that does not guarantee competitive prices, it will also have an impact on Sweden's competitiveness.

Here is a performance overview of the Sweden Air Transport competitiveness that shows how Sweden is performing in five different pillars. Sweden’s score for Supply Chain Management is the only below the European average which shows that Sweden has very high economic performances overall.

With the presence of many ports on its coasts, Sweden has also a remarkable export and import force. Since 90% of all exports and imports are made via freighters or ferries, Sweden has a major strength through its geographical position as well as its strong dependence on other countries regarding foreign trade, which gives Sweden a key and dominant role in commercial transport to the world. Moreover, Sweden has many ports located in almost the entire country, which makes it easier to trade with countries located to the four corners of the world.

As the table below shows it, Sweden can rely on its constantly evolving marine sector that has a strong volume. For Instance, the main seaport of the country called (Göteborg) had a Gross weight of goods almost equal to 42 million of tones in 2016 which demonstrates the strong capacity of the country to deal and compete with neighbouring countries.

Sweden also has a very large electricity grid made up of nearly 564,000 kilometres of cables, of which 382,000 kilometres are buried and the rest of the network is overhead. A single company has a monopoly on the Swedish electricity grid called Ei. Since 1996, the Swedish electricity market has faced strong competition with no

pricing adjustments in the recent years for the 5.4 million electricity consumers in Sweden with approximately 4.7 million of whom are household customers.

The inhabitants of Sweden have the possibility to choose their electricity supplier. This means that stakeholders operate in a free market in competition with other companies and at free pricing. For many years now 100% of the inhabitants of Sweden have access to electricity according to Global Competitiveness Index 4.0 2018 edition.

Sweden Electricity Access 1990-2019 (macrotrends, 2019)

However, Sweden is facing few challenges due to its lack of power capacity. The closing of the country's oldest reactors and the switch to wind power has not helped the already complicated situation, as Sweden has difficulty meeting electricity demand in major cities. There could even be major consequences due to the lack of power capacity leading to this shortage to affect the main urban areas, slowing down the development of 5G and finally reducing Sweden's chances of hosting yesterday's 2026 Olympic Games.

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Just like electricity, all inhabitants in Sweden have access to clean water and sanitation. According to an overall assessment, Sweden seems to be meeting its targets for access to electricity and water. However, Sweden is facing few challenges concerning the supply of drinking water in certain regions where groundwater levels are becoming increasingly low. To this end, efforts seem to be essential for the health of Swedes by reducing pollution caused by certain chemicals.

Human Capital (Health)

Over the last few years, Sweden has one of the highest growth rates in the world, with many government and other non-profit organizations working to enhance the health and life expectancy of its citizens on a daily basis. In order to constantly improving the country’s average life expectancy Sweden provides an important health care system which is mainly government-funded. The average life expectancy in Sweden is 82.7 years, making Sweden the 16th country with the highest life expectancy from birth in the world. Compared to the world's major nations, Sweden has an average life expectancy about four years longer than the United States (78.6 years). It should be noted that the world average is 79 years old. During the last century, Sweden has seen a dramatic increase in life expectancy of 16.5% from 71.24 years in 1950 to almost 83 years today.

Sweden Life Expectancy 1950-2019. (Macrotrends, 2019)

Life expectancy is also high in a country like Sweden, largely due to its commitment and determination to provide a healthy and satisfactory quality of life for its inhabitants, such as access to drinking water. In addition, pollution remains low compared to the rest of the world and consequently Sweden has been ranked the Most Sustainable Country in the World in 2015 according to the Country

Sustainability Ranking study.Ranked 17th on the 5th Pillar (Health) according to the Global Competition Index. The Swedish health care system offers the opportunity for the country's poorest people to access major health services, which is crucial for many citizens who may not be able to afford such care in other countries. Moreover, it is important to note that Sweden has 7% of its population living below the EU poverty line. It is 3% lower than the average for European countries (10%). However, as mentioned above, countries are striving to improve the living conditions and life expectancy of their citizens over the years, but the poverty rate remains almost unchanged, and is becoming one of the major problems for European countries. Eradicating poverty would automatically lead to a sharp increase in life expectancy, which is why Sweden is working with the help of the Swedish International Development Cooperation Agency, which aims to reduce poverty.

Health expenditure as a percentage of gross domestic product in 2018.

(Statista, 2018)

Furthermore, The Swedish government has always been committed to constantly improving the living conditions of its citizens. Some studies have been carried out to further improve life expectancy in Sweden, one of them demonstrates the effectiveness of childhood vaccines in providing health care to children from different socio-economic backgrounds. Everyone is able to have access to health care in Sweden which is not the case in many other countries. The care of the elderly in Sweden is provided by government subsidies and municipal taxes. Seniors also have the opportunity to choose whether they want home care or to be placed directly in institutions that provide the care they need to improve their daily health which proves once again that Sweden is doing its best to help people of all ages whether they are richer or poorer. In conclusion, the government's efforts to reduce poverty and increase life expectancy in Sweden seem to be paying off. Sweden is therefore one of the nations with the highest life expectancy in the world due to its commitment to its population, whether they are old, young, poor or rich, everyone has access to care.

Innovation ecosystem (Innovation Capability)

In order to be as competitive as possible, countries must be innovative in order to be able to compete with the largest nations. Sweden is ranked 5th out of 140 countries according to the WEF and is ranked first in Europe for the 4th year in a row. Sweden is the second largest spending country on Research and Development in Europe as a percentage of GDP. Innovation thus involves improving education and research. Sweden is known for its highly efficient education system. Indeed, since 1842, Sweden has introduced compulsory schooling for children aged 7 to 13 years, forcing children to get more and more education. After this reform, Sweden has experienced a sharp increase in the general level of education. This system has completely transformed Sweden from a very agricultural and poor country to one of the world's economic leaders. Sweden shows its capacities to innovate despite the country's difficulties. In addition, Sweden invests almost 3% of its GDP in research and development, enabling it to excel in various fields such as technology and science.

The table shown below ranks the innovation performance of European countries in 2019 based on different categories of innovation. At the top of the European Commission's ranking is Sweden with a score of 147.74 out of a maximum of 150 points, followed very closely by its neighbours such as Finland, Denmark and the Netherlands. For several years now, European countries have made very good progress in terms of innovation, having even increased their innovation performance by 8.8%, and finally outperforming the United States.

Sweden's social stability has been strong for many years now, avoiding conflicts with the population by maintaining a high degree of equality compared to other European countries. In addition, since its establishment, the welfare state has enabled Sweden to develop more rapidly economically. Sweden has therefore invested in different sectors such as education and corporate safety by providing a safety net for some companies that would not succeed in taking off. However, Sweden’s innovation is facing challenges such as high taxes. In addition to high taxes, Sweden faces other negative factors such as the relatively high rent prices and the lack of space in large cities such as Stockholm. These two problems can therefore prevent the arrival of some talented people who will live in other European cities that are more accessible to them. Moreover, located in the north, Sweden faces another challenge which is the weather. In winter, temperatures drop dramatically, and rain and snow are added to this cold weather. However, some studies have shown that these rather lower temperatures would thus lead to more innovation encouraging people to stay at home and focus mainly on their projects and develop new ideas.

Labour Market Pillar

Ranked 17th out of 140 countries, Sweden places with the best countries without being at the top level. However, the labour market in Sweden is performing good, since 2010, the employment rate has constantly increased from 64.4% in 2010 to 68.5% in 2018. This steady increase is the result of the private sector, where almost 3 million persons were employment being thus the largest sector in Sweden.

Furthermore, the unemployment rate has also decreased over the last years from 8.61% in 2010 which was a result of the 2008 crisis, but Sweden has been able to recover and had an unemployment rate of 6.44% in 2018 showing the great progress made from 2010 to 2018.

However, the labour market in Sweden is facing few challenges. Sweden is a country that is constantly trying to reduce gender inequalities. Despite its desire to have full equality, Sweden, like all other countries, is struggling and still experiences some inequalities, such as salaries for the same professions, which are higher on average for men. The percentage of women in high positions remains low compared to men, but times are changing, and this percentage is increasing from year to year. However, these figures are still much better than most of its European neighbours.

Sweden faces another major challenge, which is the integration of migrants into the world of work. According to one study, a migrant who has studied up to university is still less likely to be hired than a person born in Sweden with fewer skills. With the high demand for immigrants in recent years, Sweden is forced to find a solution to this major challenge. The lack of contacts upon arrival in the country is the main reason for their difficulty in finding a job directly, so they will need time to create relationships with different people who can potentially help them in the future.

As seen above, Sweden has a good education system that emphasizes compulsory schooling at least until a certain age. However, this system is not appropriate for the world of work and deserves to be better exploited in view of its strong potential by probably putting more emphasis on by promoting on-the-job training directly to provide students with certain skills that will be essential to them and their future.

Conclusion

In conclusion, this report reviewed Sweden's economic situation, which today allows it to be among the top 10 most competitive countries in the world.

the report details different pillars such as its very impressive infrastructure, including airport infrastructures, which are very significant at the time, as well as its geographical position, which allows it to have port infrastructures that can trade with the whole world and reach all types of countries. Its infrastructures also guarantee access to potable water and electricity for almost the entire population. Another very important pillar showing the strength of this country is the health care system across the country, which therefore allows any type of person to have access to it. As a world leader in this sector, Sweden's average life expectancy is one of the highest in the world. His constant desire for innovation allows him to join the best despite the many challenges Sweden faces. Finally, its labour market is doing well with an unemployment rate lower than the European average and its constant desire to eradicate poverty could lead Sweden to become the next great nation.

References