Sweden’s Economic Boom Revisited

2/11/2018

Sweden’s economy faces slowest per-capita growth in more than three decades
There's less than meets the eye to Sweden's economic boom.
The largest Nordic economy has been outpacing most of Europe in recent years, helped by booming domestic demand and rising exports. But under the surface, the growth is a lot less impressive and looking ahead prospects looks positively gloomy.
That’s because the expansion has been inflated by massive population growth, triggered by record immigration and high birth rates. In fact, the difference between overall growth in gross domestic product and growth when measured per capita hasn't been as wide since at least 1950.

Spread Widens

The difference between growth and per capita growth is getting bigger

Source: Statistics Sweden

To avoid slipping into a period of historically weak growth, economists say Sweden must make profound structural changes in areas such as education, the housing rental market, taxes and improve productivity. It also needs to ensure that the hundreds of thousands of immigrants from countries such as Syria and Iraq that arrived in the past few years find their way into the labor market.
“The problem is not a lack of knowledge, but that the economic-politic discussion isn’t centered around Sweden’s long-term growth,” says John Hassler, a professor of economics at Stockholm University.

In 2016, GDP growth was 3.2 percent while per capita growth was just 2.0 percent. Looking ahead, it could get worse. Real per capita growth is seen averaging just 1 percent in the decade through 2026, according to the Swedish National Institute of Economic Research. That's down from 1.8 percent in the decade that ended 2016 and from 3.4 percent in the prior 10-year period.
But the NIER cautions against getting too gloomy. A big reason for the drop is due to a large wave of people retiring. These people have savings and will be able to keep up consumption, according to Ylva Heden Westerdahl,  the NIER’s director of forecasting.
It therefore gets better when you look at consumption per capita over the next years.

Holding Up

Growth in consumption per capita is seen steady or higher even as GDP per capita growth slows

Source: National Instistue of Economic Research

Change in per capita consumption, 5-year moving average