OECD Economic Surveys : Sweden 1976.

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by  OECD

OECD
ECONOMIC SURVEYS
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SWEDEN
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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.