Sweden's economic fundamentals are strong, but after two years of slow growth the country now faces growing risks from an uncertain and swiftly changing international environment. To ensure stable growth and high living standards, Sweden should prioritise skills development, affordable housing supply, and climate change resilience, according to a new OECD report.
The latest OECD Economic Survey of Sweden says that, despite downside risks, economic growth is set to pick up from 0.7% in 2024 to 1.6% in 2025 and 2.3% in 2026, driven by rising real incomes and lower debt servicing costs. CPIF inflation (the consumer price index with a fixed interest rate) is expected to rise to 2.8% in 2025, before falling back to 2.0% in 2026.
"Monetary policy should stay on hold for now, and the slightly expansionary fiscal stance in 2025 is appropriate," OECD Chief Economist Alvaro Pereira said, presenting the report in Stockholm alongside Sweden's State Secretary at the Ministry of Finance Johanna Lybeck Lilja. "But improving fiscal oversight, increasing spending efficiency, and strengthening skills development and job creation are needed to meet long-term spending pressures."
Financial stability risks have eased but still warrant close monitoring in the wake of a real estate downturn and high household debt. Current macroprudential measures should be maintained to support both financial stability and housing affordability.
Housing shortages are less severe than in many other OECD countries, but the levels of homelessness and overcrowded living are the highest among the Nordic countries. Phasing out rent controls, which are the strictest in the OECD, and streamlining zoning and permitting rules would improve housing supply and affordability.
Adult skills are strong in Sweden, but vocational education is unpopular, the quality of higher education degrees seems to have fallen and people with weak skills struggle to get jobs and feel socially and politically disaffected. More could be done to raise equality of opportunity through compulsory schooling and improve the attractiveness of upper secondary vocational education. Such reforms alongside strengthening research and teaching at universities would help improve adult skills. Targeting retraining support to workers at risk of losing their job would also increase value for money.
While progress has been made in climate adaptation, challenges remain. Existing funding is insufficient and favours large-scale projects, leaving smaller municipalities without sufficient resources. Market-based mechanisms to engage the private sector lag behind many other OECD countries. Addressing these issues would enhance Sweden's resilience to climate change and improve economic stability.
