Sweden 1986-1987.

85 Pages·1987·4.835 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
1986/1987
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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle 1 oftheConventionsignedinParison 14th December,
I960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promote
policiesdesigned:
- toachieve the highestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus to contribute to the development ofthe
world economy;
- to contribute to sound economic expansion in Member as well as
non-membercountries in the processofeconomicdevelopment; and
- to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international obliga¬
tions.
The original Member countries of the OECD arc Austria, Belgium,
Canada. Denmark, France, the Federal Republic of Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain.Sweden, Switzerland.Turkey, the United Kingdomand the United
Slates. The following countries became Members subsequently through
accessionatthedatesindicatedhereafter:Japan(28thApril, 1964),Finland
(28thJanuary. 1969), Australia (7thJune, 1971) and New Zealand
(29lh May, 1973).
The Socialist Federal Republic ofYugoslavia takes part in some ofthe
work ofthe OECD (agreement of28thOctober, 1961).
Publicégalement en français.
© OECD, 1987
Application for permission toreproduce or translate
all or part ofthis publication should be made to:
Head of PublicationsService, OECD
2, rue Andre-Pascal. 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 7
I. Current trends and short-termforecasts 8
The impact ofloweroil prices 8
The stance ofpolicy 9
Supply and demand 12
Output and employment 15
Labour market and inflation 16
Foreign trade and balance ofpayments 19
Short-term outlook 21
II. Policy in a medium-term perspective 24
Fiscal policy 24
Monetary policy 27
Results ofthe strategy 27
The pattern ofgrowth 27
Implications for future policy 30
III. Net exports and investment: betterinflation performance holdsthe key 31
The scope for wage increases over the medium term 31
Factors influencing wage inflation 34
IV. Financial markets: from credit rationing to greater market efficiency 38
Structural change and deregulation 38
The process ofderegulation from 1978 41
Changes in market structure 45
The financial system and economic performance 47
V. Conclusions 58
Notes and references 61
Annex: Calendarofmain economicevents 63
Statistical Annex 68
TABLES
Text
1. Net oil imports as a share ofGDP, 1985 8
2. Public sector income and expenditure 9
3. Public sector interest payments 10
4. Credit institutions non-priority lending 11
5. Balanceofdemand and supply 12
6. Investments in machinery and equipment 15
7. Sectoral output and employment 16
8. Hourly wage increases 18
9. Imports and exports ofgoods 20
10. Import penetration for manufactures 20
11. The current account ofthe balanceofpayments 21
12. The short-term outlook 22
13. Changes in the general government budget balance, 1982-1986 25
14. The pattern ofgrowth 29
15. Inflation and the currentaccount 29
16. Export performance, 1979-1984 32
17. Food prices and general inflation 37
18. The cost offinancial intermediation, commercial banks 47
Statisticalannex
A. Selected background statistics 68
B. Supply and use ofresources (current prices) 69
C. Supply and use ofresources (1980 prices) 70
D. General government revenue and expenditure 71
E. Balanceofpayments 72
F. Labour market 73
G. Production by sector and employment 74
H. Foreign trade, total and by area 75
I. Prices and wages 76
J. Money and credit 77
DIAGRAMS
1. Monetary indicators 11
2. Household savings ratio, 1963-85 13
3. Growth ofretail trade components through 1986 14
4. Industrial production and capacityutilisation 14
5. Unemploymentand unfilled vacancies 17
6. Consumerprice inflation 18
7. Indicators ofcompetitiveness 19
8. Overall economic performance: 1980-82 and 1983-85 25
9. Public sector consumption 26
10. The current account, quarterly 28
II. Competitiveness and rate ofreturn on physical assets 33
12. Profitability and investment in manufacturing 33
13. Relative inflation - unemployment performance: Sweden vs.OECD 35
14. Unemployment and labour market policy measures 36
15. Real wage and productivity in the private sector 36
16. External factors behind structural change in financial markets 39
17. The grey market and prime rate deposits 40
18. Deregulation and financial innovation 42
19. Consolidated balance sheet ofcommercial banks (31st December 1980) 43
20. Treasury discount notes and CD's in theSwedish money market 44
21. Structure offinancial net wealth 46
22. Net credit flow by instruments 46
23. Interest margin and capital ratio, commercial banks 48
24. The development oftheyield curve 49
25. Corporate finance (manufacturing) 51
26. Short-term nominal interest rates 54
27. The spring 1985 currency outflow 55
28. Currency flow and government foreign borrowing 56
BASIC STATISTICS OF SWEDEN
THELAND
Area(1 000sq. km) 450 Inhabitantsinmajorcities,
Lakes(I 000sq.km) 39 includingsuburbs(endof1984),
Arablearea (1 000sq.km) 30 thousands:
Woodland(1 000sq.km) 228 Stockholm 1 420
Gothenburg 699
Malmo 455
THE PEOPLE
Population(endof1985),thousands 8358 Netnatural increaseper 1 000
No.ofinhabitantspersq.km 19 inhabitants(average 1981-1985) 0.3
Net naturalincrease Netmigration
(average 1981-1985),thousands 3 (average 1981-1985) 5362
PRODUCTION
Grossdomesticproductin 1985 Grossfixedcapitalformationin 1985:
(Kr.billion) 862.5 PercentofGDP 19.1
GDPperhead,USJ 11994 Perhead,US$ 2294
Employment, 1985:
Totalcivilian(thousands) 4299
Percentoftotal:
Agriculture,forestry,fishing 4.8
Industry 29.9
Other 65.3
THEGOVERNMENT
PercentofGDPin 1985: CompositionofParliament
Publicconsumption 28 (no.ofscats):
Generalgovernmentcurrentrevenue 63 Socialdemocrats 159
Publicgrossfixedcapitalformation 3 Conservatives 76
Centre 44
Fiscalyear: Liberal 51
Centralgovernment: Communists 19
1stJuly-30thJune
349
Localauthorities:calendaryear
Lastgeneralelection:September 1985
Nextgeneralelection:September 1988
FOREIGNTRADE
Exportsofgoodsandservices, Importsofgoodsandservices,
aspercentofGDP aspercentofGDP
(average 1981-1985) 33.8 (average 1981-1985) 32.2
Mainexportsin 1985(percent Mainimportsin 1985 (percent
oftotalmerchandiseexports): oftotalmerchandiseimports):
Wood,pulpandpaper 17.1 Food,beverages,tobacco 6.1
Metalandmetalproducts 12.0 Fuelandenergy 19.0
Machinery 26.0 Machineryandtransportequipment 32.8
Transportequipment 15.9 Othermanufacturedgoods 37.3
THECURRENCY
Monetaryunit: Krona CurrencyunitsperUS$,
averageofdailyfigures:
Year 1986 7.1236
January 1987 6.6093
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
This Survey is based on the Secretariat's study preparedfor
the annual review ofSweden by the Economic and Development
ReviewCommitteeon 17th February1987.
After revisions in the light of dicussions during the review,
final approval of the Survey for publication was given by the
Committeeon23rdMarch1987.
INTRODUCTION
Theimprovementin theSwedisheconomicperformanceobservedsince 1982, helpedby
external factors and the stabilization and economic adjustment strategy introduced in the
sameyear,continuedin 1986. Grossdomesticproductisprovisionallyestimatedtohaverisen
by 1'/î-2per cent. Activity was mainly sustained by private consumption, helped by the
terms-of-tradeeffectoffallingoilandrawmaterialpricesandarelaxationofmonetarypolicy.
The balance of payments recorded a current account surplus of 1 per cent of GNP, and
inflation as measured by consumer prices fell tojust above 3 per cent. The recovery in the
externalaccountsandimprovedinflationperformancewerefacilitatedbothbythefavourable
influencestemming from the halving oftheoil price in 1986, as well as by a relatively tight
fiscalpolicywhichresultedinasignificantreductionofthegeneralgovernmentbudgetdeficit
to 1V2percentofGDP.Theunemploymentrate-a principalpolicytarget-remained below
3 percent. Inaddition,supply-sidemeasuresaimedatstructuraladjustment,suchasremoval
ofdistortionscreatedbysubsidiestoindustryandfinancialsectorreform,seemtohaveledto
improvedresourceallocation,thoughtheirdirectandindirecteffectongrowtharedifficultto
quantify. However, domestic wage increases continued to exceed wage increases abroad.
Onpresentpolicies,GDPgrowthisforecasttoremainalmostunchangedin 1987,andthe
current account should be in surplus equivalent to around lkper cent of GDP, despite a
negative contribution from the volume of net exports.
Recent economic trends, policy measures and the short-term outlook are reviewed in
Part I ofthe present survey. PartIIexamines policies in a medium-term perspective, whilst
aspectsofcompetitivenessaregivenspecialemphasis in Part III. Part IVanalysesstructural
change in Swedish financial markets. Finally, policy conclusions are presented in Part V.
I. CURRENT TRENDS AND SHORT-TERM FORECASTS
The impact of lower oil prices
As for most other OECD countries, the fall in oil prices was a major external factor
influencing Swedish economic performance in 1986. Because Sweden depends heavily on
energy imports, the terms-of-trade gain due to lower oil prices was larger than the OECD
average (Table 1). The gain amounted to around l'Aper cent of GDP and led to an
improvement of the current account balance by approximately Kr 15 billion despite rising
volumes ofoil imports in response to lower prices.
Table 1. Net oil importsasashareofGDP, 1985
Percent
Sweden Finland Germany Japan OECD OECD
Europe
3.6 3.9 3.5 3.0 2.5 1.8
Source: OECD.
Most of the terms-of-trade gain has accrued to the business sector as the change in
gasolinetaxationeffectivefromthebeginningof1986wasbroadlyrevenueneutral.Similarly,
thetax increasesonoilproductswhichcameintoeffectatthebeginningof1987areexpected
tohaveonlymoderaterevenueeffects(Kr 1'h-2billion).Thus,theeffectoftheoilpricefallon
thepublicsectorbudgetwastoa largeextent indirect, workingthrough therise in economic
activity.
Thewindfallgainforthebusinesssector, however,appearsnottohavebeenpassedonto
the consumers in full. The terms-of-trade gain should, in principle -ifit were passed on in
full- mean a reduction of the consumer price level by around 2]hpercentage points.
ConsumerpriceinflationintheyeartoDecember1986,comparedwiththeprevious 12-month
period, slowed down by 2V2percentage points. Part ofthis deceleration can be attributed to
lowerinterestrates. Hence,itseemsthatthebusinesssectorhasretainedintheformofhigher
profits part of the terms-of-trade gain accruing from the fall in oil prices.
Whether the observed pattern ofsharing the oil price gain between consumers and the
businesssectorwillbepermanentremainstobeseen. Intheshortrun,thepartialallocationto
profits has reduced the expansionary effects on internal activity stemming from higher
consumerdemandwhilst,inasomewhatlonger-termperspective,theincreaseinprofitability
maylead to increased investment. Nevertheless, in a moregeneral context, thedemand side
stimulus for investment following a terms-of-trade gain may be weak if real wages -and,
hence, private consumption and aggregate demand-do not increase sufficiently to support
capital widening. The ultimate behaviour of the business sector in respect of pricing may
therefore be critical in determining the demand effect oflower oil prices.
Apart from thedirect effects on demand, the terms-of-trade gain has also had positive
indirecteffects-principally through changes in confidence. The turn-around in the current
externalbalancefromadeficitin 1985toasurplusin 1986hasledtoincreasedconfidencein
thestabilityoftheexchangerateaccompaniedbydownwardpressureoninterestrates.Whilst
realinterestratesarestillrelativelyhigh,theobservedfallinnominalinterestrates,together
with the improved business climate, appears to have contributed to growth in private
consumption.
The stance of policy
Even though theoverall policystancehas been relatively restrictivein recentyears, the
mix of fiscal and monetary policy has shown some variations. According to Secretariat
estimates, fiscal policy was tightened in 1983-1984 and 1986, while monetary policy was
restrictive in 1985.
Table 2. Publicsectorincomeandexpenditure
Percent ofGDP
1982 1983 1984 1985 1986'
Income 61.0 62.0 61.7 62.72 62.4
Directtaxes 21.7 21.9 21.5 21.P 22.0
Indirecttaxes 14.6 15.3 15.9 16.6 16.2
Social securitycontr. 13.8 13.6 13.2 13.63 13.3
Otherincome 10.9 11.2 11.1 11.4 10.9
Expenditure 67.4 67.0 64.3 65.3 63.8
Transfers 33.9 34.4 32.9 34.4 33.1
Consumption 29.6 28.9 28.1 27.8 27.8
Centralgovernment 8.8 8.2 7.8 7.5 7.3
Local government 20.8 20.7 20.3 20.3 20.5
Investment 3.9 3.7 3.3 3.1 2.9
Deficit 6.3 5.0 2.6 2.62 1.4
1. OECDestimates.
2. Estimateignoringtheeffectsofadministrativechanges.
3. Affectedbychangedadministrativeroutines.
Sources: NationalInstituteofEconomicResearch,OECD.
Thefall inthegeneralgovernmentbudgetdeficitasashareofGDPsince 1982 (Table 2)
hasbeenachievedwithoutmuchincreaseinoveralltaxburdenwhich,however,atmorethan
51 percentofGDP, remainsoneofthehighestin theOECDarea. Themovetowards better
balance-whichwasinterruptedin 1985-hasbeenmostlyconfinedtotheexpendituresideof
the budget and here notably to transfer payments and public consumption. The fall in the
shareoftransfersfrom 1985to 1986-themainreasonforthebudgetimprovementin 1986-
waslargelytheresultoflowerinterestpayments(Table 3)duetofallinginterestratesandthe
fallinthedollar;morethanhalfthepublicforeigndebtisdenominatedindollars.Netinterest