Sweden has a highly developed export-oriented economy, aided by timber, hydropower, and iron ore. These constitute the resource base of an economy oriented toward foreign trade. The main industries include motor vehicles, telecommunications, pharmaceuticals, industrial machines, precision equipment, chemical goods, home goods and appliances, forestry, iron, and steel. Traditionally, Sweden relied on a modern agricultural economy that employed over half the domestic workforce. Today, industries such as engineering, mining, steel, and pulp have been further developed, and have given rise to multi-national companies such as Ericsson, ASEA/ABB, SKF, Alfa Laval, AGA, and Dyno Nobel.Agricultural toward Industrial|Swedish economic history . Ekonomifakta.se (28 September 2012). Retrieved on 29 January 2013.
Sweden is a competitive open mixed economy. There is a strong welfare state, with public-sector spending accounting up to three-fifths of GDP. In 2014, the percent of national wealth owned by the government was 24%.Public Wealth in the US and Nordic Countries
Due to Sweden being one of the neutral powers during World War II, it did not have to rebuild its economic base, the banking system, and country as a whole, as did many other European countries. Sweden has achieved a high standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. Sweden has the second highest total tax revenue as a share of GDP, behind only Denmark. , the total tax revenue was 44.2% of GDP, down from 48.3% in 2006.Skattetrycket| Skattetryck| Skatter| Fakta och statistik . Ekonomifakta.se. Retrieved on 29 January 2013.
In 2014 the National Institute of Economic research predicted GDP growth of 1.8%, 3.1% and 3.4% in 2014, 2015 and 2016 respectively. A comparison of upcoming economic growth rates of European Union countries revealed that the Baltic states, Poland, and Slovakia are the only countries that are expected to keep comparable or higher growth rates.
History
In the 19th century Sweden evolved from a largely agricultural economy into the beginnings of an industrialized, urbanized country. Poverty remained widespread, prompting a large portion of the country to emigrate, mainly to the United States. Economic reforms and the creation of a modern economic system, banks and corporations were enacted during the later half of the 19th century. During that time Sweden was in a way the "powerhouse" of the Scandinavian region with a strong industrialization process commencing in the 1860s. Moreover, the Swedish Riksdag had developed into a very active Parliament already during the Age of Liberty (1719–72), and this tradition continued into the nineteenth century, laying the basis for the transition towards modern democracy at the end of said century. Apart from relatively high levels of human capital formation, the result of the Reformation and related government policies, such local democratic traditions were the other asset that made the "catching up" of the Scandinavian countries, including Sweden, possible and this economic rise was probably the most remarkable phenomenon in that region during the nineteenth century.
By the 1930s, Sweden had what Life magazine called in 1938 the "world's highest standard of living". Sweden declared itself neutral during both world wars, thereby avoiding much physical destruction and instead, especially after the First World War, profiting from the new circumstances – such as booming demand for raw materials and foodstuffs and the disappearance of international competition for its exports. The postwar boom, that was the continuation of strong inflationary tendencies during the war itself, propelled Sweden to greater economic prosperity. Beginning in the 1970s and culminating with the deep recession of the early 1990s, Swedish standards of living developed less favorably than many other industrialized countries. Since the mid-1990s, the economic performance has improved.
In 2009, Sweden had the world's tenth highest GDP per capita in nominal terms and the fourteenth highest by purchasing power parity.
Crisis of the 1990s
Sweden has had an economic model in the post-World War II era characterized by close cooperation between the government, labour unions, and corporations. The Swedish economy has extensive and universal social benefits funded by high taxes, close to 50% of GDP. In the 1980s, a real estate and financial bubble formed, driven by a rapid increase in lending. A restructuring of the tax system, in order to emphasize low inflation combined with an international economic slowdown in the early 1990s, caused the bubble to burst. Between 1990 and 1993 GDP went down by 5% and unemployment skyrocketed, causing the worst economic crisis in Sweden since the 1930s. According to an analysis published in Computer Sweden in 1992, the investment level decreased drastically for information technology and computing equipment, except in the financial and banking sector, the part of the industry that created the crisis. The investment levels for IT and computers were restored as early as 1993. In 1992 there was a run on the currency, the central bank briefly jacking up interest to 500% in an unsuccessful effort to defend the currency's fixed exchange rate. Total employment fell by almost 10% during the crisis.
A real estate boom ended in a bust. The government took over nearly a quarter of banking assets at a cost of about 4% of the nation's GDP. This was known colloquially as the "Stockholm Solution". In 2007, the United States Federal Reserve noted, "In the early 1970s, Sweden had one of the highest income levels in Europe; today, its lead has all but disappeared...So, even well-managed financial crises don't really have a happy ending".
The welfare system that had been growing rapidly since the 1970s could not be sustained with a falling GDP, lower employment and larger welfare payments. In 1994 the government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden's competitiveness. When the international economic outlook improved combined with a rapid growth in the IT sector, which Sweden was well positioned to capitalize on, the country was able to emerge from the crisis.
The crisis of the 1990s was by some viewed as the end of the much buzzed welfare model called "Svenska modellen", literally "The Swedish Model", as it proved that governmental spending at the levels previously experienced in Sweden was not long-term sustainable in a global open economy. Anförande vid the Economists konferens om Sverige . Regeringen.se. Retrieved on 29 January 2013. Much of the Swedish Model's acclaimed advantages actually had to be viewed as a result of the post WWII special situation, which left Sweden untouched when competitors' economies were comparatively weak.From War to the Swedish Model| Swedish economic history . Ekonomifakta.se (28 September 2012). Retrieved on 29 January 2013.
However, the reforms enacted during the 1990s seem to have created a model in which extensive welfare benefits can be maintained in a global economy.
In recent years, the Swedish welfare state model has been weakened. Massive privatizations have been carried out since the 1990s, including in public services such as health and education. Inequality has risen sharply, in particular because of a tax system that does not tax wealth and inheritance.
Great Recession
Contemporary economy
Sweden is an export-oriented mixed economy featuring a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Sweden's engineering sector accounts for 50% of output and exports. Telecommunications, the automotive industry and the pharmaceutical industries are also of great importance. Agriculture accounts for 2 percent of GDP and employment. The armaments industry has a technologically highly advanced reputation.
The 20 largest Sweden-registered companies by turnover were Volvo, Ericsson, Vattenfall, Skanska, Hennes & Mauritz, Electrolux, Volvo Personvagnar, Preem, TeliaSonera, Sandvik, ICA, Atlas Copco, Nordea, Svenska Cellulosa Aktiebolaget, Scania, Securitas, Nordstjernan, SKF, ABB Norden Holding, and Sony Mobile Communications AB.
Some 4.5 million residents are working, out of which around a third have a tertiary education. GDP per hour worked is the world's 9th-highest at US$31 in 2006, compared to US$22 in Spain and US$35 in United States. According to the OECD, deregulation, globalization, and technology-sector growth have been key drivers of productivity. GDP per hour worked is growing per cent a year for the economy as a whole and trade-terms-balanced productivity growth 2%. Sweden is a world leader in privatized pensions, and pension-funding problems are small compared to many other Western European countries. by Goran Normann, PhD and Daniel J. Mitchell, PhD 29 June 2000. The Swedish labor market has become more flexible, but it still has some widely acknowledged problems. The typical worker receives only 40% of their income after the tax wedge. The slowly declining overall taxation, 51% of GDP in 2007, is still nearly double of that in the United States or Ireland. Civil servants amount to a third of Swedish workforce, multiple times the proportion in many other countries. Overall, GDP growth has been fast since reforms in the early 1990s, especially in manufacturing.OECD Economic Surveys: Sweden – Volume 2005 Issue 9 by OECD Publishing
World Economic Forum 2012–2013 competitiveness index ranks Sweden 4th most competitive. The Index of Economic Freedom 2012 ranks Sweden the 21st most free out of 179 countries, or 10th out of 43 European countries. Sweden ranked 9th in the IMD Competitiveness Yearbook 2008, scoring high in private sector efficiency. According to the book, The Flight of the Creative Class, by the U.S. urban studies, Professor Richard Florida of University of Toronto, Sweden is ranked as having the best creativity in Europe for business and is predicted to become a talent magnet for the world's most purposeful workers. The book compiled an index to measure the kind of creativity it claims is most useful to business – talent, technology and tolerance.""Sweden most creative country in Europe & top talent hotspot" , Invest in Sweden Agency, 25 June 2005. Sweden's investment into research and development stood, in 2007, at over 3.5% of GDP. This is considerably higher than that of a number of MEDCs, including the United States, and is the largest among the OECD members.
Sweden rejected the Euro in a referendum in 2003, and Sweden maintains its own currency, the Swedish krona (SEK). The Swedish Riksbankfounded in 1668 and thus making it the oldest central bank in the worldis currently focusing on price stability with its inflation target of 2%. According to Economic Survey of Sweden 2007 by OECD, the average inflation in Sweden has been one of the lowest among European countries since the mid-1990s, largely because of deregulation and quick utilization of globalization.Economic survey of Sweden 2007
The largest trade flows are with Germany, United States, Norway, United Kingdom, Denmark and Finland.
The Swedish economic picture has brightened significantly since the severe recession in the early 1990s. Growth has been strong in recent years, and even though the growth in the economy slackened between 2001 and 2003, the growth rate has picked up since with an average growth rate of 3.7% in the last three years. The long-run prospects for growth remain favorable. The inflation rate is low and stable, with projections for continued low levels over the next 2–3 years.