PESTLE due to strong trade links with Europe.The aging

PESTLE ANALYSIS OF SWEDENSubmitted by  17PGPIM02About SwedenSweden is a constitutional monarchy and follows a democratic system of governance with a multi-party coalition usually in power. Sweden’s new two-party minority coalition, consisting of the SAP and the Green Party that formed a government after the September 2014 election, holds only 137 seats out of the 349 in parliament.In the economic sphere, Sweden has integrated its policies with those of the EU after becoming a member in 1995. The nation has not adopted the euro, believing that it would have to compromise on growth and stability in doing so. Sweden remained one of the best performing economies in the region with an annual average growth of 3.24% during 2000–07. When its major export partners—the EU and the US—went into a deep economic crisis, Swedish economic growth took a beating in 2008–09. The economy returned to an upward growth trajectory in 2013. The economy is showing improving signals by growing at 4.1% in 2015 and expected to grow by 3.4% and 2.7% in 2016 and 2017, respectively. A strong financial regulatory system and healthy public finances are two major strengths of the economy. However, overheated property market and indebted households are imminent threats to the Swedish economy. Furthermore, the economy is also vulnerable to deflationary pressures and poor export performance due to strong trade links with Europe.The aging population and its associated costs continue to plague Sweden; in addition, inequality is rising. The ongoing influx of migrants into the country is also posing serious social and economic threats. The country has done well on the technological front and has a strong financial setup, an efficient capital market and a transparent legal framework. Further, it has used its progress to achieve a cleaner environmentPolitical AnalysisThe Swedish system of governance, with a multi-party coalition at the helm, has proved successful in the past. While strong co-operation among the Scandinavian states cements Sweden’s international position, its relationship with NATO has witnessed a new high. Since the ruling coalition does not have overall majority, it depends on support from other parties to pass legislations—this is a major political risk in the medium term.Sweden’s performance on World Bank’s Worldwide Governance Indicators has remained impressive; for example, it had a percentile rank of 99.51 on the voice and accountability parameter in 2015. The voice and accountability parameter measures the extent to whih a country’s citizens are able to participate in selecting their government, along with freedom of expression, freedom of association, and the availability of free media. Sweden had a percentile rank of 99.52 for the rule of law parameter in 2015. Rule of law measures the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the police, and the courts.Similarly, on the government effectiveness parameter, which measures the quality of public services, civil services, and the degree of their independence from political pressure, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies, the country had a percentile rank of 96.15. Sweden’s strong performance on governance indicators signifies that it has a sound and effective governance structure.Sweden is undergoing political turmoil due to the influx of migrants in recent times. The country’s failed integration policy and the rapidly growing anti-immigrant sentiment increased the popularity of far-right, anti-immigration parties in Sweden. SD – the far-right, nationalist and anti-immigration party – has seen its share of votes more than double to 12.9% in the parliamentary elections in September 2014, compared to the last election in 2010. It is presently the third largest party in Sweden with 49 seats. SD’s promise to contain the surge in immigration has expanded its voter base as many Swedes have become hostile to immigrants.In November 2015, Sweden witnessed several arson attacks on refugee shelters which are a proof of the increasing hostility. According to the party preference survey, published by the Statistics Sweden in November 2016, SD party’s percent share increased by 4.6 percentage points, from 12.9% in 2014 elections to 17.5%. The growth percent is the highest as compared to the other parties. Therefore, the rise of the anti-immigrant parties has become a threat to Sweden’s reputation of being one of the most tolerant societies in the world.Economic AnalysisA strong financial regulatory system and healthy public finances are two major strengths of the economy. The economy is vulnerable to deflationary pressures and poor export performance due to strong trade links with Europe. Overheated property market and indebted household are imminent threats to the Swedish economy.Sweden is one of the few countries which have an effective integrated financial regulatory system. There is a single financial supervisory authority, Finansinspektionen, to supervise and monitor all companies operating in the Swedish financial markets. Finansinspektionen oversees around 3,700 companies operating in the banking, insurance, and fund management sectors in addition to the stock market. Its role is to promote stability and efficiency in the financial system, as well as to ensure consumer protection. A single authority is more effective in monitoring activities across all sectors of the financial system; access to all sectors enables it to spot any discrepancies in one that could create problems in the other.Sweden has a strong fiscal position in comparison to other European countries. Of late, the country recorded a general government surplus of around 0.18% of GDP. The government debt was 61.71% of GDP in 2015, one of the lowest amongst the OECD countries. In addition, the government’s assets exceed its liabilities, strengthening the country’s net asset position. The general government financial wealth was 19% of GDP in 2015. Despite reductions in personal and corporate income tax rates and increase in expenditures for sickness benefits and asylum seekers, the general government balance has remained below the threshold of the Stability and Growth Pact. The judicious management of public finances by the Swedish government has resulted in the country being one of the most fiscally responsible countries in Europe. The country’s strong fiscal position has prevented the implementation of austerity measures in times of economic slowdown. Being in a healthy financial position leaves the government with ample room to provide fiscal stimulus in case of adverse economic developments.Sweden has maintained an inflation rate of around 1.66% between 2010 and 2012. However, the country went into deflation in 2013. Between 2013 and 2015, the economy had an average annual deflation of 0.08%. Although the prices increased by 0.89% in 2016, but still the country is well below its inflation target of 2%. The low rates of inflation are indicative of a sluggish economy. Declining resource utilization in the country since 2011, decreasing global commodity prices, and a strong krona against the euro, have all contributed to low inflation in Sweden. Despite growing consumption in the economy, the existing negative output gap and a high unemployment rate continue to add to the unutilized capacity in the economy. This in turn is putting pressure on prices and prevents them from increasing in future.Social AnalysisSweden has performed well on various social parameters, mainly because of the dominance of socialist parties for nearly half a century. The UNDP gave Sweden an HDI rating of 0.907 in 2014, which put the country 14th out of the 188 countries assessed. Life expectancy at birth was 82.1 years in 2016, one of the highest in the world. According to the UNDP, the HDI of very high human development countries stood at 0.896 in 2014, which indicates that Sweden is above the average. This is a creditable achievement for the country.Sweden maintains one of the world’s most advanced social welfare systems. The Swedish social welfare system is known the world over for its extensive coverage and has been recognized as a model system for other European nations. The country has remained an example for its “cradle to grave” policy—its all-inclusive social welfare provides for the elderly, the disabled, and infants. Healthcare and social welfare services are two pillars of the Swedish welfare system. Both are seen as public sector responsibilities and are supported by a national social insurance system. The decentralization of these policies has made their implementation effective.Sweden faces the problem of an aging population, exacerbated by a declining birth rate. This, along with increasing life expectancy, will result in a much older society. According to the European Commission, the elderly population as a percentage of the total population will increase to 24.2% by 2060, up from 19.8% in 2015. Further, the working age population as a percentage of the total population will decrease to 58.4% by 2060 from 62.9% in 2015. Health spending and pension costs will see a manifold increase after members of the baby boomer generation begin to retire. Sweden’s social programs, especially those for the elderly population, may prove to be unsustainable if new reforms are not implemented. The changing demographic structure will have an adverse impact on the financial sustainability of social welfare measures.Technology AnalysisSweden since long has fostered innovation and has produced a huge array of life changing inventions, ranging from thermometer to three-point seatbelt. Sweden presents a near-perfect environment for innovation with its intellectual property rights (IPR) policy and co-operation between industry, research institutes and government bodies. It also maintains a robust ICT environment with one of the highest rates of mobile and Internet penetration in the world.According to the European Innovation Scoreboard (2016), Sweden is an innovation leader with its performance well above that of the EU and all other countries. The country has the best performing innovation system in the EU, followed by countries like Denmark, Finland and Germany. A skilled and scientific workforce backs innovation in the country. Sweden scored much higher than the EU average on indicators such as human resources, excellent and attractive research systems, finance and support, firm investments and intellectual assets. Sweden’s performance in the field of innovation has been impressive, which provides a strong base for technological development. According to the Bloomberg Innovation Index 2017, Sweden ranked 2nd out of 50 major economies. The index scores the indicators like the concentration of the high tech public companies, R spending, etc.Sweden’s expenditure in R&D is one of the highest among the euro area countries. According to the European Commission, Sweden’s R spending—which was at around 3.26% of GDP in 2015—is healthy when compared with other developed countries in the euro area. Strong R made Sweden more competitive as compared to its peers. According to the Global Competitiveness Report 2016–17 released by the World Economic Forum, Sweden ranks sixth among the world’s 138 nations in terms of competitiveness, up from ninth rank previously.The country needs to innovate in export-oriented sectors given the challenges it faces. The incentives provided by the government for R&D are one of the lowest in Sweden among the OECD countries, as shown in the figure below. The B index measures the before-tax income needed by a firm to break even on $1 of R&D outlay. So the 1 minus the B index shows the government’s focus on R incentives. In fact, the incentives given by Sweden are much lower than compared to those of other European countries. Although it has improved in comparison to its peers like Finland and Denmark, it still has a lot of scope to provide more subsidies for R. Proper impetus to R is necessary for the Swedish economy to improve its productivity.Legal AnalysisSweden has an independent judicial system responsible for the maintenance of law and order. Sweden has also maintained its status as one of the world’s most competitive economies, with a strong financial setup, an efficient capital market and a transparent legal framework. Nevertheless, restrictions still exist and prevent competition in markets of certain products and servicesSweden was ranked 26th out of 178 economies in the Heritage Foundation’s and the Wall Street Journal’s Index of Economic Freedom in 2016. It was ranked 14th in Europe, while its overall score was higher than the regional average and the world average. The overall score increased by 0.3 points since 2012.According to the index, Sweden has notable success in Rule of Law, Open Markets and Regulatory Efficiency. Further, the country was placed 9th out of 190 countries in Doing Business 2017, which reflects the ease of doing business in Sweden. The time taken for activities such as starting a business (7 days), dealing with construction permits (116 days), getting electricity (52 days), paying taxes (122 hours per year), trading across borders (2 hours) and enforcing contracts (321 days) is lower than the OECD averages. The legal framework is transparent and is not considered cumbersome. The country’s financial system works efficiently and the capital market is well developed. The government has also implemented a number of reforms to improve the business regulatory environment and to benefit from investment inflows and increased competition.Sweden has a highly regulated market. Product market indicators are a set of metrics that measure the extent to which policies framed by the government promote or inhibit competition in the areas of the product market where competition is possible. Many of the sectors are more regulated compared to other Scandinavian countries. This is indicative of a less competition-friendly market and monopolies in various sectors. The government should take measures to ease regulation to strengthen product market competition.Under the EU’s directives, Sweden has liberalized many formerly government-dominated sectors, but state dominance continues to exist in many other products and services. Similarly, there are practical impediments to investments, like the existence of a system of permits and authorizations to engage in many activities. In few sectors such as retail, there is limited competition and a handful of very large firms have continued to dominate the segment. Such restrictions adversely affect the functioning of these sectors.Environmental AnalysisSweden has been at the forefront with respect to environmental legislation. One of the first countries to pay attention to environmental issues, Sweden’s performance has been commendable in balancing economic growth and raising environmental standards. Given its geographical location, climate change has been recognized as a priority issue. The government’s key areas of concern include reducing nitric oxide emissions and protecting the nation’s water bodies. There is also a need to better integrate environmental concerns into the energy, transport, forestry and agriculture sectorsSweden has remained one of the top countries in the area of environmental conservation. The country was ranked third out of 180 countries on the Environmental Performance Index 2016 released by the Yale Environment Center. Its score was 90.43 compared to Denmark’s score of 89.21. The country topped the chart in agriculture performance, while ranked 5th, 10th and 12th in health impacts, climate and energy and water resources, respectively. It is one of the few developed countries to cut its use of environmentally harmful chemicals.Sweden has ratified a number of international environmental treaties and has been making legislative changes to meet the resulting directives. The country has played an active role in the preparation of global agreements on environmental protection and sustainable development and in the strengthening of international environmental governance. Sweden is party to a large number of environmental agreements on air pollution, biodiversity, climate change, endangered species, hazardous waste and the ozone layer. Moreover, during its rotating EU presidency, climate change was a key priority.Sweden has to work to achieve its commitments under the EU National Emissions Ceiling Directive as well as national environmental quality objectives. Moreover, the objectives for water management—such as good quality groundwater, a balanced marine environment and a healthy coastline—still need attention. Sweden is responsible for around one-fifth of the total land-based leakage of nitrogen into the Baltic and Kattegat Bay. Contaminants such as dioxins, once emitted by the pulp and paper industry, remain a problem, while the consumption of both freshwater and marine fish is restricted. Abandoned mines are a long-term source of heavy metal contamination in Swedish lakes. Furthermore, overfishing has reduced populations of cod and Baltic herring to dangerously low levels