Assessment and recommendations

Sweden endured a deep contraction during the recent global economic and financial crisis but the recession was short and the economy has bounced back strongly. A key reason why Sweden performed well in the face of this major external shock was that it learned the right lessons from the severe banking crisis it experienced in the early 1990s. This earlier banking crisis triggered far-reaching reforms to restore fiscal sustainability, to put in place a robust monetary policy framework and to improve labour market and social policies. As a result, Sweden entered the latest crisis with strong economic institutions and fundamentals. Moreover, Sweden addressed the crisis through structural reforms, such as the increase in the earned-income tax credit, with positive effects both on the demand side of the economy in the short term and on the supply side in the longer term. Going forward, the challenge is for Sweden to strengthen these fundamentals even further to enable the country to enjoy robust economic growth.

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