The Economy Report.ON SWEDISH MUNICIPAL AND COUNTY COUNCIL FINANCES APRIL 2012
Information concerning the content of the report:Annika Wallenskog tel +46 8 452 7746Bo Legerius tel +46 8 452 77 34
Swedish Association of Local Authorities and RegionsDepartment of Economy and Governance, Section for Economic AnalysisSE-118 82 Stockholm | Visitors Hornsgatan 20Phone +46 8 452 70 00 | Fax +46 8 452 70 50www.skl.se
Sveriges Kommuner och Landsting1st edition, May 2012
Graphic form & production Elisabet JonssonTranslation Ian MacArthurCover illustration Jan Olsson Form & Illustration ABDiagrams Hkan HellstrandPrinters ABA Kopiering AB, StockholmFonts Chronicle and WhitneyPaper Color Copy 120 gr
ISBN 978-91-7164-694-1[Swedish edition: 978-91-7164-692-7, ISSN: 1653-0853]
The Economy Report. April 2012 On Swedish Municipal and County Council Finances 1
The Economy Report illustrates the financial situation and conditions of coun-ty councils and municipalities and the development of the Swedish economyover the next few years. It is published twice yearly by the Swedish Associa-tion of Local Authorities and Regions (salar).
The financial situation of municipalities and county councils weakened in2011, mainly because their pension liabilities had to be revalued on account oflow interest rates. In 2012 non-recurring revenue items are expected to con-tribute to very good net income. In later years net income will weaken despi-te strong tax base growth.
This is an abridged version of the report. It contains the Summary (sup-plemented with some tables and diagrams from the main report), som sec-tions dealing with municipalities and the county councils as well as the An-nex. It has been written by staff at the salar Section for Economic Analysisand has not been considered at political level within the Association. The peo -p le who can reply to questions are given on the inside cover page. Other sa-lar staff have also contributed facts and valuable comments. The trans lationis by Ian MacArthur, following slight revisions by Elisabet Jons son, Anna Kle-en and Bo Legerius,. We are very grateful to the municipalities and countycouncils that have contributed basic data to our report.
Stockholm, April 2012
Annika WallenskogSection for Economic Analysis
3 Summary3 The Chief Economists conclusions11 Municipalities: Prospects and challenges looking ahead14 County councils: Trends in healthcare
2 The Economy Report. April 2012 On Swedish Municipal and County Council Finances
SummaryAfter the economic downturn in late 2011 and early 2012 the situ-ation for the Swedish economy has now started to brighten. Thiswill work through to municipal and county council tax revenuein coming years. Despite strong tax base growth, an increase ingovernment grants or local government taxes or extensive actionwill be required to avoid deficits from 2015 onwards.
The Chief Economists conclusions
Concern about the situation in indebted emu countries, especially Greecebut also other countries around the Mediterranean, created a great deal ofturbulence in financial markets in autumn and winter 2011. The result was ri-sing interest rates in the crisis countries and falls on stock exchanges acrossthe world. The concern and uncertainty about the ability of the politicalsystem to master these problems also led to an abrupt dampening of econo-mic activity, not just in the crisis countries but also in many other countries,both in and outside the euro zone.
However, recent signals indicate that the worst is over and that the bottomwas reached in the winter. The are many indications that the situation is nowstabilising and that we will see a gradual increase in economic activity in thecourse of 20122013. At the same time, it should be remembered that severalcountries in the euro zone are facing severe fiscal restraint. This means thatweak economic growth must be expected in many European countries in thecoming years. Nor are the prospects for a strong recovery in the United Sta-tes, the worlds largest economy, particularly good. Household indebtednessis very high at the same time as the property market is still characterised by asubstantial oversupply of unsold homes. This does not suggest that us hous-eholds will be able to assume their traditional role as the primus motor of theworld economy. The us also has major problems in its public finances with
The Economy Report. April 2012 On Swedish Municipal and County Council Finances 3
double digit budget deficits and substantial national debt that politiciansmust address sooner or later.
There are many indications that the world economy will continue to face adifficult situation, when both households and states have to wind down largeparts of the debts they have incurred in the credit expansion and recessionsof recent decades and the subsequent crisis management.
Sweden is being affected by international concerns, but is still relativelystrongEven though Sweden does not have any problems with its public finances, oureconomy suffered a downturn in the autumn and winter with a sharp fall ingdp in the last quarter of 2011. This downturn reflected a combination of re-straint among Swedish households as a result of international unrest and fal-
4 The Economy Report. April 2012 On Swedish Municipal and County Council Finances
Diagram 7 GDP in Sweden and in our most important export marketsAnnual percentage change
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
GDP Swedish export markets
Swedish GDPTrend, GDP Swedish export markets
The recovery is progressing more quicklyin Sweden than in other countries. By 2016the recession is expected to have beenovercome here in Sweden. Then many other countries will still have some way togo to cyclical balance.
Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.
Table 3 Demand and outputPercentage change
2010 2011 2012 2013**
GDP 6.1 3.9 0.6 2.6Imports 12.7 6.1 1.4 6.0Household consumption 3.7 2.1 2.1 3.0General government consumption 1.9 1.8 1.0 1.0Central government 4.2 1.7 0.4 0.4Local government 1.0 1.8 1.2 1.5
Gross fixed capital formation 7.7 5.8 3.1 7.0Investments in stocks* 2.1 0.7 1.1 0.0Exports 11.7 6.8 1.0 4.5Total use 8.0 4.6 0.9 3.7GDP, calendar-adjusted 5.9 4.0 1.0 2.6
*Change in stocks as per cent of GDP. **Data corrected for calendar effects.Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.
Much of the weak growth in 2012 is ex-plained by weak exports. The shift to low -er increases in stocks also draws downgrowth.
ling export demand. This year has also begun with relatively low economic ac-tivity, but leading indicators point to an improvement in the next few months.
Our assessment is that the Swedish economy will grow by 0.6 per cent in2012, with growth then accelerating to 2.6 per cent in 2013. There are severalreasons to be relatively optimistic about the Swedish economy in the future.First, Sweden is among the countries that have the strongest public financesin the industrialised world. This means that there is scope for fiscal policy sti-mulation, if required by the situation. Second, Swedish households have ahigh savings ratio in international terms. If optimism begins to sprout, thismeans that households have scope to increase their consumption.
Moreover, looking back over the past 20 years, there is much to suggest thatSweden's underlying scope for growth is stronger than in most mature Euro-pean countries. The reforms implemented in our country have likely bornefruit in the form of higher potential for growth. In many other parts of Euro-pe, much still remains to be done in terms of structural reforms.
The Economy Report. April 2012 On Swedish Municipal and County Council Finances 5
Table 4 Household income and consumption expenditurePercentage change
2010 2011 2012 2013
Real disposable income 1.2 3.3 2.7 2.2Consumption expenditure 3.7 2.1 2.1 3.0Savings* 8.5 9.7 10.1 9.4Interest expenditure* 2.7 4.7 4.7 4.7
*Percentage of households disposable income. Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.
Households income is continuing to riseat a relatively rapid rate. Households con-sumption expenditure will speed up in2013.
Diagram 6 Net savings in various sectorsPer cent of GDP
1980 1985 1990 1995 2000 2005 2010 2015
Private sectorTotal saving
Lower savings in the private sector in thefuture will result in a substantial boost toconsumption and investments, which will,in turn, help to keep GDP growth at a rela-tively high level.
Source: Statistics Sweden and Swedish Association of Local Authorities and Regions.
Recovery in the labour market, unused resources until 2016
Despite decent growth in coming years we do not expect the economy to re-turn to full resource utilisation until 2016. The reason is that the growth figu-res forecast for gdp will only lead to a moderate reinforcement of the labourmarket. For 2012 and 2013 we exp