Annual Report 2020


Since the outbreak of the pandemic, Sweden has been in the spotlight time and again due to its unique approach in dealing with the coronavirus. The minority government made up of Social Democrats and Greens followed the recommendations made by their chief epidemiologist and opted neither for a lockdown nor for making face masks mandatory. Faced with mounting infection and high death rates, however, the government was forced to change course at the end of the year, although this involved further restrictions on public life as opposed to an extensive lockdown. As a result of this approach, the Swedish economy did not experience as severe a slump as the rest of Europe in the first half of the year or any above-average catch-up effect in the second half. According to provisional calculations by the Swedish statistics office SCB, GDP contracted by 2.8% in 2020.

Despite the second wave of infection across the globe, Sweden’s export industry appears to be faring relatively well again. Foreign trade statistics show that this is primarily due to positive trends in goods exports and export orders in the period leading up to the start of the third quarter. Despite this positive development, exports are expected to have dropped by 5.3% year-on-year and are tipped to grow by 5.5% in 2021, driven largely by exports of goods, machinery and motor vehicles. The slump in investment running into the double-digit percentage range that was feared back in the spring has turned out to be mild at 1.5% in 2020 thanks to public investment, which was up by 4.1%, while corporate investment was down by 4.3%. News of the launch of the vaccination drive as well as the combination of expansive fiscal policy and low interest rates are likely to fuel investment growth of 3.0% in 2021. Even then, the bulk of the investment growth is likely to be driven by a marked increase in government spending on infrastructure and military equipment. Corporate investments will start to rise more considerably again once the restrictions imposed in response to the pandemic are lifted.

Despite increased costs in connection with the coronavirus pandemic and significant financial injections made by the Swedish government, the pandemic has put the brakes on municipal consumption, which remained virtually unchanged with only a slight increase of an estimated 0.1% in 2020. Looking ahead to 2021, the National Institute of Economic Research (NIER) expects to see growth in public consumption expenditure of 3.1%. Although the restrictions imposed in Sweden have been less severe, services that involve close contact, in particular, also experienced a marked slump in the wake of the pandemic, while private spending on goods and housing either remained stable or actually increased. Private consumption is likely to have contracted by 5.1% overall in 2020. Household spending is expected to start making a marked recovery in 2021, with a predicted increase of 3.1%. This will not, however, be sufficient to make up for the losses sparked by the pandemic, and it is likely to take until 2022 to make a return to the pre-crisis level. All in all, the forecasts for 2021 expect to see GDP growth of 3.2%.

Sweden’s labor market has been hit hard by the pandemic. According to the Swedish Public Employment Service, more than 680,000 people were looking for work at the end of November 2020 and around 40% of them had lost their jobs in the last six months. The NIER expects the unemployment rate for 2020 to come to 8.5%. The forecasts predict a further increase in 2021, although it will be cushioned by the continued option of the short-time work scheme. It could take until the middle of the decade for the rate to fall back to the pre-crisis level. CPIF inflation – the increase in the consumer price index with a fixed interest rate – came to 0.5% in 2020, held back by dwindling energy prices and only a slight increase in the price of services. The early wage agreements concluded point to a more marked increase in production costs for the corporate sector in 2021, which will push prices up, particularly for services. Substantial increases in water and wastewater charges in a large number of municipalities as well as higher land taxes are also expected to contribute to higher inflation of 1.1% in 2021.

The Riksbank, the Swedish central bank, increased its bond purchases considerably in the midst of the second wave of infection. By increasing the volume and extending the term of its securities purchase program, the Riksbank made it clear that extensive monetary policy support will be available for as long as necessary. By contrast, the central bank left the key interest rate unchanged at 0.0%, as was to be expected.

The risks and uncertainties hanging over the forecasts for Germany, as explained earlier, also apply to Sweden. It also remains to be seen how the Swedish government will continue to handle the coronavirus crisis. Despite all of the uncertainties, there is hope for better Swedish economic performance in the second half of 2021, particularly if the vaccination rate is high. In 2020, Sweden’s economic policy was characterized by an active demand policy – albeit one that was not nearly as active as in Germany. As a result, public debt in Sweden has not increased to any considerable degree and remains at a low level compared to most other EU countries at around 40% of the GDP. This means that Sweden still has considerable fiscal elbowroom.

Sweden’s housing market has proven to be robust throughout the coronavirus crisis. According to experts from the real estate consultancy firm Svefa, rental apartments make up one of the real estate market segments that are coping better with the coronavirus crisis. Boverket, the Swedish National Board of Housing, Building and Planning, has reported considerable and growing interest in the segment among Swedish and international investors alike. Not least in times of uncertainty, real estate assets offering a low vacancy risk and stable cash flows are much sought-after.

According to the Swedish Association of Public Housing Companies, Sveriges Allmännytta, the Swedish housing market is under considerable pressure. The country has witnessed marked population growth in recent years and the population is set to increase by 767,000 to more than 11 million in the period between 2019 and 2030, according to data supplied by Statistics Sweden. Population growth in 2020, however, is expected to have been somewhat more restrained than in the previous year. In light of the coronavirus pandemic and partial border closures, net migration was down on the previous year according to Boverket. In the meantime, new construction has not been able to keep up with the population growth seen in recent years. Much of the country is facing a housing shortage, primarily in its urban areas. Even though the number of municipalities with a balanced housing market is increasing, 212 out of 290 municipalities reported a shortage of homes in Boverket’s residential property market survey for 2020. The greater Stockholm, Gothenburg and Malmö regions account for around 76% of the total deficit. Rental apartments, in particular, are in short supply. In many municipalities, however, residential construction activity is hampered by high construction costs. Furthermore, strict lending requirements or difficulties faced by private individuals in being granted loans limit new construction.

According to data supplied by Statistics Sweden, rents rose by an average of 1.9% in 2020, as in the previous year. Rents are also expected to continue rising based on the initial results of the rent negotiations for 2021 published by “Hem & Hyra,” the member magazine published by the Swedish tenants’ association (“Hyresgästföreningen”). According to Savills, major trends such as ongoing urbanization, smaller household sizes and a strong growth in housing prices for owned apartments and houses have been driving the demand for rental apartments. This trend may intensify further in times of uncertainty.

The market for residential property ownership has not been affected to any significant degree by the coronavirus pandemic either. Boverket reports that, before the outbreak of the coronavirus pandemic, home prices on this market had recovered after falling at the end of 2017. The upswing initially continued at the start of 2020. Measured against the Valueguard HOX price index, which reflects the price development of typical condominiums and single-family homes, residential real estate prices initially dropped considerably in April, the month in which the strongest impact of the coronavirus seen up until then was felt, but rose again noticeably in May and continued to increase as the year progressed. The HOX price index was ultimately up by 11.5% year-on-year in December 2020. SEB experts are predicting price increases of up to 5% for both 2021 and 2022, which is also likely to help sustain an upswing in residential construction. The experts at Boverket expect that the residential property market will also survive the latest wave of widespread shutdowns. There is, however, uncertainty about how strongly demand can be sustained during an economic slowdown that could well last longer than that witnessed last spring.

The strong demand for homes contributed to the resilience of the construction industry during the coronavirus crisis, according to SEB. By way of example, apartment construction activity in 2020 outstripped the original expectations. Boverket currently estimates that construction work started on around 54,000 apartments in 2020 (2019: 51,600, including additions due to conversion work), with the figure for 2021 expected to come to 52,500. This means, however, that construction activity is falling short of the level that is actually required. According to Boverket’s estimate, between 59,000 and 66,000 new apartments will need to be built every year between 2020 and 2029 to do justice to the expected population growth and reduce the pent-up housing deficit.

According to Savills, properties worth SEK 209 billion were traded on the Swedish transaction market in 2020; this was only SEK 12 billion less than in the record year of 2019, but 16% higher than the average for the last five years. With a total investment volume of almost SEK 61 billion, residential properties were the preferred asset class. This corresponds to an increase of SEK 10 billion compared with the average for the last five years. Historically, investors tend to seek defensive options in times of uncertainty, according to Savills. The stable cash flows and very low vacancy risk associated with multifamily residences offer an attractive risk-adjusted return for investors. As a result, the sector comprising multifamily residences will most likely prove to be a strong performer as an investment alternative in the current environment.