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MONEY

Sweden’s income gap grows as more people than ever are at risk of poverty

More people than ever in Sweden are considered to be at risk of poverty, new statistics show.

Published: 28 January 2021 10:58 CET
Sweden's income gap grows as more people than ever are at risk of poverty
The measurement is based on the proportion of people whose income is less than 60 percent of the medium income. Photo: Anders Wiklund/TT

The proportion of people at risk of poverty topped 15 percent for the first time in 2019, according to data published by Statistics Sweden this week.

This is a relative measurement, also called 'low economic standard' in Sweden. It is based on the proportion of people whose income is less than 60 percent of the medium income, so it doesn't necessarily mean that the poorest have less money in their wallets than in previous years.

But it does mean that they have less compared to their peers, and that gaps between rich and poor are increasing.

“This can create tensions and can be serious,” professor Daniel Waldenström, who researchers income gaps, told the TT newswire.

“Everyone with a job has had significant increases in income over the last 20 years,” he said, adding that this meant pensioners, students, and the unemployed are relatively worse off. But Waldenström said that the proportion of people in absolute poverty had decreased.

Income gaps were also present between Swedish- and foreign-born people in Sweden, with the economic standard of the latter just 77 percent of that of native-born Swedes, a figure that has remained relatively stable over the past decade.

Statistics Sweden's measurements do not take into account the impact of the welfare system in Sweden, which reduces poverty among children and pensioners through for example child or housing benefits and subsidised health and dental care.

The demographic with the highest proportion (41 percent) of people living at risk of poverty according to this measurement is single women over 80, followed by people aged under 20 (20 percent). 

Overall, households' economic standard increased by 0.7 percent in 2019, the slowest rate of growth since the 1990s – and due to the pandemic this may have slowed even further in 2020.

Differences in income, measured using the Gini coefficient which gives a score between 0 and 1 (where 0 means all households have the same income and higher values represent greater disparities), increased in 2019.

The richest ten percent of the population accounted for 26 percent of income, while the half of the population with the lowest income accounted for just 30 percent of the total.

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MONEY

Three ways Sweden’s slashed interest rate will boost your finances

Sweden's central bank, the Riksbank, in May lowered the policy rate for the first time in eight years. How could this affect the finances of those of us living in Sweden?

Published: 8 May 2024 12:01 CEST
Updated: 14 May 2024 05:44 CEST
Three ways Sweden's slashed interest rate will boost your finances

Lower mortgage rates

The policy rate is not the same as the interest rate on your mortgage, although they are linked. In a policy rate prognosis from March, the bank predicted that the policy rate could drop to as low as 2.75 percent by the end of 2025, a drop of 1.25 percentage points since the beginning of 2024.

If mortgage rates drop by the same amount, you could expect a drop in the monthly cost of a 3 million kronor mortgage of around 3,000 kronor a month, not including the tax rebate for interest costs.

Higher property prices

As mortgage rates get lower, the housing market is likely to improve, as buyers know their monthly costs aren’t going to skyrocket due to ever-rising interest rates.

If you already own a home and you’re planning on buying and selling at the same time in the market, this will affect you less, as the price of your new home will most likely go up at the same rate as the price of your old home, but this is good news for anyone planning on selling.

It’s worse news for first-time buyers, who will have to save a larger deposit as prices go up, but on the other hand they’ll get lower mortgage rates and a more stable policy rate makes it easier to plan ahead for the future without being surprised by ever-increasing rates.

A stronger Swedish economy

The Riksbank’s decision to lower the interest rate is proof that the bank believes inflation is over – for now at least. This means that we can expect to see inflation remain at a more stable level, and we’re unlikely to see anything close to the ten percent inflation we saw at the end of 2022.

Lower inflation means that Swedish monetary policy won’t need to be as cautious or restrictive in the future, as the government and the central bank no longer need to put all their efforts into fighting inflation.

That’s not to say that authorities will start stimulating the economy just yet – they’re likely to proceed with caution to make sure inflation really is down for the long-term – but Thursday’s interest rate announcement indicates that the “economic winter” Finance Minister Elisabeth Svantesson warned of in September last year could be drawing to a close.

Is it all good news?

In the short term, the value of the krona is likely to worsen somewhat, as the central bank has lowered Sweden’s interest rate ahead of other major central banks. The krona weakened slightly after the bank’s announcement on Thursday, dropping 8 öre in value against the dollar and 7 öre against the euro.

This is good news for people with income in other currencies, but bad news for those of us who are paid in kronor.

Having said that, a stronger Swedish economy is good news for the value of the krona in the long term, although it’s difficult to predict when the krona will start to gain in value and by how much.

At the end of last year, Riksbank governor Erik Thedéen described the krona as “undervalued”, and underlined the importance of having strong foundations in the Swedish economy.

“The Swedish economy is, at its foundations, well-managed, and sooner or later this will lead to a stronger exchange rate,” he said. “Sweden has strong finances, a well-educated labour force, responsible salaries and a good underlying level of competition.”

“As anyone who has tried to predict the exchange rate knows, it’s genuinely difficult to say exactly when it will go up and by how much, but it can also happen quickly when the trend is broken and the krona starts to gain in value.”

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