Sweden 'strong like Pippi Longstocking': OECD

The head of the OECD compared the strength of the Swedish economy to that of the popular Astrid Lindgren's character during a conference in Stockholm on Thursday.

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"The Swedish economy is strong like Pippi Longstocking," OECD secretary general José Ángel Gurría said.

The organisation forecast continued strong Swedish growth of 3.9 percent this year and 3.4 percent in 2012.

Despite the impressive numbers, Ángel Gurría warned that a number of elements were out of the country's hands.

"Sweden is a success story, even though you are vulnerable to things you have no control over because you are a small open economy," he noted.

Ángel Gurría went on to praise Sweden, declaring the country "an island of prosperity" in very shaky waters.

"And when I say it, your interest costs will decrease even more," he joked.

The OECD's estimates for strong growth in Sweden in the coming years are bolder than many Swedish economic analysts' expectations. GDP grew by 5.2 percent last year and is expected to grow by 3.9 percent this year.

The organisation also expects the strong growth to continue in 2012 by an additional 3.4 percent.

Sweden has weathered the global financial crisis well, OECD economists stated in their analysis of economic developments in Sweden. The crisis has shown that the Swedish economic framework works well, the organisation said.

The OECD lauded Sweden for heeding the experiences of its own problems in the past, saying the country "learned the right lessons from the severe banking crisis in the early 1990s."

Sweden also won praise for its "ambitious" action in reducing greenhouse gas emissions. However, the OECD noted that its goals could be achieved at a lower cost. The OECD also noted that it is time to roll back the emergency measures that were in place to mitigate the crisis.

This means that support for banks could be withdrawn, while at the same time, it is time for Sweden's central bank, the Riksbank, to raise interest rates. However, the Riksbank was criticised for communicating that the economic situation in the country was "improving."

In addition, the OECD believes that the division between the Riksbank, the Swedish National Debt Office (Riksgälden) and the Swedish Financial Supervisory Authority (Finansinspektionen) needs to be revised and become more transparent.

"There is a kind of fragmentation in terms of the responsibilities between the three institutions. The overhaul need not result in only one supervisory body, but coordination is important," said Ángel Gurría.

The labour market has taken a turn for the better, but the OECD warns of the risk of long-term unemployment becoming entrenched at high levels. In its forecast, the OECD forecast the Swedish unemployment rate at 8.4 percent for 2010, 8.0 per cent this year and 7.5 percent in 2012.

"Due to the government's reforms to get more people into work, we are now in a stronger position than many other countries. But we must continue to improve the functioning of the labour market by making it more worthwhile for low and middle-income earners to work," Finance Minister Anders Borg said at the conference.

"At the same time, the government must also safeguard Sweden's position with strong public finances. We will protect and strengthen the methods we use to deal with crises in the financial system and banks in crisis, without great burden on public finances," he added.

"The problems that countries around the world are experiencing with their public finances underline the importance of this," Borg continued.