The size of an economy naturally depends on how many inhabitants the country has. In order to create comparability between countries and to take into account that the population grows at different rates during different periods, GDP per capita is therefore often studied, that is, GDP divided by the number of inhabitants.
Just like the standard GDP measure, GDP per capita can be expressed in both current and constant prices. When it is expressed in fixed prices – as in the diagram above – price changes have been excluded or, somewhat simplified, adjusted for inflation.
As can be seen from the diagram, Sweden’s GDP per capita increased sharply during the 1950s and 1960s. The 1970s, on the other hand, were marked by more unrest. Among other things, we were hit by two oil crises, in 1973 and 1979, which caused major problems for many Western countries, including Sweden. The price increases that followed in the wake of the oil crises were reinforced by strong wage increases at home, causing inflation to run wild. In addition, the employer’s contribution was raised significantly, which further increased wage costs. Sweden lost international competitiveness and growth was weak during these years.
The weak growth culminated in a deep crisis in the early 1990s. We then experienced three years of falling GDP. However, the crisis forced Sweden into a series of reforms. Among other things, the Riksbank became independent, the tax system was reformed and a number of markets were opened to competition.
The reforms during the 1990s helped Sweden to speed up growth again. Despite that, we have of course also been hit by crises and downturns in recent years. During the early 2000s, for example, we experienced a sharp economic downturn in connection with the bursting of the IT bubble. A couple of years later, in 2008 and 2009, GDP per capita fell as a result of the financial crisis. The recovery was very strong at first, but was later interrupted by the international debt crisis, above all by the problems in the euro area. This interruption meant that it took until 2014 before Sweden began to emerge from the recession and GDP per capita growth increased.
Towards the end of the first quarter of 2020, the corona crisis hit and meant a huge shock to the economy in Sweden and globally. GDP per capita fell by 3.6 percent, which was the biggest decline since the financial crisis.
Demographic changes affect
In periods of either unusually high or low population growth, it is particularly relevant to see how GDP per capita develops. In recent years, Sweden has been in just such a period. Between 2005 and 2020, the population grew by about 0.9 percent per year on average. This is historically a high figure. Between 1995 and 2005, the corresponding population increase was only 0.2 percent per year. If you therefore only look at how high the ordinary GDP growth has been in these recent years, you risk getting an overestimated picture of the prosperity development.
However, it is not only the total population development that is of interest in this context, but also how the age distribution is changing. If the population of working age (roughly 20-64 years) grows faster than other age groups, this can be expected to have a positive effect on GDP per capita because a larger proportion is then involved and contributing to production. In recent years, however, the population in the 20-64 age group has grown more slowly than other age groups, which can explain part of the weak GDP per capita development.
International comparisons
When comparing how different countries have developed over time, the choice of comparison period plays a major role in the outcome. If you look, for example, at 2005-2021, i.e. a period that includes both the international financial crisis and the corona pandemic, GDP per capita growth has been relatively weak in many areas. Among the OECD countries, it has averaged just under 1 percent a year, which is also the average growth rate in Sweden during the period.