OECD: Sweden's economy expected to increase 1.6 percent this year.

• Joining the euro? No thanks
• Sweden's unemployment rate jumps to 9.8%

The the Organization for Economic Cooperation and Development, OECD, raised its growth forecast for the eurozone economy to 1.2 percent this year on Wednesday but urged it to tackle financial weaknesses.

Sweden’s economic recovery is expected to grow more than the eurozone average – despite swelling unemployment and the “severe recession” in 2008 and 2009.

“Although activity is regaining momentum, economic slack is now substantial and unemployment will remain high for some time”, the OECD said in a outlook.

Sweden's gross domestic product is expected to increase 1.6 percent this year and 3.2 percent next year on improving export demand and private consumption. Last year the country’s economy dropped 5.1 percent.

“While policy interest rates are set to start rising fairly soon, the monetary stance ought to remain stimulative for some time”, the rich-world think tank said, urging the country to fight its growing unemployment.

Sweden's jobless rate jumped to 9.8 percent of the workforce in April from 9.1 percent a month earlier, the national statistics agency said Tuesday, announcing a much higher rise than expected. The OECD expects unemployment rate to dip only slightly to 8.7 percent next year from 8.8 percent this year.

The same day the Swedish Housing Credit Guarantee Board (Statens bostadskreditnämnd) warned of a mortgage debt hangover. Today interest rates are at a record-low right, but households with little buffer will start feeling the pain when interest rates rises.

"We have a debt-price spiral within the housing market. Sweden is among the OECD countries with the greatest increase in housing loans. There is a causal link between rapid debt growth and subsequent deep economic crisis," Bengt Hansson, an analyst with the organisation told the TT news agency.