Sweden's unemployment rate is 15 per cent, three times the figure being used by the government, according to new research from McKinsey Global Institute, the think tank.

The consultancy's calculations indicate unemployment is set to rise further, with between 100,000 and 200,000 jobs outsourced to cheaper countries over the next 10 years if no corrective action is taken.

The numbers cast a pall over Sweden's international reputation as a thriving welfare state with low unemployment and will help focus attention on jobs ahead of September's national elections.

McKinsey reached its conclusions by including those who want to work and those who could do so, meaning people on government programmes as well as those on prolonged sick leave.

In its first assessment of the country's economy since 1995, it said: "Sweden's economy has reached a critical juncture. If nothing is done, the problems will become much more serious."

It praised Sweden for achieving average GDP growth of 2.7 per cent a year since 1995, which it attibuted to deregulation and improvements in private sector productivity.

But it said the country could not rely on future improvements in private-sector productivity, as the catch-up effect that had driven these developments would decline over time.

The ageing population would put the public sector under "intolerable pressure" unless productivity improved, it added.

"If nothing else changes, the resulting increase in welfare costs would become too large to finance through the current tax system in only 10 to 20 years," McKinsey said.

It forecast municipal income tax rates would have to rise from about 30 per cent to about 50 per cent, arguing that these rises would not be accepted by the public as welfare and health services would decline.

Last, it said that the real unemployment rate of 15 per cent could increase as the production of goods and services moved to lower-cost countries - such as the Baltic states, Poland and Russia.

"Sweden needs to move quickly to introduce reforms that would create favourable conditions for sustained productivity growth in the private sector, better performance in the public sector and the creation of jobs in the private services sector," it said.

It expressed confidence the country would be able to respond to these challenges, praising its productive industries, macroeconomic stability and good relations between politicians, companies and unions.

But McKinsey said that Sweden had a lot of lost ground to regain. According to the Organisation for Economic Co-operation and Development, Sweden had dropped from fifth position in its welfare ranking to 112th in 2004.