The Swedish economy
Governor Stefan Ingves
How have we succeeded in terms of low inflation? CPI inflation and historical mean, annual percentage change 16
16
CPI Historical mean
14
14
12
12
10
10 1993-2011 Mean 1.5 STD 1.4
8
8
6
6
4
4 1971-1992 Mean 8.3 STD 3.0
2
2
0
0
-2
-2 71
74
77
80
83
86
89
92
95
98
01
04
07
10
Source: Statistics Sweden
GDP Annual percentage change 8
8 GDP Historical mean
6
6
4
4
2
2
0
0
-2 1970-1994 M ean 1.9 STD 2.0
-4
-2
1995-2010 M ean 2.7 STD 2.6
-4
-6
-6 70
75
80
85
90
95
00
05
10
15
Source: Statistics Sweden
Credibility of the inflation target Per cent 5
5
Inflation expectations CPI
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2 94
96
98
00
02
04
06
Note. Inflation expectations refer to money market participants.
08
10
12
14
16
Sources: TNS SIFO Prospera and Statistics Sweden
Comparison with Finland in the EMU For the first time since World War II Finland and Sweden have different stabilisation-policy regimes, but… …economic development has been strikingly similar! Independent central banks with inflation targets and frameworks for central-government finances Economic balance is crucial irrespective of the target chosen for monetary policy!
Sound central-government finances General government net lending, per cent of GDP 8
8
Finland
6
6
Sweden
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
-10
-12
-12
-14
-14 90
92
94
96
98
00
02
04
06
08
10
Source: IMF
Strong growth Annual percentage change 10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6 Sweden
-8
-8
Finland Mean Sweden 1990-2011
-10
-10
Mean Finland 1990-2011
-12
-12 90
94
98
02
06
10
14
Source: OECD
Exchange rates Index, 1992-11-18 = 100 and SEK per euro 180
12 TCW SEK/EUR (right scale)
160
10
140
8
120
6
100
4
80
2
60
0 93
95
97
99
01
03
05
07
09
11
Source: The Riksbank
Low inflation Annual percentage change 16
16 Sweden Finland
12
12
8
8
4
4
0
0
-4
-4 90
92
94
96
98
00
02
04
06
08
10
Sources: OECD and Statistics Sweden
Shape of the crisis in Sweden
The recent crisis strongly affected Sweden Sweden is a small, open economy The decline and rise of global trade were key factors in shaping the Swedish crisis Relatively strong Swedish recovery was also helped by solid public finances
World GDP Annual percentage change, seasonally-adjusted data 6
6
4
4
2
2
0
0
-2
-2
-4
-4 Sweden The world
-6
-6 80
85
90
95
00
05
10
Sources: IMF, Statistics Sweden and the Riksbank
World trade volumes, export market and Swedish exports Index, 2000 = 100, seasonally-adjusted data
180
180 World trade Export markets
160
160
Total Swedish exports
140
140
120
120
100
100
80
80
60
60
40
40 94
96
98
00
02
04
06
08
10
Sources: Netherlands Bureau of Economic Analysis, Statistics Sweden and the Riksbank
What have we learnt?
Swedish banks heavily reliant on international funding And major Swedish banks were exposed to losses through international activities Financial inter-linkages lead to unexpectedly large negative externalities
The market funding of the major Swedish banks via Swedish parent and subsidiary companies per SEK and foreign currencies SEK billion 3000
3000 SEK Foreign currency
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
0
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Sources: Statistics Sweden and the Riksbank
Central banks' balance sheets Percentage of GDP 400
400 The Riksbank
350
ECB
350
Federal reserve BOE
300
300
250
250
200
200
150
150
100
100
50 Jan 07
50 Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Sources: Respective central bank
What have we learnt? Global financial crisis Revealed different vulnerabilities
Iceland
Expansive financial sector both domestically and abroad Dependence on market funding Intransparent ownership cross-lending Fragile banking system
Baltics
Sweden
Catch up High credit growth FX loans Dependence on international market funding Credit losses Liquidity problems
The way forward
Authorities engaged in debates and work on national & international reforms Introduction of new capital and liquidity requirements Financial Crisis Committee review of Swedish regulatory framework and handling of recent crisis
Concluding remarks ď Ž 1. 2. 3.
Three factors are key: Stable fiscal policy Stable prices Sound financial stability policies