Weak international

public finances and Swedish

monetary policy

Deputy Governor Karolina Ekholm

Figure 1. Gross debt in advanced and emerging economies Per cent of GDP

30

40

50

60

70

80

90

100

110

120

130

92 94 96 98 00 02 04 06 08 10 12 14

30

40

50

60

70

80

90

100

110

120

130Advanced economiesMajor advanced economies (G7)

Emerging & Developing Economies

Source: IMFNote. Broken lines represent IMF’s forecast October 2010.

Figure 2. Fiscal policy and the economic cycle in the euro area 1992-2009

Source: IMF

An

nu

al ch

an

ge in

gen

era

l g

overn

men

t str

uctu

ral

bala

nce,

per

cen

tag

e p

oin

ts o

f G

DP

Output gap, per cent of potential GDP

Note. Regression refers to the years 1992-2007.

-3

-2

-1

0

1

2

3

-4 -3 -2 -1 0 1 2 3 4

Counter-cyclical fiscal policy:

Expansionary fiscal policy, weak economy

Counter-cyclical fiscal policy:

Tighter fiscal policy, strong economy

Pro-cyclical fiscal policy:Tighter fiscal policy, weak economy

Pro-cyclical fiscal policy:Expansionary fiscal policy, strong

economy

2008

2009

Figure 3. Debt increase in G7 countries 2008-2010

Source: IMF

Automatic stabilizers and other effects of lower growth

(72%)

Discretionary fiscal policy (16%)

Financial sector support (12%)

Figure 4. Austerity according to

the IMF Change in cyclically adjusted primary balance, per cent of GDP

0

2

4

6

8

10

12

14

Japa

nIre

land USA

Uni

ted

King

dom

Spain

Fran

ceNet

herla

nds

Portu

gal

Cana

daAu

stria

Belg

ium

Den

mark

Italy

Finl

and

Ger

man

ySw

eden

0

2

4

6

8

10

12

14

Source: IMFNote: Austerity refers to the improvement in the cyclically adjusted primary balance needed between 2010 and 2020 to reach a gross debt level of 60% (or stabilize debt at a lower level) until 2030. The scenario targets a net debt level of 80% for highly indebted Japan.

Figure 5. Comparison of recovery in Sweden, the euro area and USAGDP level, index 2007 quarter 4 = 100

92

94

96

98

100

102

104

106

108

110

07 08 09 10 11 12 13

92

94

96

98

100

102

104

106

108

110USA

Euro area

Sweden

Sources: Bureau of Economic Analysis, Eurostat, SCB, the RiksbankNote. The quarter prior to the recession breaking out in the USA = 100.

Figure 6. Swedish exports to different parts of the worldExports of goods 2009 Q3 - 2010 Q2, per cent

Source: Statistics Sweden

Euro area (37,6%)

Other European countries (34,7%)

Africa (3,3%)

Asia (11,8%)

South America (2,4%)

Rest of the world (1,5%)

North America (8,3%)

Lower demand from

companies and

households

Changes in asset prices, exchange rates etc

More expansionary

monetary policy in the troubled

country

EuropeHouseholds and

companiesCentral bank

Sweden Households and companies

The Riksbank

Figure 7. Spreading effects

Tighter fiscal policy

Figure 8. Monetary policy expectationsPer cent

0

1

2

3

4

09 10 11 12 13

0

1

2

3

4Forward rates Euro areaForward rates USAForward rates UKThe Riksbank's TCW-weighted policy forecastTCW-weighted forward rates based on market rates abroad

Note: Forward rates have been adjusted for risk premiums and describe the expected overnight rate. Sources: Reuters EcoWin and the Riksbank

Figure 9. Alternative repo rate paths, CPIF, CPI and unemployment in different alternativesForeign interest rates according to market listings

Sources: Statistics Sweden and the Riksbank

a. Repo ratePer cent

c. CPIFAnnual percentage change

d. UnemploymentPer cent

b. CPIAnnual percentage change

0

1

2

3

4

10 11 12 13

0

1

2

3

4

0

1

2

3

10 11 12 13

0

1

2

3

6

7

8

9

10 11 12 13

6

7

8

9

OutcomeMain scenario

Market rates abroad Lower policy rate with no initial increase

0

1

2

3

10 11 12 13

0

1

2

3