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
130
130
Advanced economies
M ajor advanced economies (G7)
Emerging & Developing Economies
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
92
94
96
98
00
02
04
Note. Broken lines represent IMF’s forecast October 2010.
06
08
10
12
14
Source: IMF
Figure 2. Fiscal policy and the economic
cycle in the euro area 1992-2009
Annual change in general government structural balance,
per centage points of GDP
3
Pro-cyclical fiscal policy:
Counter-cyclical fiscal policy:
Tighter fiscal policy, weak economy
Tighter fiscal policy, strong economy
2
1
0
2008
-1
2009
-2
Counter-cyclical fiscal policy:
Pro-cyclical fiscal policy:
Expansionary fiscal policy, weak economy
Expansionary fiscal policy, strong economy
-3
-4
-3
-2
-1
0
1
2
3
4
Output gap, per cent of potential GDP
Note. Regression refers to the years 1992-2007.
Source: IMF
Figure 3. Debt increase in G7 countries
2008-2010
Financial sector
support (12% )
Discretionary fiscal
policy (16% )
Automatic
stabilizers and
other effects of
lower growth
(72% )
Source: IMF
Figure 4. Austerity according to the IMF
Change in cyclically adjusted primary balance, per cent of GDP
10
8
8
6
6
4
4
2
2
0
0
Fin
lan
d
Ge
rm
an
y
Sw
ed
en
10
Ita
ly
12
Sp
ain
Fra
nc
Ne
e
the
rla
nd
s
Po
rtu
ga
l
Ca
na
da
Au
str
ia
Be
lgi
um
De
nm
ark
12
Un
US
ite
A
dK
ing
do
m
14
Ja
pa
n
Ire
lan
d
14
Note: 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.
Source: IMF
Figure 5. Comparison of recovery in Sweden,
the euro area and USA
GDP level, index 2007 quarter 4 = 100
110
110
USA
108
108
Euro area
106
106
Sweden
104
104
102
102
100
100
98
98
96
96
94
94
92
92
07
08
09
10
Note. The quarter prior to the recession breaking out in the USA = 100.
11
12
13
Sources: Bureau of Economic Analysis, Eurostat, SCB, the Riksbank
Figure 6. Swedish exports to different
parts of the world
Exports of goods 2009 Q3 - 2010 Q2, per cent
Rest of the world
(1,5% )
Asia (11,8% )
South America (2,4% )
Euro area (37,6% )
North America (8,3% )
Africa (3,3% )
Other European
countries (34,7% )
Source: Statistics Sweden
Figure 7. Spreading effects
Europe
Tighter fiscal
policy
Households and
companies
Lower demand
from companies
and households
Sweden
Households and
companies
Central bank
Changes in asset
prices, exchange
rates etc
More expansionary
monetary policy in
the troubled country
The Riksbank
Figure 8. Monetary policy expectations
Per cent
4
4
Forward rates Euro area
Forward rates USA
Forward rates UK
The Riksbank's TCW-weighted policy forecast
TCW-weighted forward rates based on market rates abroad
3
3
2
2
1
1
0
0
09
10
11
12
Note: Forward rates have been adjusted for risk premiums and describe the expected overnight rate.
13
Sources: Reuters EcoWin and the Riksbank
Figure 9. Alternative repo rate paths, CPIF, CPI
and unemployment in different alternatives
Foreign interest rates according to market listings
a. Repo rate
Per cent
4
4
3
c. CPIF
Annual percentage change
3
3
2
2
1
1
3
2
2
1
1
0
0
10
11
12
0
13
0
10
b. CPI
11
12
13
d. Unemployment
Annual percentage change
Per cent
3
9
2
2
8
8
1
1
7
7
0
6
3
0
10
Outcome
Main scenario
11
12
13
Market rates abroad
Lower policy rate with no initial increase
9
6
10
11
12
13
Sources: Statistics Sweden and the Riksbank