The current economic situation Jönköping March 2009 Deputy Governor Svante Öberg

1. The current economic situationJönköping March 2009Deputy GovernorSvante Öberg

2. Summary • The financial turmoil worsened last autumn and has developed into a global financial crisis. • International developments will be weak this year and there is a considerable risk that economic activity will be weak next year, too. • GDP growth in Sweden will be negative this year and inflation will fall. • The Riksbank has cut the interest rate to 1 per cent and may need to cut it further.

3. Contents • Financial market • International outlook • Sweden • Monetary policy

4. TED spreads Basis points Note. Spread between 3-month interbank rate and treasury bill rate.

5. Causes of the crisis • Global imbalances • Expansionary monetary policy • Credit rating agencies • Supervision • Regulatory frameworks

6. Management of the crisis • Liquidity supplied by central banks • ELA to individual institutions • Interest rate cuts • Guarantees and capital injections • Expansionary fiscal policy Despite these measures the financial markets are still functioning much less efficiently than normal

7. Policy ratePer cent Source: Reuters EcoWin

8. The Riksbank’s measures • Loans (against collateral) in SEK and USD • Change in collateral requirements • Special liquidity assistance • Commercial paper • Swap agreement • Repo rate has been cut

9. The Riksbank’s balance sheet

10. Contents • Financial market • International outlook • Sweden • Monetary policy

11. Purchasing managers index, manufacturingNet figures, seasonally adjusted data Source: NTC Economics Ltd, ISM and Swedbank

12. Stock market developmentsIndex, 4 January 1999 = 100 Source: Reuters Ecowin

13. GDPAnnual percentage change Sources: the IMF, the OECD and the Riksbank * Note. The IMF’s forecast update 28 January 2009.

14. Oil priceBrent crude, USD per barrel Sources: Intercontinental Exchange and the Riksbank

15. Commodity pricesUSD, index, year 2000=100 Source: The Economist

16. InflationAnnual percentage change Source: the Riksbank

17. Growth picks up again in 2010 • Forceful measures to stabilise the financial markets • Expansionary fiscal and monetary policy • Low inflation

18. Risk of poorer developments • Reinhart and Rogoff • House prices and share prices • Production and employment • Public finances • Risk that 2010 will also be a year of very weak growth in the world economy

19. Real house prices, USAIndex 1953=100 Sources: S&P Case-Shiller (1986-), OFHEO (-1986), U.S. Bureau of Labor Statistics

20. Contents • Financial market • International outlook • Sweden • Monetary policy

21. Exports fallingAnnual percentage change, seasonally-adjusted data Note. Three-month moving average, exports of goods in fixed prices calculated by the Riksbank. Sources: Statistics Sweden and the Riksbank

22. Confidence indicator andPMI for manufacturing sectorNet figures, seasonally adjusted data Sources: National Institute of Economic Research and Swedbank

23. GDPAnnual percentage change, calendar-adjusted data Sources: Eurostat, Statistics Sweden and the Riksbank

24. GDP forecastPer cent, quarterly averages Källa: Riksbanken Note. Uncertainty band from forecast in September 2008. Broken lines represent the Riksbank’s forecasts.

25. Number of persons employed 1000s, seasonally-adjusted data Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecasts.

26. UnemploymentPercentage of labour force, seasonally-adjusted data Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecasts.

27. Resource utilisationEstimated gap, percentage deviation from HP trend Sources: Statistics Sweden and the Riksbank Note. Broken lines refer to the Riksbank’s forecasts.

28. CPI and CPIFAnnual percentage change Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecasts.

29. CPI forecastAnnual percentage change Source: the Riksbank Note. Uncertainty band from forecast in September 2008. Broken lines refer to Riksbank’s forecasts.

30. Unit labour costs Whole economy, annual percentage change Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecasts.

31. Exchange ratesSEK per EUR respective USD Source: Reuters EcoWin

32. Contents • Financial market • International outlook • Sweden • Monetary policy

33. Repo rate forecastsPer cent, quarterly averages Source: the Riksbank Note. Broken lines refer to the Riksbank’s forecasts.

34. Different measures of inflationAnnual percentage change Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecasts.

35. Inflation expectationsAnnual percentage change Source: Prospera Research AB Note. All agents

36. Competition-weighted exchange rateIndex, 18 November 1992 = 100 Source: the Riksbank Note. Broken lines refer to the Riksbank’s forecasts.

37. Summary • The financial turmoil worsened last autumn and has developed into a global financial crisis. • International developments will be weak this year and there is a considerable risk that economic activity will be weak next year, too. • GDP growth in Sweden will be negative this year and inflation will fall. • The Riksbank has cut the interest rate to 1 per cent and may need to cut it further.