The Deputy Governor of the Sveriges Riksbank spoke about the assessment of the economic situation in Sweden and abroad.
At present, most of the countries in the euro area have deficits in their public finances and these deficits are expected to fall slowly over the next few years. Moreover, according the IMF’s latest assessment from January this year, the deficits are expected to fall even more slowly than was predicted as recently as September last year. According to the IMF, the advanced economies reduced their cyclically-adjusted deficits by an average of less than one percentage point between 2010 and 2011. These deficits are expected to fall by as much or, if you prefer, by as little, in 2012. If we look at the euro area separately, the reduction between 2010 and 2011 was slightly larger, that is 1.3 percentage points. However, it should be noted that a large part of this reduction was due to improved public finances in Germany and not in the countries where such an improvement is needed most. Despite a continued improvement during 2012, the assessment is that public finances in the euro area will, on average, still be in deficit. Consequently, the average level of public debt is expected to increase from almost 90 per cent of GDP in 2011 to 92.5 per cent in 2013 according to the IMF. In order to reduce the level of debt instead, several European countries would need to transform the relatively substantial deficits of today into surpluses over a period of several years.
The weak performance in Europe at the moment is affecting the Swedish economy in several ways. First, the demand for Swedish exports is falling. This was also the main reason why growth slowed down in the economy at the end of last year. Second, household and corporate confidence in the economy is falling and this in turn is leading to a slowdown in consumption and investment. The financial situation in Sweden is also affected by developments abroad. The fall in share prices in 2011 reduced the financial wealth of the households, which contributed to an increase in saving. It is unlikely that there will be any significant decline in saving in the period immediately ahead, as the low level of growth is expected to reduce employment and increase unemployment.
Full speech
© BIS - Bank for International Settlements
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