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

Figure 2. Fiscal policy and the economic cycle in the euro area Source: IMF Annual change in general government structural balance, per centage points of GDP Output gap, per cent of potential GDP Note. Regression refers to the years 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

Figure 3. Debt increase in G7 countries Source: IMF

Figure 4. Austerity according to the IMF Change in cyclically adjusted primary balance, per cent of GDP Source: IMF 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 The scenario targets a net debt level of 80% for highly indebted Japan.

Figure 5. Comparison of recovery in Sweden, the euro area and USA GDP level, index 2007 quarter 4 = 100 Sources: Bureau of Economic Analysis, Eurostat, SCB, the Riksbank Note. The quarter prior to the recession breaking out in the USA = 100.

Figure 6. Swedish exports to different parts of the world Exports of goods 2009 Q Q2, per cent Source: Statistics Sweden

Lower demand from companies and households Changes in asset prices, exchange rates etc More expansionary monetary policy in the troubled country Europe Households and companies Central bank Sweden Households and companies The Riksbank Figure 7. Spreading effects Tighter fiscal policy

Figure 8. Monetary policy expectations Per cent 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 alternatives Foreign interest rates according to market listings Sources: Statistics Sweden and the Riksbank a. Repo rate Per cent c. CPIF Annual percentage change d. Unemployment Per cent b. CPI Annual percentage change Outcome Main scenario Market rates abroad Lower policy rate with no initial increase