The Swedish Economy August 2012

The Swedish Economy August 2012 17that private indebtedness becomes harder to manage. In thiscontext, there is currently a discussion among economists concerningthe appropriateness of a considerably tighter fiscal policyat the same time as the private sector is saving and the possibilitiesof stimulating the economy with monetary policy are limitedby the level of policy rates, which is already close to zero.GLOBAL ECONOMY TO RECOVER IN 2013–2016Resource utilization in the world economy is falling somewhatthis year as global GDP increases by 3.5 percent. The weakereconomy is primarily an effect of the debt crisis in the euro area.Uncertainty about the euro crisis is expected to subside towardthe end of the year, as actors in the economy gradually begin togain confidence in the proposed political measures to managethe debt burden of the southern European countries and thusalleviate the financing problems of these countries. In combinationwith a more expansionary economic policy in the majoremerging economies and a slightly less contractionary fiscal policyin the OECD countries, this will help to boost global growthsomewhat in 2013. The recovery of the world economy is forecastto continue in 2014–2016 (see Diagram 24 and Table 3).GDP growth in the euro area will remain low in the next fewyears. One reason for this is that the structural adjustment ofrelative wages and costs among euro countries will take time. Inthe special analysis “Effects on the Swedish Economy of a DelayedRecovery in the Euro Area” there is a discussion of what adeeper crisis in the euro area, due in part to the delayed structuraladjustment, would mean for GDP growth in the euro areaand for the Swedish economy.INTEREST RATES IN OECD COUNTRIES TO REMAIN LOWThe weakness of resource utilization in the OECD area appearsto be curbing inflation. The central banks in the US and the euroarea will therefore maintain their policy rates of 0.25 and0.50 percent, respectively (after a reduction from 0.75 percent inSeptember), for several years ahead. The Federal Reserve willbegin to raise the policy rate in the US (federal funds rate)around the end of the first half of 2014, when recovery has becomeevident. In the euro area the first rate hike will not comeuntil later. The increases in policy rates will then proceed moreslowly than has been normal with previous phases of rate increases(see Diagram 25). This is particularly true of the euroarea, where recovery will take a long time and a normal level ofresource utilization will not be reached until the end of the decade.Diagram 24 Output Gap in US and EuroAreaPercent of potential GDP420-2-4-6000204USEuro area060810Sources: OECD, IMF and NIER.Diagram 25 Policy RatesPercent, daily values76543210121416420-2-4-676543210-100 02 04Euro areaUS060810121416-1Sources: ECB, Federal Reserve and NIER.