Strong economic activity We can look back on several years of strong economic growth. This has occurred in an environment where price and wage increases have remained comparatively low even though the economic upswing is now in its seventh year, with annual GDP growth averaging around 3%. In recent years, annual demand growth has been in the region of 3 to 4%. A common, though not entirely certain, estimate is that in the long run the Swedish economy can sustain an annual growth rate of 2 to 2.5%. So the economy has been expanding faster than the supply side can cope with in the longer run. This is liable to result in problems with bottlenecks. That in turn can generate growing tensions and accelerating rates of price and wage increases. In the worst case, the result could be a recession, with falling output and rising unemployment. It goes without saying that that must not happen. The Riksbank is required by the Riksdag (Sweden’s parliament) to “maintain price stability”, which involves ensuring that the rate of price increases is kept stable around the 2% target. If we can manage this and take timely measures that prevent imbalances from arising, economic growth will normally follow the long-term trend. As the economy has been expanding above its sustainable rate, the spotlight falls on the amount of unutilised resources. When resource utilisation is liable to generate upward pressure on prices, the economy must wind down from the strong upward trend to a stable rate that is more sustainable.
These developments peaked in the 1920, a period of high economic growth in many countries. Stock-market investors as well as consumers looked forward to rising future income. These expectations were broken, however, when the gains from the new technology, instead of leading to rapidly rising corporate profits, accrued mainly to the national economy in the form of a lower price rise and substantial real wage increases. With the global depression in the 1930s, the move towards further integration was checked. A number of decisions to raise tariffs and prohibit international capital movements exacerbated the economic situation. This made the negative consequences for the global economy even more serious and the international economy landed in a deep depression. Developments in this period demonstrated that protectionism and closed doors are not conducive to higher living standards. After World War Two, some minor steps were therefore taken once more towards increased international cooperation. The deregulation of trade began in earnest in the 1950s and financial deregulation started in the 1970s. 1  BIS Review 99/2000  Important breakthroughs in technology followed in their wake. All this heralds another favourable period of rising living standards in the countries that manage to reap the benefits. Turning now to Sweden, there are a number of parallels with developments here in the 19th century. From a poor agrarian society to a wealthy industrial nation In the early 19th century Sweden was still a poor country. Strategic social institutions were in a shaky state.