Sweden had built up large surpluses in both its public finances and on its current account prior to the start of the crisis (see Figure 21) and the public sector’s indebtedness is low. This has provided a greater degree of freedom with regard to managing the crisis. Public finances will deteriorate substantially this year and next year as a result of expansionary fiscal policy combined with a decline in public income and an increase in expenditure related to unemployment, etc. as a result of the economic downturn. Our assessment is that the public sector financial balance will fall from +4 per cent of GDP in the peak year 2007 to a trough of -4 per cent of GDP in 2010. But this is a much better situation than in many other countries, such as the United Kingdom, where public finances have also deteriorated substantially, but where they had a deficit to start with. The ambition in Sweden for public finances to show a surplus when regarded over an economic cycle has made it possible to dampen the economic downturn with an active fiscal policy without this leading to an unmanageably large deficit. 8  Labour Force Survey (AKU) June 2008, Statistics Sweden, 3 August 2009. 9  Consumer Price Index (CPI) July 2009, Statistics Sweden, 11 August 2009. BIS Review 98/2009  5  The current account is also showing large surpluses.
We are expecting employment to fall by around 300,000 persons from the peak in 2008 to a trough in 2011 and that unemployment will continue to rise to around 11 per cent (see Figures 15 and 16)  5  See the OECD’s Composite Leading Indicators, 7 August, 2009, http://www.oecd.org/dataoecd/45/9/43453886.pdf. 6  Economic Tendency Survey, July 2009, National Institute of Economic Research, 30 July 2009. 7  Institute for Supply Management (SILF) and Swedbank, 3 August 2009. 4  BIS Review 98/2009  After the recent monetary policy meeting new information was received from the Labour Force Surveys, which was roughly in line with our assessment. Employment fell by 1.7 per cent in June compared with the same month in the previous year and unemployment increased to 9.8 per cent. This was respectively two-tenths and one-tenth of a percentage point better than we had forecast. 8 Underlying inflation is in line with the inflation target of 2 per cent Inflation has fallen rapidly in recent months and is expected to become negative for a large part of the year. However, CPI inflation is strongly affected by interest rate changes and by changes in energy prices. It is therefore better to study the underlying inflation rate. Underlying inflation measured as the CPIF, where mortgage rates are held constant, is expected to be close to 2 per cent throughout the forecast period (see Figure 17). New inflation figures published after the most recent monetary policy meeting have also been roughly in line with our assessments.