Sizeable interest rate cuts have been accompanied by large fiscal stimuli. But it does look as though this year’s GDP growth will have to be revised downwards. The outlook for 2002 is more uncertain but a downward revision is  2  BIS Review 82/2001  most probable. An illustration of the current uncertainty is the unusually wide spread between assessments of the American economy in recent years. Some forecasts envisage a very rapid recovery, with GDP growth already up at between 3 and 4 per cent next year in the United States; others foresee falling GDP. The picture in Sweden The Swedish economy is characterised by a relatively sharp slowdown and an appreciable depreciation of the krona in the past year. Another feature is that inflation is currently above 3 per cent and thus outside the upper tolerance limit for the Riksbank’s 2 per cent target. The high inflation at present is mainly, though not exclusively, a consequence of price increases that can be regarded as fairly transitory. The causes include foot-and-mouth disease, higher electricity prices and certain changes in the method for measuring electricity prices. Supply shocks of this kind normally do not have lasting effects on the rate of inflation. There is therefore reason to believe that when the increased price levels drop out of the twelve-month change figures between now and next spring, the figures will fall back from the relatively high rates at present.
This presupposes that inflation expectations are not affected and that other factors, for example cyclical activity and the exchange rate, do not pull in the other direction. The picture of inflation does, however, include other features that probably have to do with the high resource utilisation during the latest upward phase. During the past year underlying inflation has gradually moved up. But meanwhile, economic activity — here as well as in the rest of the world — has been slowing markedly. If one is to believe Statistics Sweden’s latest figures for the national accounts, GDP growth this year will hardly exceed 1.5 per cent. This will probably tend to dampen any price pressure — as long as nothing unforeseen has happened to our economy’s long-term growth potential. Before the terrorist attacks there were some signs that manufacturing activity was stabilising, not least because the weak exchange rate has lowered relative costs. During the late summer it looked in general as though the inflow of manufacturing orders was falling less steeply than before. In the past, this has usually been the first sign of a stabilisation. However, the picture varies between industries. Orders have already turned upwards in some and in others the decline has slowed, while for telecom products, for example, orders are still falling sharply. That the krona’s relatively large depreciation has not yet led to an upturn for total exports is largely explained by the export product mix and market conditions in certain key industries, for example the decline in tele- and data-communication.