An unusually active Christmas season appears to have resulted in a strong tendency for private consumption, for example. Leading indicators in this respect point to a continuation of the strong development. Historically, a real GDP growth rate above 3.5% has not been sustainable for very long, at least in recent decades. It is rather the case that, for a safe and stable journey, the normal speed limit for economic growth has been about 2%. That would mean that, if nothing is done, today’s high growth rate will lead, sooner or later, to overheating and a rising rate of inflation. Before drawing this conclusion, however, we need to consider whether the historical record blinds us to what the future has in store. Is there a new economy? This brings us to the concept of a “new economy”. This concept was first discussed in the United States when the paths of growth and inflation in the 1990s differed from the traditional pattern. One explanation for this is said to be higher productivity growth, partly thanks to the new information technology. This has improved the workings of the economy’s supply side. It follows that even demand can rise more rapidly without leading to bottlenecks in supply that generate higher inflation. Stronger demand stems in turn from expectations that better productivity growth will lead to increased corporate profits, which implies higher share prices, and the resultant increase in wealth results in higher private consumption.
That is the background to the common estimate that over a longer period the Swedish economy can now sustain an average annual growth rate of between 2% and 2.5%. There are certainly some encouraging signs in Sweden in the form of many new companies and young entrepreneurs in the new information technology. And people in Sweden rank high as Internet users. But this has not shown up in the macroeconomic statistics to such an extent that there would be grounds for supposing that the potential growth rate has moved up towards the US level. A good indicator of whether conditions are in place for stronger productivity growth in the future is the existence of a sufficiently high rate of economic transformation, for instance in the form of increased investment and a rapidly growing capital stock. There are few signs of this in the Swedish economy, at least if one compares the 1990s with the 1980s. BIS Review 6/2000  2  Neither do other countries in Europe yet show any widespread signs of what is called the new economy. One reason may be that Europe is still in an earlier cyclical phase than the United States, so that investment in new directions has not yet taken off. Given this optimistic interpretation, it should be just a matter of time before the positive effects also materialise in Europe.