Svante Öberg: The current economic situation Speech by Mr Svante Öberg, First Deputy Governor of the Sveriges Riksbank, at Swedbank, Stockholm, 20 August 2010. *  *  *  In this presentation I shall begin with an account of the Riksbank’s assessment of the economic situation abroad. I shall then discuss our assessment of economic developments in Sweden. These are the assessments we made at the monetary policy meeting on 30 June and published in our Monetary Policy Report on 1 July this year. I will also comment on new information received during the summer, but I will not make any new overall assessment of economic developments. We members of the Executive Board will not do this until the next monetary policy meeting, which will be held on 1 September. Finally, I shall report how the majority of Executive Board members and I personally viewed monetary policy at the end of June. My presentation of the current economic situation can be briefly summarised in three points:   The Swedish economy is developing strongly after the deep recession we have experienced. Inflationary pressures are currently low, but inflation is expected to rise as resource utilisation increases.   At the most recent monetary policy meeting in June the members of the Executive Board decided to raise the repo rate to 0.50 per cent, and assessed that it would thereafter need to continue to rise towards more normal levels. The earlier extensive lending to the banks is being phased out.
Thanks to the proceeds from oil activities, income and wealth in Norway have risen rapidly over the past 25 years. This chapter of our history is unlikely to repeat itself. It will take some doing for Norway to find a similar source of economic prosperity and growth for the next 25 years. In the recent past, the contributions from the GPFG to government finances have also increased. Now the GPFG is close to its peak, and the contributions from the GPFG are not likely to become much larger than they are today. Even though Norway will continue to be among the world’s wealthy countries, we will likely see an increased resemblance between Norway and its neighbours in future. In 1988, the average bank lending rate was above 16 percent. Lending rates remained in doubledigits until well into the 1990s. Today, residential mortgage rates are at a record low – below 3 percent. We seem to be entering a period of slightly higher interest rates, which may increase interest burdens and curb household borrowing. Regardless of what happens in the years to come, however, interest rates cannot fall as far as in the past 25 years. Those who borrow today must consider whether they are taking on an amount of debt they can live with over time. The rear-view mirror will be poor guidance going forward. Experts and economists like myself have been mistaken before, but there is one thing I am quite sure about: Nothing grows forever. Expectations shift.