So, even if increased trade with the more rapidly growing markets in the BRIC countries may boost Sweden’s export industry somewhat, we can also expect negative thirdcountry effects from a slowdown in the United States and the euro area. Financial channels However, it is not only through trade that Sweden is affected by weaker economic development abroad. We are also affected through the financial markets. These markets have become increasingly interlinked, which is illustrated not least by the recent turbulence on the stock market. As Figure 6 shows, share prices on the various stock markets are highly correlated. Share prices have fallen on the stock markets of the world recently. However, the fall has been particularly substantial on Stockholmsbörsen, which has fallen by 21 per cent since the turn of the year, while the Dow jones index and S&P 500 index have fallen by 1 and 4 per cent respectively. The Swedish households’ holdings in shares in companies listed on Swedish market places have increased by over 475 per cent since the early 1990s.4 This means that the fall in share prices entails a reduction in wealth, which has a certain restraining effect on Swedish household consumption. This in turn has an impact on growth and employment as household consumption, adjusted for its import content, constitutes around 35 per cent of GDP in Sweden.
Growth will also slow down due to the recent financial turmoil.   A lower rate of growth in Europe and the United States will slow down growth in Sweden too, as these regions constitute such important export markets for Swedish companies. This is one reason why monetary policy in Sweden was made more expansionary September.   We can expect monetary policy to remain expansionary in the United States, the euro area and the United Kingdom as it may be necessary to compensate for the fact that several countries will need to implement fiscal policy tightening in a relatively weak economic climate.   In my view, expectations that monetary policy will continue to be expansionary in the United States, the euro area and the United Kingdom have also had an expansionary effect on Swedish monetary policy. When the repo rate was set in September, I supported the decision to leave the repo rate unchanged and advocated a larger downward adjustment of the repo rate path than the majority. One of the important factors behind this stance was my view that Swedish interest rates cannot deviate too much from foreign rates without affecting the exchange rate, and the exchange rate is of great importance to inflation. Slowdown in economic activity abroad During the summer the financial markets have been characterised by considerable turbulence as a result of the sovereign debt problems in the euro area and the United States.