At the beginning of 1998 it was assumed that a weaker international trend could be offset by other factors, of which one was the good domestic demand. At an early stage, actually when the Riksbank raised the interest rate in the late autumn of 1997, it was pointed out, however, that the international trend could be weaker than assumed in our main scenario and that the crisis could lead to a slowdown in Sweden as well. The signals of an international slowdown that would also affect growth in Sweden became increasingly clear. The Riksbank therefore successively revised its forecasts in a downward direction and eased the monetary stance in June. This follows from our policy framework, which calls for a lower repo rate when inflation in the forecast period is expected to be below the target and vice versa. The repo rate was cut in two more steps in November, from 4.10 to 3.60 per cent, followed by a further reduction to 3.40 per cent in December when the forecast was revised downwards again. Even after the series of downward revisions during the autumn, the December assessment still carried a downside risk of the international slowdown being even more pronounced and prolonged than expected. The uncertainty about international economic prospects has been accentuated somewhat by the economic problems in Brazil and the real’s depreciation since the turn of the year. The world economy may be affected contagiously, either via real mechanisms or via increased financial market turbulence.
With assets managed by SWFs estimated at 3,000 billion dollars, this category of investors represents twice the value of assets managed by hedge funds. 1 It is estimated that they will continue to grow in the future, to reach from 12,000 to 15,000 billion dollars, depending on estimates, in 2015. Consequently, they play and will continue to play an increasing role in the global financial system. As SWFs have long-term and diversified investment strategies and are not subject to sudden fund withdrawals by customers, they are usually considered to have a stabilising effect on the global financial system, despite their lack of transparency. Consequently, developed countries have an interest in attracting their investments. During the crisis, the behaviour of SWFs has differed according to the country of origin, but in general, it appears that their tendency to invest more than before in domestic and regionally close markets during the first stage of the crisis has come to an end, and that they have now resumed investing principally in OECD economies. 2 This is particularly true for Gulf sovereign funds, where diversified domestic investment opportunities are scarcer than for Asian sovereign funds, for example. In the first quarter of this year, Europe was by far the leading destination for Middle-Eastern and North African SWF investment. 3 Muslim countries, in particular oil-exporting ones, represent as much as 51% of total sovereign wealth funds’ assets.