Lars Nyberg: Sweden and the world economy Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Danske Securities, Stockholm, 24 September 2001. *  *  *  Exactly two weeks ago I landed courtesy of SAS at Newark airport, after circling around Manhattan. As always, I was fascinated by the skyline dominated by the twin towers of the World Trade Center. Less than 24 hours later, those towers were gone and thousands of people had lost their lives in an act of terrorism that shook the entire world. It is tragic, terrifying and in many respects still incomprehensible. You all work in the financial sector and I am sure many of you have business contacts or friends who have been affected, directly or indirectly. I myself will never forget the pictures of human despair reflected in the US media during the week I had to wait for a flight back to Sweden. Naturally, the events in New York and Washington will have both political and economic consequences. At the moment, everything appears to be very uncertain, for understandable reasons. However, it is necessary to take developments in the US economy as a starting point for any assessment of how the Swedish economy will develop over the next few years. This applied before the attack against the USA and it applies even more now.
This means that the Riksbank must make assessments of how the krona will develop in relation to other currencies during the forecast period, and assess what effect the development of the krona will have on demand for Swedish goods, as well as the impact the krona will have on consumer prices. None of these assessments is simple. Allow me first to point out the mechanisms that are important with regard to a direct impact on inflation via import prices. If the krona weakens and prices on the goods we import are determined in the exporter’s home country currency, the weaker krona will have a direct impact on import prices. For the weaker krona to have a full impact on prices of imported goods in the consumer channel, all domestic intermediaries must pass the price increases on to the end consumer. During the years with a floating exchange rate we have been able to note that the weakening of the krona has not had the impact on consumer prices that we had expected. One explanation could be that internationalisation and increased competition have first and foremost meant that the exporting companies endeavour to adapt their prices to developments on the markets where they sell, in order to retain their market share. It is reasonable to imagine that large corporations with sales and production spread around the world can act in this way without facing large fluctuations in profits.