I will start with the financial markets and international developments, before turning to economic developments and monetary policy in Sweden, with particular attention paid to the development of prices and wages. The functioning of the financial markets continues to improve, but they have not recovered completely The functioning of the financial markets is continuing to improve, both in Sweden and abroad. One sign of this is that various risk premia in the money and credit markets continued to decrease during the second half of 2009. The levels of a number of risk premia now seem to have stabilised within a historically normal interval. Possibilities for various market participants to acquire funding at longer durations through the securities market have improved. Moreover, the Riksbank’s risk survey shows that access to funding without government support has increased. The developments on the financial markets can be illustrated by the so-called TED spread, the difference between the three-month interbank rate and treasury bill rates (Figure 1). However, despite this, the situation has still not completely normalised. There are still markets that have not recovered. There also exists some uncertainty regarding the extent of as-yet unrealised loan losses, particularly in European banks, leading to negative consequences for confidence among financial market agents. Furthermore, it must also be expected that bank lending in the United States and a number of other countries will be restrained for some time to come.
Through our monetary policy, we are attempting not only to keep inflation at a low and stable level, but also to support production and employment in the current recession. A divided economy The Swedish economy is divided, with a significantly worse situation in export-dependent industries than in the private service sector. Even though the lowest point of the recession has passed, we are still experiencing the effects of the crisis on world trade. The Swedish export market has experienced a significant decline. At the same time, the expansionary fiscal and monetary policies have enabled the activity level of those areas of the economy focused on the domestic market to be maintained. This is clearly reflected in the development of different sectors during the economic downturn. While industrial production fell by over 20 per cent during the year leading up to the start of 2009, the production of private services only declined by approximately 5 per cent during this period. This divided economy has also been visible in the labour market. The labour market in export industry dependent areas outside the major cities is far bleaker than it is in the servicedominated major cities. While industrial employment decreased by approximately 100 000 between the autumn of 2008 and the autumn of 2009, employment within the service sector remained largely unchanged (Figure 18). Low inflation during the forecast period We expect low inflation during the forecast period (Figure 19).