Even so, the real level of interest rates is expected to remain low and should act as a stimulus to the Swedish economy, above all in the somewhat longer run. The domestic economy In our December Inflation Report, the GDP growth rate was assumed to be between 2.5 and 3 per cent in 1998, between 2 and 2.5 per cent in 1999 and around 2.5 per cent in 2000. The available statistics suggest that our forecast for 1998 is probably correct. For 1999 and 2000, however, we consider that the December forecasts are somewhat too optimistic. One of the items we believe may be weaker is foreign trade. With the poorer outlook for the international economy, net exports could be lower in the years ahead. Industrial activity may then also continue to slacken. The expectations of Swedish firms are low, above all in manufacturing, and this could have a downward effect on investment. On the other hand, the statistics show that private consumption is still strong, with a 1998 third-quarter increase that exceeded expectations. House prices and the number of new cars registered are continuing to rise and retail turnover is also moving upwards. Other signs are increased lending to households and the growth of the money supply. Households are optimistic about their own economic situation, one reason being the growth of real disposable  BIS Review 18/1999  4  wage income; a marked increase in 1999 is implied by the low level of inflation and the tax cuts.
Even without this, economic activity could slacken in connection with decreased investment on account of falling demand and lower profits, as well as with a lower consumption propensity among households whose debt burden is already very high. In the euro area the available statistics indicate that the slackening of activity in the late autumn and winter was more marked than expected, mainly on account of weaker exports. Manufacturers and households differ in their assessments of the future; the former count on a turn for the worst, whereas consumer confidence has continued to improve. The direction in which confidence moves for these two groups will be crucial for prospects in the euro area. The optimistic trend among households has so far helped to mitigate the consequences of decreased external demand. The question is whether this will continue to be the case if industrial activity does not take a turn for the better. The Japanese economy has not shown any clear signs of recovering, though in some respects it does seem to have stabilised. The future path here is still highly uncertain. All in all, the statistics point to an international trend in the next two years that is weaker that in the Riksbank’s main scenario last autumn, though the differences should not be exaggerated. Together with lower commodity prices, the weaker international activity should result in lower external price pressure. The outlook in 2000 and beyond is, however, very difficult to foresee. One uncertainty is the endurance of U.S. economic growth.