Although the fall in GDP was greater in Sweden than in many other countries, the recovery has gone more quickly and we are now on much more stable ground than most others. There are several reasons for this. But I believe that one important explanation is the insights we gained from the deep recession at the beginning of the 1990s. We then realised the importance of building stable frameworks for both monetary policy and fiscal policy to create proper conditions for long-term stability. When economic agents make decisions they have been able to rely on inflation being reasonably stable and on public finances not being weakened to an extent that requires severe tightening. The latter in particular is now a problem in many countries. When things get difficult, as in the recent crisis, the fundamental faith in the economic policy framework has meant that we could stimulate the economy strongly without anyone questioning the credibility of the inflation target or the sustainability of Sweden’s public finances. Our bank system has also managed better than those in many other countries. To some extent this is probably due to lessons learned from our own earlier bank crisis. For example, the banks have avoided so-called structural products with elements of high-risk US mortgages, which were one of the causes of the crisis in the first place.
The Riksbank’s assessment and decision in September At our most recent monetary policy meeting in September we could note that the situation in the world economy had continued to improve, although the strength of the recovery was still uncertain. The public finance problems in certain eurozone countries were still causing some concern and there was uncertainty over the consequences that stricter fiscal policy might have for growth in these countries. But compared with the situation in the spring and early summer, the unease on the financial markets had toned down, partly as a result of the stress testing of the banks by the EU during the summer. Growth prospects in the eurozone were in principle thought to be the same as at our meeting in June. However, we could note that the risk of slower growth in the United States had increased and we revised down the forecasts for US growth this year and next year. Nevertheless, we envisaged, as before, that the international economic climate would gradually improve. BIS Review 134/2010  1  We could also note at the meeting that the recovery in the Swedish economy had been more rapid than expected, and our assessment was that the Swedish economy would grow more quickly than, for instance, those in the eurozone and the United States. One reason for this, as I have just discussed, is that unlike many other countries, we do not need to tighten policy to correct large budget deficits and debt ratios.