Economic activity improving When it comes to the prospects for higher demand from the euro countries following the debt crisis and all the structural problems, I have become gradually less pessimistic over the last 12 months. This is for example because several highly-indebted countries have made progress in reducing their budget deficits. The Swedish crisis of the 1990s made a great impression on me as an economist and my experience from that period tells me that when households and companies see that the worst problems are over and that the situation is being managed then there is potential for increased confidence about the future, which we have also seen in recent months. This is despite the fact that unemployment is still high and that the recovery of economic activity in these countries is starting from a low level. Of course a lot remains to be done and here the responsibility primarily lies with the politicians in the respective countries. The euro area’s common monetary policy is an important tool for easing the readjustment, but it cannot correct all the causes of the crisis. This requires decisions at the national level in order to come to terms with weak public finances and to change economic and political structures so that competitiveness is improved. It has long been the Riksbank’s assessment that the crisis can be resolved in an orderly way and that economic growth will gradually improve.
Figure 3 Weak developments abroad have affected the labour market Employment by sector, thousands, seasonally-adjusted data 4900  2400 Government sector (left scale)  2200  4800  Services producers (left scale) Goods producers (left scale)  4700  2000 Total (right scale)  1800  4600  1600  4500  1400  4400  1200  4300  4200  1000 00  02  04  06  08  10  12  Source: Statistics Sweden  1  The Riksbank (2012)  BIS central bankers’ speeches  3  The relatively low level of economic activity abroad has also affected inflation in Sweden more directly. One reason for the low rate of inflation recently is namely that the prices of goods have increased slowly. The strengthening of the krona in recent years has led to a further reduction in import prices. On the other hand, service prices in Sweden have helped to keep up the rate of inflation. Figure 4 What lies behind the low inflation?