Mr. Bäckstöm remarks on the Swedish economy Address by the Governor of the Bank of Sweden, Mr. Urban Bäckström, at Svenska Handelsbanken’s seminar in New York on 7/10/98. First of all I should like to thank Svenska Handelsbanken for the invitation to meet with you today here in New York. I arrived late yesterday from the 1998 Annual Meeting of the International Monetary Fund in Washington D.C. The discussions in Washington over the weekend focused on the current problems in the world economy. At the centre was of course the crises in emerging markets that began in Thailand last year, which spread to other economies in East Asia and Russia and which most recently have been pressuring economies in Latin America. Lately, we have also seen some contagion effects spreading to the industrial countries. Stockmarkets have been falling and there have also been some problems in connection with the Long-Term Capital hedge fund. However, today I will talk about the Swedish economy. I shall be using a fairly broad brush to paint you a picture of how our economy has developed in recent years and I will conclude by saying a few words about the present situation in my country. Positive trend in recent years The Swedish economy is now entering its sixth consecutive year of favourable growth. The average annual GDP growth rate since the summer of 1993 is almost 3 per cent. This is an improvement compared to the average that has characterised our economy in the past twenty-five years.
A recent Banco de España’s research paper documents that this programme also had a positive side effect on the access of SMEs to funding given that banks reallocated the credit previously granted to bond issuers to smaller firms that do not have access to financial markets.7 Among the more permanent factors that could have contributed to the recent trend of financial disintermediation is the introduction of the new global banking regulation as a reaction to the financial crisis. The new regulation aims to improve primarily the resilience of banks to shocks and will have a positive impact on overall financial stability. However, as it has been documented in some papers, these regulatory measures might also reduce somewhat the ability of banks to compete in the intermediation of some financial flows8. But going forward, it is still under debate at the global level to what extent elements of the new regulatory framework should be also applicable to some non bank financing channels, as long as they might share with banking activities similar underlying risks to financial stability, such as maturity transformation and high leverage. If finally applicable, this might imply a more level playing field between banking and non bank intermediation. Another permanent factor that is contributing to the development of capital markets in the EU is the launch of new markets such as the alternative stock and fixed-income markets aimed at attracting medium-sized companies, although the size of these markets is still relatively small.