3  BIS Review 118/1999  Opinions about the causes of the pronounced change in the Swedish economy are not completely unanimous. The stable prices presumably played a part. When inflation is low or the price level is stable, those who have to plan for the longer run face less uncertainty. Another significant factor was probably the credit system’s development in the 1800s. Banks were established and the abolition of interest controls was followed by more financial expertise. That made it possible to exploit the inventions and finance investments in the emerging industries. An increasingly stable form of government presumably contributed, too. A series of constitutional reforms provided a guarantee of stability. Economic activities benefited from the abolition of trade guilds, freedom to trade and the reform of joint-stock companies. The reform of elementary education was, of course, another important step that ultimately promoted human capital. This catalogue is not intended to be a complete account of all the factors behind Sweden’s transformation from a poor country into a rapidly expanding industrial nation. The point I want to make is that a variety of institutional changes seem to have been needed to provide a stable framework for the subsequent process of industrialisation. It is just this stability in the fundamental conditions for economic activities that was no doubt important for the process that resulted in the industrial revolution, which in itself was full of commercial risks and uncertainties.
The global recovery also increases the need for investment in the business sector and contributes to stronger growth in investment. The demand for housing remains strong, which helps maintain the level of housing investment. All in all, the increasingly strong demand, both domestic and international, means that GDP growth will be higher than the historical average over the coming years, see Figure 3. Good prospects for inflation in Sweden to continue to rise Inflation in Sweden is still low, just like in many other countries, see Figure 4. However, CPIF inflation excluding energy has been rising for some time and several different indicators point to it continuing to rise. The ever-stronger global economy leads to both higher international prices and higher demand for Swedish goods and services. Domestic demand also becomes higher and contributes to rising price pressures. The weakening of the Swedish krona over the past year has meant that imports of goods and services has become more expensive, which tends to increase consumer prices. The weaker exchange rate has not yet had a full impact on prices yet, either. Import prices are expected to rise further for a time before the contribution to higher inflation from the exchange rate wanes. 2  BIS central bankers’ speeches  A more expansionary monetary policy supports the upturn in inflation The Riksbank has implemented strong measures to reduce interest rates in general in the Swedish economy and thereby make monetary policy more expansionary. The repo rate has been cut to negative levels.