GDP growth in Sweden slackens from the annual rates of 3 to 4 per cent in recent years to around 2.5 per cent in the coming years. The GDP figure for Q4 last year suggests that a fall-off has already begun. Some observers talk of a soft landing. Most things point to a downward adjustment of demand to the long-term trend rather than a regular downturn with the risk of a recession. In this situation it is a help that, after a number of years with good growth and price stability, the Swedish economy is soundly balanced and that the public finances are also in a comparatively good state. Combating inflation effectively and consolidating the government budget have increased the freedom of action in economic policy and made an economic slowdown relatively less difficult to handle. The adjustment we now foresee will occur through a variety of channels. Slacker international activity implies a slowing of exports. The decreased order inflow and less pronounced capacity restrictions tend in turn to dampen investment. With falling share prices and less optimism among households, the growth of private consumption becomes more subdued. Moreover, stock adjustments this year imply a temporary lowering of demand. In the labour market, the number of new job vacancies is already levelling off, which shows that the growth of employment will be slower in the coming years.
If world economic activity had remained strong, it would have been reasonable to count on the Riksbank continuing to raise the repo rate. BIS Review 26/2001  1  A look at the threats we perceived in December as being liable to push inflation up above our forecast, shows that they have become less troublesome. At the same time, the clouds that were gathering over the U.S. economy have thickened and darkened. To date this year the Federal Reserve has cut its interest rate a total of 1.5 percentage points. The first cut, announced in January in between the regular monetary policy meetings, surprised the market by its magnitude as well as its timing. Another cut came at the end of January and a third last week, on 20 March. There has been a spate of negative news about the global economy in general and certain companies in particular and international stock markets have remained turbulent. US economy difficult to assess The focus at present is on the U.S. economy. Its future path is highly important for economic developments in Sweden. In order to arrive at a clear picture of the situation, we need to judge the effects of alternative outcomes. During the 1990s the United States experienced its longest economic upswing ever without any serious signs of accelerating price and wage increases. A more efficient economy, with strong competition and functional product and labour markets, accompanied by advances in computer and telecom technology, are said to have contributed to a higher rate of potential growth.