Against this background I shall be discussing the current monetary policy appraisal of the Swedish economy, together with some factors of importance for the final assessment. First, however, I shall briefly outline monetary policy’s line of thought. Forecasts and probabilities Monetary policy’s overriding objective is to safeguard the value of money. The annual rate of inflation, measured as the change in the consumer price index, is to be kept at 2 per cent. As it takes time for the Riksbank’s monetary measures to work in full, our actions have to be based primarily on an assessment of inflation’s future path. The policy horizon - the period in which most of the impact of monetary policy materialises - is around twelve to twenty-four months. The Riksbank’s assessment of future inflation is presented continuously in our Inflation Reports. Since the first Report was presented in October 1993, the content has been developed and the Riksbank has, for example, become increasingly explicit in its assessments. In the first two years the Report contained a more general account of how the inflation indicators and inflationary pressure in the economy were developing. From November 1995 onwards the Riksbank has been attaching numbers to its inflation assessments. In the June 1996 Report the inflation assessment was underpinned for the first time with an overall picture of the cyclical position. A further step was taken in September 1997, when the inflation assessment was supplemented with a path for inflation in the forecast period.
By country, among the four largest euro area economies, the output loss was more pronounced in Spain (9.1%) than in Italy, France and Germany (down 4.5%, 4.1% and 4.2%, respectively). 1  Much uncertainty also persists regarding the intensity of the recovery in the fourth quarter of the year, in view of the recent course of the pandemic in Europe. The few short-term indicators available signal a slowdown in activity growth, which could be exacerbated – and even lead to contraction in at least some countries or sectors – by the widespread implementation of new measures to contain the health crisis. In the euro area, the PMI (the most leading indicator) for October fell by 0.5 percentage points (pp) to 50, standing at the boundary between expansion and recession. The pandemic is having a notably uneven impact, affecting primarily the services sector, whose PMI fell 1.1 pp to 46.9. Conversely, the manufacturing PMI rose 1.3 pp to 58.4. Similarly, the European Commission’s consumer confidence indicator also contracted. The latest ECB staff projections were published in late September; the baseline scenario indicates a drop in euro area GDP of 8% in 2020, followed by growth of 5% in 2021. However, the feasibility of these figures is in doubt, since one of the assumptions under this baseline scenario was that the epidemiological situation would not worsen in the near term. Developments since the projection cut-off date appear to contradict that assumption. The recent news regarding the availability of a vaccine early next year is obviously to be welcomed.