During the spring this year, however, there were signals indicating that a slowdown was on the way. Moreover, in June growth data were released for the first quarter, which were weaker than expected by all economic forecasters. That prompted the Riksbank to revise down its growth forecast for 2005, as well as our outlook for future cost pressures. But we nevertheless stuck to our assessment that most factors – not least the expansionary economic policy – pointed to comparatively firm growth in the period ahead. 5/7  That now seems to have been a correct assessment. The statistics for the first quarter were revised up over the summer and thus were not quite as weak as they first appeared. During the second quarter GDP growth also rose, according to the data we now have. The performance is positive as regards both domestic demand – consumption and investment – and exports. Looking ahead, we expect that domestic demand will be a more important driving force than it has been so far in the cyclical upswing. However, demand is likely to begin to slacken by degrees as a result of ordinary mechanisms that dampen economic activity. One such mechanism is that interest rates rise as resource utilisation and cost pressures pick up. Previously, the forecasts in our main scenario have been produced on the basis of the assumption that the repo rate is constant during the forecast period.
The participation of banks in the debt guarantee schemes is voluntary, and the very limited use of these guarantees may reflect a decline in the demand for credit and/or the desire of the banks to continue deleveraging their balance sheets. It is, however, important to ensure that other constraining factors are addressed, for example that the disincentives associated with the provision or pricing of these debt guarantees are promptly addressed, so as to help banks finance additional lending to the private sector. Possible further measures A relevant question is whether the tight financing conditions and the continuing stresses on the banking system require further measures by governments and central banks in order to help revive the extension of bank credit to the economy. The answer regarding the need and the nature of potential further measures depends on the causes or determinants of the prevailing financing conditions and on the structure of the financial system. To the extent that (i) financial market stresses, (ii) the deleveraging process, (iii) uncertainty about the economic outlook and about potential further bank losses, and (iv) low confidence impair the functioning of the credit and bank funding markets and the transmission of the effects of monetary policy, “non-standard” measures aimed at reducing funding uncertainty and enhancing the functioning of the credit market and, consequently, the monetary policy transmission mechanism, may represent possible courses of action.