Adjusting the global imbalances is not made easier by the crisis The third challenge – that some countries must begin to rely more on exports and others more on domestic demand – was debated intensively even before the crisis. After the crisis the problems of this global imbalance have in some way become even clearer. One means of maintaining demand and creating scope for consolidation of public finances is to increase exports. And one means by which exports can increase is if the currency weakens so that the country’s own goods become cheaper for other countries to buy. The problem is that all countries cannot by definition export their way out of the crisis at the same time. All countries can conduct an expansionary policy, but all countries’ currencies cannot weaken at the same time. Despite this insight being relatively widespread, fears have been expressed of a currency war, where countries deliberately try to weaken their own currencies. And if a currency war begins, it is only a short step to a trade war, where countries begin to introduce tariffs to protect their own manufacturing. This was what happened during the great depression of the 1930s, and it of course only made the problems worse. Such a development would be very unfortunate and have a considerable negative impact on small economies with extensive foreign trade, such as Sweden. At present there are major efforts being made in various international forums to avoid the global economy spinning off in this direction.
The Riksdag has decided that an inquiry shall be made, and hopefully this work will begin soon. Natural explanations for Sweden’s current account surplus With regard to the third of the challenges – the changeover from exports to domestic demand or vice versa – one can note that Sweden is one of the countries with large current account surpluses. This has in principle been the case since the previous crisis at the beginning of the 1990s. However, the surplus is hardly the result of a deliberate policy to build up a strong external position. The fact that we are saving as much as we are is partly due to our public finances being in good order and partly due to commercial decisions in the private sector. Nor have we tried to benefit exports by holding our currency artificially low. We conduct inflation targeting, and the exchange rate is simply left to its own devices. There are thus natural explanations for our current account surplus and there have not been any strong requests from abroad for us to reduce it. So really, one can say that the third challenge does not have any direct implications for Sweden, either. The forecast and the interest rate decision It has thus become increasingly clear that the Swedish economy is growing strongly. Many indicators of developments in the real economy are now at very high levels and GDP outcomes have been surprisingly strong. How do we see developments in the coming period? And what monetary policy is needed now?