At the same time, households unaffected by the stockmarket fall that are younger and unconcerned about their future income may have continued to demand expensive dwellings since the interest costs have been so low. As the available statistics are mainly at an aggregated level, however, it is difficult to find evidence of the behaviour behind what we have seen. But if this interpretation holds, it is reasonable that consumption picks up when labour market uncertainty diminishes and when wealth has been restored by a combination of saving and rising asset prices. The current situation for monetary policy With that I shall move on to say something about our main scenario for economic developments in the years ahead. The international picture The outlook in the rest of the world is mainly bright. As we see it, international growth will remain high this year. Conditions are also favourable for a continuation of high growth in the next few years, although we do count on a somewhat more subdued rate than last year. Important driving forces are persistently strong economic activity in the USA and further powerful economic expansion in China and the rest of Asia. Last spring there were some signals that the slowdown in the international economy would be more marked than we had counted on earlier. It was mainly growth in the euro area that seemed to have become more subdued than expected. In June, our main assessment was that this amounted to a temporary dip in international activity.
Provided households’ borrowing decisions have a rational basis and accordingly include realistic assumptions about future interest expenditure, there is nothing to suggest that higher interest rates will have drastic consequences. This applies to the effects of increased interest expenditure on house prices as well as on consumption. Still, one cannot disregard the risk that some households have been over-optimistic about their future incomes and the future level of interest rates. More than 70 per cent of new lending is currently arranged at a variable interest rate. Moreover, the present level of interest rates is considerably below what the financial markets assume it will be in time. So the households that choose to stick to a variable rate must count on considerably increased interest expenditure further ahead, if interest rates develop in line with market expectations. Furthermore, during the past year the credit spread between a risk-free government bond and a housing bond has been virtually nil. All in all, mortgage institu-tions have therefore been able to offer very low rates even for fixed-interest loans. The combination of high house prices and low interest rates has meant that many households have acquired very large liabilities. In that interest rates have been pushed down by a large variety of partly temporary factors, it is not inconceivable that their level will double. That may entail a heavy burden for many households and one cannot be sure they realised this when they decided to borrow so much.