Whereas it was once natural to put money into a normal savings account, this is no longer the case. Today, an increasingly large share of savings is being invested in various securities and the rapid expansion in the mutual fund market is an important part of this development. One only needs to look at the Swedish Mutual Fund Association's own report on mutual fund investment in Sweden to realise this. The statistics show that new mutual fund investment has increased gradually during the 1990s. In 1994 net investment in mutual funds totalled SEK 7.5 billion. Last year the corresponding figure was SEK 99.1 billion. This is an entirely natural development, as it has been possible to obtain a significantly higher yield from savings invested in various types of securities than from savings paid into a traditional savings account. Swedish investors have not only realised this, they have also understood how to use the financial market to spread their risk by investing money both in fixed income funds and in shares in different types of companies within different sectors and countries. Many people, including me, see this development as a positive thing; others are critical and express concern over what they call an insensitive fund capital, shovelling money around the world and quickly withdrawing from countries that show the slightest sign of problems. This criticism cannot be completely dismissed, but I do feel that it often does not fully take account of the importance of the financial sector for economic development.
You can see that reflected in the IMF’s forecasts for world growth. In every one of the last five years the world economy has underperformed the forecast.3 Indeed it has pretty much become an annual event that the world economic growth forecast is downgraded as stresses emerge somewhere in the world economy or there are serial disappointments on pay and productivity. This is not to denigrate the IMF’s forecasters. You see the same effect in the Bank’s own forecasts and in private sector forecasting. For example, the Bank’s growth forecasts made in 2010 were derailed by the euro-area crisis. These outcomes are a combination of not understanding at the outset how slow the healing process from the 2008 crisis would be and subsequent unforeseeable and unfortunate events. Secular stagnation story There is another rather different story however, one more reminiscent of our friend the mythical boiled or frozen frog. In this other world, we are not on a slow healing path, subject to a series of unfortunate events. Rather, there are deep secular and structural forces pushing down on our economies. These began to have an impact before the financial crisis. But their effect was masked somewhat by stimulative effects of the financial sector bubble as it inflated and was only exposed in the post-crisis world. In this story there is recovery from the crisis, of course, but it is recovery to economies with both considerably weaker growth potential and considerably greater vulnerability to shocks.