Urban Bäckström: The current situation for monetary policy  Speech by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, before the Standing Committee on Finance, Stockholm, on 10 October 2000. *  *  *  It is gratifying to be able to note, as on so many of my previous appearances here, that economic developments in Sweden are impressive. Having achieved a growth rate in the past six years that averages 3%, it seems that our economy is now expanding at an annual rate of around 3 to 4%. Employment has really taken off. To date this year the number of people in work is 70,000 higher than in the same period of 1999. I can also note, once again, that notwithstanding the rapid economic growth, the rate of inflation has remained moderate. But these favourable developments do not mean that the Riksbank can sit back and relax. The path ahead contains a number of risks to which we must be alert. What lies behind the favourable economic trend? A basic factor behind the Swedish economy’s favourable path is, in my opinion, the economic policy realignment that has been carried out in the past decade and a half. Credit and currency markets have been deregulated, the tax system has been reformed, components of the transfers system have been modified and competitive pressure has increased. All this has helped improve the workings of our economy.
It is accordingly conceivable that the Swedish economy will move into a process with accelerating productivity growth but let us wait until that happens before incorporating it in our expectations and policy decisions. Our economy is developing favourably enough as it is. A growth process driven by rising investment and productivity can result in good circles. To some extent, that can be said to have been the case in recent years. It accordingly helps to explain the favourable economic developments in Sweden. Another cause lies in the various deregulations that have been implemented. 1  BIS Review 87/2000  Inflation this year improved by deregulation and competition Thus, it is other positive supply side effects that have helped to achieve the rapid output growth without generating inflationary impulses. The effects have come from the deregulation of electricity and telecom markets, as well as from the EU’s agricultural reform. Meanwhile, the temporarily lower rate of inflation has meant that real wage growth has exceeded expectations and thereby acted as a general demand stimulus. On the whole, however, the effects are of the one-off kind that lower the price level and stimulate demand for just a limited period. But if these effects have a gradual impact on different segments of the economy, their overall impact on inflation may be spread over many years. Another explanation for the favourable overall price trend is the generally stronger competition.