The Swedish economy recovered from the crisis, assisted by a sizable fiscal stimulus. Executive Directors commended the fiscal and monetary frameworks, skillful and proactive management of monetary policy of the Riksbank, the soundness of the financial system, and stressed the need to accelerate structural reforms. They welcomed the steps to strengthen the financial system, according to the Financial Sector Assessment Program recommendations. They appreciated the authorities for exemplary efforts to promote open trade policies, and for the high level of official development assistance.

Abstract

The Swedish economy recovered from the crisis, assisted by a sizable fiscal stimulus. Executive Directors commended the fiscal and monetary frameworks, skillful and proactive management of monetary policy of the Riksbank, the soundness of the financial system, and stressed the need to accelerate structural reforms. They welcomed the steps to strengthen the financial system, according to the Financial Sector Assessment Program recommendations. They appreciated the authorities for exemplary efforts to promote open trade policies, and for the high level of official development assistance.

The following information on economic and financial developments, which has become available since the release of the staff report, does not change the thrust of the staff appraisal.

1. Economic activity remains generally subdued. Although preliminary national accounts estimates for the first quarter of 2003 showed a pick-up in the growth rate of GDP, data on trade volumes suggested lower net exports, and therefore the possibility of a downward revision to estimates of GDP growth. Industrial production and orders remained flat or weakened through May. Notwithstanding a rise in the unemployment rate to 4.2 percent in May, private consumption is holding up and household confidence is improving gradually.

2. Headline inflation continued to fall below the 2 percent target. Helped by receding energy prices and declining interest costs, 12-month CPI inflation fell to 1.8 percent in June from 1.9 percent in May. Underlying inflation, as measured by the UNDIX index, edged up to 2.1 percent in June.

3. The Riksbank cut its policy interest rate by a further 25 basis points to 2.75 percent on July 3. In announcing this latest easing, following the reduction by 50 basis points in early June, the Riksbank cited lower-than-expected inflation and the risk of a weaker recovery in the euro area than earlier anticipated. Reflecting in part the narrowing interest rate differential, the krona has weakened against the euro since mid-June by about 2 percent. Its trade-weighted index has appreciated by about 4 percent in the first half of 2003.

4. In line with the worldwide recovery in stock markets, equity prices have rebounded. As of July 21, the Stockholm All Share Index was up by 9 percent since the beginning of the year, and almost 6 percent since early June. However, it is still about 11 percent below its level a year earlier.

Sweden: 2003 Article IV Consultation-Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Sweden
Author: International Monetary Fund