We have revised down our forecasts for growth in the world economy, and GDP in the countries that are our most important trading partners is expected to fall by around 2 per cent on average in 2009. The fact that the economic downturn has worsened so substantially is largely due to the global financial crisis. The crisis leads to higher risk premiums and limited access to loans for households and companies. It also contributes to uncertainty and to lower wealth, which leads to a decline in consumption and investment. I have mentioned this earlier. The uncertainty regarding economic developments in the world in the future is also very widespread. …naturally affects a small, open economy… A small, open economy like the Swedish one is of course very much affected when world economic activity slows down. The statistics received show, for instance, that exports and export orders have fallen drastically. The krona has also remained weak, which is something that often happens to the currencies of small economies in times of turmoil. A weaker krona normally stimulates exports and thus growth. But as demand is also weak abroad, it is not certain that the effects will be so great. In addition, a weaker exchange rate means that imported goods will be more expensive, which pushes up inflation. But this effect is largely counteracted by the expectation that cost pressures and resource utilisation will be lower. Labour market prospects have also deteriorated. The number of redundancy notices has remained as high as it was in the autumn.

BIS Review 23/2009  Sources: Reuters EcoWin and the Riksbank  9  Almost two ”different worlds”   Dramatic change in circumstances after Lehman Brothers filed for bankruptcy in September    From a situation where the Swedish financial markets are functioning fairly well, to one where some sub-markets were on hold    From expectations of a fairly smooth downturn in economic activity, to much poorer prospects  Changed conditions for our policy Financial crisis not yet over  M onetary policy and financial stability  -the tasks are always closely linked, but… -under conditions such as a financial crisis the dividing lines have been erased  M easures to safeguard financial stability are  significant for monetary policy and vice versa  10  BIS Review 23/2009  Uncertainty and lower wealth could lead to reduced consumption and ”precautionary saving”… Per cent of disposable income 500  14  Net assets (left) Financial saving (right)  450  12  400  10  350  8  300  6  250  4  200  2  150  0  100  -2  50  -4 -6  0 80  82  84  86  88  90  92  94  96  98  00  02  04  06  08  Source: Statistics Sweden  The Riksbank’s measures  BIS Review 23/2009    Loans (against collateral) in SEK and USD    Change in collateral requirements    Special liquidity support    Commercial paper    Further measures may be necessary  11  Expansionary monetary policy around the world Per cent 8  8 Sweden USA United Kingdom Norway Euro area  7 6  7 6  5  5  4  4  3  3  2  2  1  1 0  0 00  01  02  03  04  05  06  07  08  09  Source: Reuters EcoWin  Repo rate decision and forecast in brief Severe deterioration in economic activity Ö    Repo rate cut to 1 per cent Repo rate forecast adjusted downwards  Necessary to:    reduce the fall in production and employment and… attain the inflation target of 2 per cent  Recovery will begin in 2010  12  BIS Review 23/2009  Repo rate path a forecast – not a promise Per cent, quarterly average 7  7 90% 75% 50% Repo rate  6  6  5  5  4  4  3  3  2  2  1  1  0  0 -1  -1 04  05  06  07  08  09  10  11  Note.