However, the picture of the global economy is nevertheless much brighter than it was in the autumn and the signs of a turnaround are becoming more distinct. Developments in Sweden The signals of a general recovery in Sweden have also become more tangible. According to Statistics Sweden's sales index, the retail trade's sales volume rose in January, compared with December 2001. During the most recent three-month period (November-January) industrial production and order intake  2  BIS Review 25/2002  had increased, compared with the immediately preceding three-month period. The manufacturing industry is optimistic with regard to the coming months and the retail trade is expecting sales statistics to remain high, according to the National Institute of Economic Research's economic barometer. The expansionary fiscal policy contributes to a strong development in households' disposable income and forms a basis for both higher private consumption and increased savings. Exports increased gradually during the period, but relatively cautiously, both because the international upturn in activity is rather tentative to begin with and because the krona is expected to appreciate. According to the Inflation Report, GDP was estimated to increase by 1.6 per cent this year and then accelerate to between 2.5 and 3 per cent in the coming years. Despite the weaker demand last year, employment continued to develop strongly and unemployment declined slightly. Both the number of hours worked and the number of those employed increased during 2001. Part of the favourable development in employment may, however, stem from the increased absence due to sickness.

Sweden had no inflation target; it had a fixed exchange rate that was defended through changes in interest rates. The exchange rate, rather than inflation in Sweden, acted as the anchor for monetary policy. The Swedish krona was pegged to currencies in countries with low inflation. However, it was not possible to generate confidence in this policy. The krona was devalued five times between 1976 and 1982, partly as a result of recurring cost crises. The large devaluation in 1982 was an offensive devaluation aimed at stimulating growth in the competitive sector. It assumed a tight fiscal policy to restrain domestic demand. During the 1980s both the credit and foreign exchange markets were deregulated, partly as a result of international developments. This was done gradually, but the credit market was formally deregulated in 1985 and the final parts of the foreign exchange regulations were abolished in 1989. Demand was high during the second half of the 1980s and the economy became overheated, resulting in high inflation, large wage increases and very large increases in property and share prices. Sweden’s competitiveness was undermined and finally the Riksbank could no longer withstand the speculation against the krona. In November 1992 the krona was allowed to float and it depreciated around 30 per cent in just a few months. The 1990s crisis was not merely a consequence of stabilisation policy failures. The situation was aggravated at the beginning of the 1990s by the tax reform – which stimulated increased saving – and an international slowdown in economic activity.