Exaggerated expectations about the growth path can create macroeconomic imbalance Even though the growth prospects for the Swedish economy now appear very bright, it is too early to write off the risk of old problems in our economy again making their presence felt. There is, for instance, a risk for overheating when households and businesses now seem to make decisions on consumption and investments based on expectations of strong future real income increases as a result of higher productivity growth. This can lead to financial imbalances and exaggerated indebtedness heightened by high share prices and increasing property prices. Earlier periods with strong credit expansion and high demand in Swedish economy have been followed by rising inflation. Low inflation expectations and price-dampening effects from deregulations can now for a time hold back the inflationary pressure that builds up when resource use in the economy increases. Low inflation combined with high growth can per se strengthen the concept that earlier patterns have been broken away from in the long term and we have entered a period with long-term higher growth. If demand increases so much that resources are put under pressure, however, inflation will sooner or later accelerate. There is a risk that prices then will increase very quickly and that inflation expectations will also increase. To get inflation in line with the target in that situation, it may be necessary to conduct a stringent monetary policy for a longer period.

13.12.2019  Welcome address Conference “Financial integration and inclusive development: A view from the Mediterranean Countries”/Banco de España e Instituto del Mediterráneo (IEMed) Pablo Hernández de Cos Governor  Good morning ladies and gentlemen, It is a great pleasure for me to welcome you all to this Conference on Financial integration and inclusive development: A view from the Mediterranean Countries, hosted by Banco de España and jointly organised with the European Institute of the Mediterranean (IEMed) and the support of the Organization for Economic Co-operation and Development (OECD). Let me start by thanking our colleagues from the European Institute of the Mediterranean and from the OECD for their cooperation in organising this Conference. The European Institute of the Mediterranean (IEMed), created in 1989 with the participation of the Spanish Ministry of Foreign Affairs and Cooperation, the Government of the Autonomous Community of Cataluña, and the Barcelona City Council, incorporates a broad representation of civil society and is a leading institution in the analysis of Euro-Mediterranean relations. In accordance with the principles of the Euro-Mediterranean Partnership's Barcelona Process, and with the objectives of the Union for the Mediterranean, the aim of the IEMed is to contribute to mutual understanding, exchange and cooperation between the different Mediterranean countries. And Banco de España is delighted to collaborate to this objective in the field of economic and financial relationships. Our second partner today, the OECD, is playing an invaluable role in the international arena to shape policies that are decisively contributing to the well-being for all.