loans in the international capital market, that equity prices have risen and that the krona has strengthened. however, the problems in the financial sector are not over yet. several other types of risk premium are still at higher levels than prior to the crisis, for instance, credit spreads for companies and credit default swaps. moreover, the banks ’ loan losses will probably increase ( see figure 2 ). 1 see the financial stability report 2009 : 1, sveriges riksbank. the financial crisis has so far been less serious in sweden than in many other countries. the swedish banks are well capitalised. but they are also to a large degree dependent on the securities markets for their funding and they have expanded substantially in the baltic countries. the greatest risk for sweden therefore lies with the banks ’ credit exposure to the baltic countries. international developments slow global recovery over the past year, the global economy has been hit by the most rapid economic downturn since the second world war. economic developments abroad are very weak this year and much weaker than we had previously anticipated. since september last year, the riksbank has gradually revised down its forecasts for global gdp growth in 2009 from approximately 4 per cent to around - 1 per cent ( see figure 3 ). the forecasts in the most recent monetary policy report are no exception, but for the first time they only involve a minor downward adjustment. there are numerous indications that the severe economic downturn has now touched bottom. during the spring there were increasing signs pointing to a slowdown in the heavy fall in world gdp. at the same time the financial markets have begun to function more efficiently, which is an important condition for ensuring that the economic recovery will begin. world trade has also begun to show signs of stabilisation during the spring, after the earlier heavy fall in exports. but our assessment is that the recovery will be a slow one ( see figure 4 ). the view that a recovery in the world economy has begun is also confirmed by the imf ’ s most recent forecasts for global developments. however, the imf report also depicts the recovery as being sluggish. 2 inflation abroad has continued to fall and has been negative in recent months, but underlying inflation has been more stable. i shall return to this point. nevertheless, commodity prices have begun to rise. the oil price fell substantially last year, but has now risen again to around usd 75 per barrel, and according to forward rates it is expected to rise slightly during the forecast period

requirement would have. at the same time, we are developing our analysis of how monetary policy and indebtedness will affect the risks in the swedish economy in the coming period. i think that when making the actual decision, one must be sensitive to the difficulty of quantifying everything that needs to be taken into account. models cannot capture everything. one often sees forecasts as mean forecasts. this means in principle that the risk that the economy will develop less well is as great as the chance that it will develop better. a mean forecast for gdp growth abroad, for instance, balances everything that could give rise to lower growth against everything that could give rise to higher growth. another way of expressing the same thing is that the forecast is a form of middle way of all the different roads the economy could take in the coming period. this way of working with forecasts means that one acts as though one has succeeded in quantifying the possibilities and effects of all of the different potential courses of events. a year or so ago there were frequent discussions of the risk of a split or disintegration of the euro system – what was the probability that this would happen and what effects would it have for sweden? today there may be reason to ask these questions with regard to an escalation of the ukraine conflict or to a substantial fall in housing prices in sweden. if one considers these difficulties in quantifying various possible sequences of events and probabilities that they will occur, it may not be as simple a matter to make decisions on monetary policy and make forecasts for future interest rates as it is sometimes made out to be. it is not necessarily a case of assuming that one has succeeded in capturing all possible sequences of events in a balanced manner and then choosing the repo - rate path that provides the smallest deviations from the inflation target and a long - term sustainable development of employment during the forecast period. bis central bankers ’ speeches as my colleague stephen poloz at the bank of canada recently pointed out, the shaping of monetary policy is more a question of risk management than a precise feat of engineering. 3 if one takes the uncertainty seriously, and i think we have to do that, my assessment is that one should put particular emphasis on the really serious negative scenarios that we have the capacity to influence with monetary policy. one such risk that we have tried to take into account is that in a situation where macroprudential policy measures cannot manage all of the risks linked to household ind