in recent years provides cause for concern, although there was a recovery last year. sweden currently has a large trade surplus, but many of the large swedish companies choose to invest their export income abroad. swedish investment in foreign countries amounted to approximately sek 200 billion in 2005, while swedish industrial companies ’ investment in foreign debt securities increased by almost sek 70 billion. the capital inflow during the same period was approximately sek 100 billion. 8 according to swedish companies, one of the main reasons why their export flows remain abroad is that expansion in new markets and new production capacity occur mainly abroad and not in sweden. 9 the fact that an increasing share of direct investment is aimed towards emerging economies in south east asia is part of an international trend that can be seen in most oecd countries. it can be assumed that the effects on the world economy of the integration of, for instance, china and india, will continue for some time to come. there is a long way to go before the whole of china is included in the global market economy. however, it has recently been possible to see some inward movement within the country as wages have risen in the coastal regions. nevertheless, there still remain many hundreds of millions of poor people in china who are prepared to take jobs with very low remuneration compared with the wages paid in sweden, for example. one effect that is of significant importance to the riksbank is lower prices in international trading. the low inflation in sweden over the past years can be explained by low import prices and high productivity. the latter is also connected with globalisation through the increased competition and changes in production patterns. however, the value of foreigners ’ assets in the form of direct investment in sweden is high from both a nordic and a european perspective. foreign direct investment in sweden amounted to around 47 per cent of gdp in 2004, which can be compared with just over 30 per cent in the eu. ` seb, ” kronsyn ”, 22 march 2006. globalisation and imbalances in the world economy the deregulated international capital market has meant that countries have to a much greater extent than before been able to finance consumption and investment via borrowing abroad. this could indicate that trade imbalances are something we have to live with in a world with deregulated capital markets and a greater degree of free trade than before. at the same time, risks of rapid adjustments may be built up. in connection with the slowdown in economic activity in 2000 - 2001,

me, consider that the imbalances comprise a serious risk to the world economy and that the longer they remain, the greater the risk of negative effects arising from a correction. the most probable scenario in the near future, according to the riksbank and most other analysts, is that there will be an orderly, gradual correction of the imbalances with manageable effects on the world economy. in the long term, demographical factors, such as a larger percentage of elderly people in the population of the rapidly - growing asian countries, also argue in favour of a correction taking place in the form of reduced private saving. however, one cannot rule out the possibility of a more abrupt adjustment of the imbalances, which could have considerable negative effects on the world economy. there are two possible scenarios that could trigger a more abrupt adjustment. one is that the us households choose to rapidly increase their saving, for instance, out of worry over future financing of general government healthcare and the pension system. a slowdown in saving could also trigger a fall in house prices, which could in turn further reduce saving. the second scenario could be that investors change their perception of potential growth in the united states and the growth and income advantage which one previously thought would persist. this would mean that interest expenditure on the foreign debt could be perceived as untenable and trigger rising interest rates and rising costs for the us foreign debt. in both of these scenarios there is a slowdown in growth in us consumption, which could have major effects on global economic activity. one can also imagine that an international economic slowdown would be reinforced by a fall in house prices and a change in the view of the united states as a borrower, which could lead to an abrupt slowdown in the world economy. the global imbalances and the threats to jobs from the increasingly stiff competition have triggered increased demands for protectionism, both in the us congress and in europe. a downturn in the world economy could trigger a wave of protectionist measures, such as trade barriers and customs tariffs, which could further worsen an economic downswing. for a small country like sweden that is dependent on foreign trade, an abrupt adjustment of the imbalances could have a severe impact on the economy. a rapid fall in the dollar rate would probably be followed by an upturn in the euro, which could push down european companies ’ competitiveness and slow down growth in the euro zone. this would subdue growth in sweden, which has around 40 per