and approximately 7 per cent of gdp in 2011. however, it is still high in historical terms and in comparison with other countries. it is hard to see that there are any major advantages for the swedish households of a significant part of their incomes being used to fund investments abroad, which in reality is what this means. to me, this is another sign that demand is too low in sweden. low demand is restraining consumption so that saving is high, and is also restraining investment. my interpretation of developments regarding the labour market, inflation and the current account is thus that demand in the swedish economy has been far too low since sweden was hit by the fall in demand in the autumn of 2008. although both monetary policy and fiscal policy have been used to counteract the fall in demand, this has not compensated in full for weak economic development abroad and for the weakening optimism of the households and companies. the fact that unemployment was relatively high in sweden already prior to the financial crisis ( as can be seen in figure 2, unemployment has averaged just over 7 per cent since 1999 ) and that the current account surplus has been substantial since the second half of the 1990s, raises the question of whether aggregate demand has been weak in an even longer perspective. my colleague lars e. o. svensson has, for example, claimed that unemployment has been unnecessarily high since the mid - 1990s because monetary policy has not been used to a sufficient extent to counteract shocks that have pushed down inflation. 3 it is of course important to determine what the situation was with regard to resource utilisation before the financial crisis in order to be able to assess the level that unemployment should eventually fall to. but this is not the issue that i intend to focus on today : my focus see the paper “ the possible unemployment cost of average inflation below a credible target ” or the speech “ monetary policy and inflation : monetary policy is too tight ”, 16 january 2013. bis central bankers ’ speeches here is instead on the issue of how economic policy could be used more effectively to stabilise business cycle fluctuations in the future despite the risks to financial stability. limited stimulation from fiscal policy in contrast to the situation in many european countries and the united states, there was a significant surplus in public net lending in sweden when the financial crisis began. in the euro area and the united states, public net lending as a percentage of gdp had shown an average deficit of just under 2 per cent during the 10 years before the crisis. the corresponding figure for

same time as we conduct a policy to promote financial stability. i will discuss how this should be done towards the end of my speech. low aggregate demand since the financial crisis when sweden was hit by a collapse in the demand for swedish export products at the end of 2008, gdp fell heavily. however, it did not take long for gdp to rise again and in 2010 growth figures reached almost record levels. to a certain extent, these high growth figures were of course a natural consequence of the major fall in gdp in late 2008 and early 2009. but, in contrast to many other countries, gdp in sweden also began to exceed its pre - crisis level relatively quickly ( see figure 1 ). bis central bankers ’ speeches figure 1. gdp in sweden and abroad index, q4 2007 = 100 uk euro area usa sweden note. seasonally - adjusted data sources : statistics sweden and national sources. however, despite the relatively favourable development of gdp, it seems that unemployment has become entrenched at a high level. initially unemployment increased less than we expected given the substantial fall in gdp – it peaked at 9 per cent in early 2010 – but since then it has fallen no lower than 7. 6 per cent ( see figure 2 ). in my view, this is a level that is much higher than what can be considered a long - run sustainable unemployment rate. 1 figure 2. unemployment in sweden per cent of labour force average 1999 - 2012 unemployment note. seasonally - adjusted data source : statistics sweden. long - run sustainable unemployment rate here refers to the level of unemployment that is expected to prevail when all cyclical shocks have abated, when ongoing structural changes have had a full impact and when inflation expectations are equal to the actual rate of inflation. see for example “ the long - term development of the swedish labour market ”, monetary policy report, july 2012. see also “ correction of the riksbank ’ s estimate of the long - run sustainable employment rate ”, appendix 2 of the minutes of the monetary policy meeting, july 2012, for a discussion of the role of expectations in the assessment of the long - run sustainable unemployment rate. bis central bankers ’ speeches unemployment has also begun to increase again in recent months and our latest forecast predicts that it will increase further to reach 8. 2 per cent in the third quarter of this year. figure 3. cpif inflation in sweden annual percentage change note. the series refers to monthly data. source : statistics sweden. developments thus indicate that we