judging from the expectations of economic agents, a low - inflation regime has now been established. the composition of growth has also been favourable. after decades of growth that was generated to a high degree by rising consumption — with an accumulation of external debt — it is a healthy sign that expansion been associated with strong export demand and industrial investment. one result of this, the large current - account surpluses since 1994, has made it possible to repay external debt. a dramatic turnaround has also been achieved in government finances. massive budget deficits have been succeeded by a surplus. this trend is primarily a consequence of the economic recovery, just as declining activity was the main cause of the earlier fiscal collapse. but without the extensive measures for budget consolidation, neither the economic upturn nor the improvement in government finances would have been feasible. tax increases and spending cuts on the scale we have experienced in recent years obviously leave their mark. household income has been sharply restricted, particularly in 1995 – 96. so have public activities. in one respect, moreover, the outlook is still troublesome, namely as regards employment. despite the economic recovery, a rapid expansion of employment has proved difficult to achieve. it is worth noting, however, that the number of private sector jobs, in services in particular, has in fact been rising continuously since 1995. but this has not made up sufficiently for the contraction of employment during the 1990s in, for example, the public sector and construction. after this review of developments in recent years, i shall now discuss the riksbank ’ s appraisal of the coming twenty - four months, which is the period we need to consider when conducting monetary policy. 3. the message in june in the latest inflation report last june the riksbank presented an economic forecast for sweden and its implications for the path of inflation up to the middle of the year 2000. our assessment was that the trends in recent years, with high growth and low inflation, would continue in the years ahead. the economic upswing was assumed to continue in the forecast period, with annual growth rates around 2. 5 per cent this year and 3 per cent in the next two years. the forecast involved an increasing contribution from rising domestic demand, accompanied by a successive fall - off in export growth. private consumption was expected to pick up, partly in view of rising household income. - 3notwithstanding the prospect of further good economic growth in the coming years, the riksbank judged that the rate of inflation would remain low and

even be less than we had expected earlier. the strong demand was certainly assumed to give some increase in inflationary pressure in the forecast period but not so much as to be a cause for concern. one reason lay in the good productivity growth that was also foreseen, indicating that full capacity utilisation in the economy would not be reached in the coming twenty - four months. although capacity utilisation was high in certain sectors, the riksbank envisaged that in the economy as a whole there would be a capacity surplus. external inflationary pressure was expected to be low in view of subdued international inflation, low raw materials prices and a somewhat stronger exchange rate. expectations of future inflation among households, financial agents and manufacturing indicated a belief that future inflation would be low. thus, confidence in economic policy ’ s focus on price stability seemed to have been firmly established. the riksbank noted that the uncertainty in the assessment of future inflation was mainly whether it would be even lower than we foresaw in the main scenario. one of the main factors here was the crisis in asia and its conceivable effects on international economic developments and prices. there were risks of the crisis ’ effects being greater than assumed in the main scenario in june, so that weak demand and low inflation in the rest of the world would lead to an even lower price rise in the swedish economy. all in all, these considerations meant that in the june report the riksbank ’ s overall assessment of inflation in the coming years was adjusted downwards. as the rate of inflation twelve to twenty - four months ahead was judged to be below the target, the riksbank considered that, at least for a time, there was room for a somewhat more expansionary monetary stance. the repo rate was therefore lowered 25 basis points. 4. what has happened since the june report? let us now look at what has actually happened since the beginning of the summer. low pressure from international prices during the summer the asian crisis has got worse and the uncertainty about its future course seems to have grown. more countries in the region are now expected to show a fall in output during the year. one of the main factors behind the deterioration is the weak japanese economy. the knock - on effects of the japanese crisis in other parts of the world are highly uncertain, as is the outlook in such countries as russia and china. an impact from the asian crisis is now discernible in economic growth in the united states and the united kingdom