villy bergstrom : should the riksbank be concerned about asset prices? speech by mr villy bergstrom, deputy governor of the sveriges riksbank, at a breakfast meeting arranged by round table in sundsvall, on 11 april 2000. * * * the swedish economy is growing more quickly than for a very long time. in 1999, gdp increased by 3. 8 % and during the coming three years, growth is expected to average almost 3. 5 %. at the same time, the prerequisites for a long - term favourable development appear better than for many decades. almost all economic indicators are pointing in the right direction. despite a very strong upswing, the long - term inflation expectations remain stable and close to the target for monetary policy. central government finances are in surplus for the second year running and despite a planned tax reduction of over sek10 billion this year, the surplus in the central government budget is expected to total at least 2 % of gdp. from having had the next poorest budget balance in the entire eu in the early 1990s, the budget balance in our public finances is now among the strongest in the whole union. since the mid - 1990s, central government debt has decreased from 80 to 70 % of gdp. our country ’ s financial balance, ie the current account, has at the same time shown a surplus for a number of years and the foreign debt has fallen from 40 to 20 % of gdp during this period. however, unemployment is still too high - the increase in production of almost 15 % since the end of the 1980s has not been sufficient to bring the labour market into balance. the employment ratio has increased, however, from 72 to 74 % during the past year and employment is expected to increase greatly during the coming years. it is expected that open employment will fall to 3. 7 % in 2002. however, the beginning of this decade looks very promising. almost the entire 1990s were marked by the problems in the wake of the high inflation economy of the 1980s and the overheating that ended that decade. loan - financed consumption, excess investment, among other things, in properties, which took place in tandem with the increasing asset and property prices, had led to large financial and real imbalances being built up. when the bubble burst and the krona fell, there was a great need among households, businesses and banks to review their balance sheets and reduce their debt. as we know, this led to a great

where the riksbank would want to be able to do so on some future occasion, eg with a view to avoiding the risk of recession and falling prices. the riksbank hardly has better prerequisites than investors in the market to determine whether a so - called speculative bubble is developing. if a speculative bubble is involved, it will sooner or later burst. however, it is then the riksbank ’ s duty to counteract a fall in inflation by an energetic interest rate policy at the same time as it limits the damage of the fall in demand that could ensue. bank of japan ’ s april report of recent economic and financial developments1 bank of japan, communication, 12 april 2000. * * * the bank ’ s view2 the improvement in japan ’ s economy is becoming distinct. recovery has started in some areas of private demand, as seen in a gradual upturn in business fixed investment. with regard to exogenous demand, net exports ( real exports minus real imports ) continue to follow an upward trend due to an upturn in overseas economies, and public investment has started to pick up reflecting the progress in the implementation of the supplementary budget for fiscal 1999. as regards domestic private demand, housing investment is decreasing moderately, and recovery in private consumption continues to be weak through lack of notable improvements in employment and income conditions. meanwhile, business fixed investment is starting to pick up albeit moderately. reflecting such developments in final demand, industrial production is increasing, and corporate profits and sentiment continue to improve. firms as a whole still strongly feel that they have excess capacity and employees, and that they should reduce their debts to restore financial soundness. nevertheless, the number of firms that take positive action, such as increasing the amount of fixed investment, is increasing gradually, especially in high - growth sectors. regarding employment conditions, although the decrease in the number of employees and in wages is slowing, efforts by firms to reduce personnel expenses have prolonged the severity of households ’ income conditions. as for the outlook, public investment is likely to increase for some time. this, along with the favorable financial environment created partly by the bank ’ s monetary easing, is expected to continue underpinning the economy. moreover, net exports are likely to follow an upward trend reflecting the recovery of overseas economies, and it is also highly probable that business fixed investment will increase gradually with an improvement in corporate profits and sentiment. however, housing investment is expected to continue declining moderately, and there seems to be no