##s we made in august. for sweden, the majority of indicators point to an upturn in economic activity in the autumn. in accordance with our forecast during the summer, there are currently some unutilised resources ( see chart 2 ). this has mainly been due to a weakening in demand over the past two years. in addition to the relatively favourable capacity level, productivity growth has also been unexpectedly fast given the current economic climate. in the near future, demand is expected to mount due to both solid consumption growth and a small rise in investment. while gdp growth this year is forecast to be moderate, around 1. 5 per cent, growth in both 2004 and 2005 is expected to be appreciably higher, approximately 2. 5 per cent. so growth in coming years is anticipated to be somewhat higher than the potential growth we had forecast for sweden in recent years. if swedish economic activity is to rise as forecast, there will need to be a pick - up in investment. this began to fall as early as 2001 in manufacturing, and the following year it declined in the whole economy. like many other forecasters we viewed the decline in investment as more transitory than it later proved to be. a year ago, our forecasts pointed to a turnaround at the beginning of 2003 ( see chart 3 ). in the june inflation report, it was forecast that investment would be delayed and begin to rise at the beginning of 2004. during the second quarter this year, gross capital formation fell by approximately 2 per cent according to the national accounts. and in its latest forecast from august, the national institute for economic research expects an increase in investment to be delayed further. the situation is clearly uncertain, even if the fundamental conditions for a rise in investment are good, with low interest rates, stable equity market growth and expectations of a recovery in the international economy. another source of concern is connected with swedish household consumption. this has increased at the same time as we have witnessed a relatively substantial decline in the value of household net wealth. in recent years, household indebtedness has risen sharply and is now approaching the levels seen shortly before the banking crisis at the beginning of the 1990s. the interest ratio, i. e. post - tax interest expenses in relation to disposable income, is however at a relatively low level historically. so far the riksbank has not judged these developments to be a problem for financial stability, at least not as long as any future rise in interest rates is

it has appreciated substantially against both the dollar and the euro. it is likely that these recent developments have been due to market assessments of the relative strength of the swedish economy compared with the euro area in the near future, but also to a revaluation of the dollar against the euro following comments from the g7 meeting in dubai. all in all, developments in the krona have largely been in line with our forecast in the june inflation report. so the appreciation of the krona so far is in line with previous forecasts. should the krona continue to strengthen - and particularly if there is also reason to believe that the appreciation will last - it will of course have implications for our forecast. however, it is currently too soon to come to any real conclusions for inflation in the near future from the perspective that is significant for monetary policy. what these developments have mainly illustrated so far is perhaps how greatly exchange rates can fluctuate and how unexpectedly quick changes in sentiment can be. developments in the fixed income market have been less dramatic. however, the long - term yield spread on germany widened slightly in connection with the referendum. in all probability, the current yield spread is partly due to recently better growth prospects in sweden than in the euro area. it is also reasonable to expect that we will have to pay a certain premium in the form of a differential between swedish and german long yields for remaining outside the single currency. we can illustrate this by comparing the yield spread in, for instance, sweden, finland and italy ( see chart 1 ). swedish long yields are higher than finland's, whose situation in terms of growth and government finances has been roughly in line with our own. our yields are also higher compared with italy, despite their markedly weaker public finances. the salient features of the economic outlook world economic activity has been broadly in line with our forecast in the june inflation report. if anything, current tendencies are somewhat better, as concluded by the executive board at its monetary policy meeting in august. signs of a recovery in the us economy have become increasingly evident, which is pleasing of course. the outlook is different, however, for the euro area. perhaps there is reason to expect a slightly longer delay in the european revival, even if we have recently seen a number of positive signals of a forward - looking nature. on the other hand, it appears that economic activity in japan will be stronger than expected. on balance, it currently seems likely that international activity will be roughly in line with the forecast