different if the growth in demand slowed down, the labour market weakened and capacity utilisation ceased rising. then there would be less upward pressure on house prices and i believe that an interest rate cut would be less risky in these terms. international developments could also be so weak that insufficient export market demand would curb the recovery. the weak developments in our most important trading partner countries, the euro area, are particularly worrying. like sweden and the united states, germany, france and italy are affected by globalisation, but in these countries the labour market seems to be finding it particularly difficult to cope with change. germany is at the same time undergoing extensive structural reforms, such as the reduction of compensation levels for unemployment benefits and other transfers, and also longer working hours without full compensation. in the long term, these measures are aimed at increasing the labour supply and competitiveness of the german economy. however, in the short term they lead to uncertainty for many individuals and thereby curb consumer confidence and demand. at the same time, fiscal policy is tied by weak government finances due to a lack of fiscal consolidation during the good times at the end of the 1990s which has made the obligations under the stability pact more or less binding, while monetary policy is common to the entire euro area. germany thus has a domestic demand problem, which it is trying to solve through supply side reforms, while fiscal and monetary policy are tied by the eu and ecb. all this appears to have contributed to further prolonging the economic downswing in germany and if the recovery in the euro area were to be delayed further, it would have an effect on swedish export demand. if these negative risks are realised in full, it could be more difficult for domestic demand to relieve the export - driven growth of recent years. this could break the present recovery impetus, which would lead to a need for further stimulus of the economy from monetary policy. conclusion all in all, we should continue to be vigilant of risks and possible changes in the direction of business tendencies. however, it is important to hold on to a stable analytical framework and a consistent forecast assessment. the underlying factors still indicate a rise in resource utilisation and thereby a rise in inflation.

demand and thereby employment. inflation outlook and future monetary policy this brings us to the other question – namely what monetary policy can do today to ensure inflation reaches the target level one to two years from now. what we have seen in the united states, which is considered to be slightly ahead of sweden in the economic cycle, is that productivity growth is gradually subsiding. when the stimulus from monetary policy and fiscal policy has been maintained sufficiently long, companies are unable to respond with more efficient organisation and outsourcing alone, they have to begin recruiting. productivity growth is dampened, employment rises and in the united states we have recently seen that inflation also rises. this is also the kind of development we can expect to see in sweden. the most likely scenario is that over the coming years we will see a more subdued growth in productivity, rising employment and an increase in resource utilisation, despite the pressure for change in the economy. other factors that have temporarily held down inflation, such as the earlier krona appreciation, the rapidly - intensifying competition in the food retail sector and price pressure on clothing resulting from the eu abolishing textile quotas, are effects that are likely to decrease over time. the fundamental factors are all in place ; expansionary monetary and fiscal policy, strong growth in real wages, good underlying productivity growth and stable export demand, particularly from the united states and rapidly - growing emerging markets such as china and the countries in central and eastern europe. therefore, we should not become exclusively preoccupied by the current inflation rate. instead we should keep the right perspective. when developments gradually approach the usual recovery pattern, the indications are that resource utilisation will increase and inflation will approach the target level. there has been concern that an interest rate cut would have a slight effect on consumption and investment, as interest rates are already low and lending is growing rapidly in a situation where housing loans can be obtained at just over 2. 5 per cent interest. companies also have good profits and ample liquidity. meanwhile there is believed to be a risk that even lower interest rates would further push up house prices through cheaper housing loans. an interest rate cut could thus have a misdirected effect with the risk of future setbacks ; little or no effect on achieving the inflation target but a strong impact on the demand for assets such as houses. this line of reasoning applies when demand grows rapidly, as now, and when capacity utilisation rises. in my opinion, the interest rate effects would be