Macroeconomic development and economic policy 2013-2017.

The development of GDP will be weak in the next few quarters, but the economy will enter an upturn in the second half of 2013. Not until the end of 2016, however, will resource utilization in the economy be normal. The sluggish recovery in the OECD area will be a factor in making domestic demand more important than normal for Sweden's recovery. Fiscal policy will have an expansionary stance in 2013. In the NIER's analysis, fiscal policy will be virtually neutral next year. But since cyclically adjusted net lending will be negative in 2014, a tighter fiscal policy 2015-2017 will be necessary for meeting the surplus target. With the low level of resource utilization, low inflation and low interest rates in other countries, the Riksbank will not raise the repo rate until 2015.

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This chapter first provides a general presentation of the NIER's forecast for the development of the international and Swedish economy in 2013-2017. It then describes the forecast for monetary and fiscal policy more thoroughly. For a more detailed description of developments in 2013-2014, the reader is referred to the summary.

International Development

SLOW GLOBAL RECOVERY AND CONTINUED EXPANSIONARY MONETARY POLICY

Global growth has fallen in recent years, with a weak ending for 2012, particularly in the OECD countries. The assessment, however, is that the international economy will enter an upturn in the second half of this year and that recovery will continue in 2014-2017 (see Diagram 18).

The margin for further economic policy stimulus is limited, particularly for fiscal policy. The principal factors underlying the approaching economic recovery are pent-up demand after several years of restrained development, together with an expansion ary monetary policy. In the OECD countries, resource utilization is low to begin with, and the potential for recovery is thus considerable (see Diagram 19). As political and institutional solutions to the debt crisis that has arisen are put in place and the consolidation aimed at more balanced debt levels advances, the confidence of households and firms will strengthen. In the OECD countries household consumption will increase somewhat faster in 2014-2017 than in recent years. But it is primarily investment growth that will be rising. After a long period of lacklustre investment, there is a pent-up need both for replacing outdated and worn-out capital and for new investment. In the OECD countries, GDP growth will rise to about 2.5 percent per year in 2014-2017 (see Diagram 18).

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In most growth economies, the quantity of spare resources is not as great, and the margin for rising growth thus somewhat less. However, at over 6 percent per year, growth in the emerging economies will continue to be much higher than in the OECD countries in 2014-2017 see Table 3).

Worldwide recovery is proceeding sluggishly compared to previous economic recoveries. The continuing debt problems in the OECD countries have led to restraint with the aim of strengthening balance sheets in the private and public sectors. This will have a dampening effect on demand in the next few years.

Since the economy is recovering so slowly, global resource utilization will remain low. This means that the development of world-wide prices will be subdued, not least in many OECD countries. Consequently, central banks in the OECD area can continue to support demand through an expansionary monetary policy in the next few years (see Diagram 20).

Developments in Sweden

CONTINUED RECESSION

In Sweden the recession has entered its fifth year. After the sharp drop in demand in connection with the financial crisis of 2008/2009, the economy is still far from full resource utilization despite the quick recovery in 2010. Since then the so-called output gap has hovered around -2 percent of potential GDP (see Diagram 21). This means that output would have been 2 percent higher with normal resource utilization. The principal reason why the Swedish recession has been so prolonged is the European debt crisis. Since the spring of 2010, the crisis in the euro area has led to unrest on financial markets, a weak macroeconomic development and sweeping fiscal austerity measures, primarily in southern Europe. An aggregate effect has been that demand for Swedish exports of goods has been and still is unusually low. Uncertainty about the resolution of the crisis has also contributed to the lacklustre development of domestic demand since Swedish households and firms have been holding back on consumption and investment.

SLUGGISH DEVELOPMENT OF POTENTIAL GDP 2013-2017

In the next few years, growth in potential output, or the level of output that would be achieved with normal utilization of labour and real capital, will be lower than during the period 1980-2012, when potential output grew by an average of 2.3 percent per year (see Table 4). Underlying the weak tendency is a slow rate of increase in productivity and slackening growth in the potential labour force (see the special analysis "Updated View of Potential Output and Employment" in this chapter).

RECOVERY TO BEGIN IN THE SECOND HALF OF 2013

In the first half of 2013, the tendency in demand will still be weak. As before, the principal cause will be continued low growth in other countries, but domestic demand will also be growing slowly during the first two quarters of this year.

Growth in demand will be curtailed in the immediate future primarily by fiscal austerity measures in other countries and continued uncertainty," about the manner in which the euro crisis will be resolved. In NIER's assessment, however, the uncertainty will diminish during the current year. As this happens, the Swedish economy will be well prepared for recovery. Household saving is high to begin with, thus permitting consumption to increase as uncertainty subsides. With low capacity utilization, output can also increase rapidly. The lacklustre resource utilization at the outset, however, means that recovery will take a long time, but also that output can grow- faster than potential output for several years in a row.

The weak international tendency means that domestic demand will have to drive recovery to a greater extent than in previous recoveries, with the result that recovery will take more time. In the recoveries after the Swedish crisis of the 1990's and the economic downturn in connection with the IT crash at the outset of the 2000's, GDP grew more rapidly than domestic demand; in other words, GDP growth was driven to a comparatively large extent by exports (see Diagram 22). In the period ahead, by contrast, domestic demand is expected to grow faster than GDP. To support this development, monetary policy will need to be expansionary. But it might prove difficult to stimulate domestic demand sufficiently. If so, recovery will take even more time.

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NET EXPORTS FALLING AS A SHARE OF GDP

With the low growth in other countries in the period ahead, the global market for Swedish exporting firms will be growing comparatively slowly (see Diagram 23). This will be a factor in the slow growth of Sweden's exports, only 1.2 percent, in 2013 (see Table 5. (3) In the years thereafter, exports will increase much faster but still not keep up with the growth of the market for Swedish exports. One factor governing the development of Sweden's net exports is that Sweden for demographic reasons has a decreasing need for net saving in relation to other countries. In the last two decades the proportion of the working-age population in the total population has been increasing. This age group saves more than younger and older people. In the near future, the population structure will be changing so that the proportion of younger and older persons will be increasing. Household saving will then be lower, suggesting that Sweden's net saving in relation to other countries will decrease in the period ahead. Net exports will thus continue to fall as a share of GDP (see Diagram 24). Lower Swedish net exports also play a part in decreasing global imbalances. Several countries in southern Europe, but also in the US, have long had deficits in foreign trade and need to strengthen their net exports.

CONSUMPTION AND INVESTMENT TO DRIVE RECOVERY

Growth in household consumption was only 1.7 percent in 2012. This outcome was due to continued high precautionary saving, which is largely explainable by the uncertainty over how the euro crisis will affect the Swedish economy. Toward the end of 2012, however, growth in household consumption expenditure increased. This marks the beginning of a period of higher growth in household consumption expenditure. In 2013, though, the upswing will be curbed by rising unemployment. For the full year 2013, consumption will grow by 2.5 percent. Thereafter the growth rates will be higher; household consumption will increase by an average of almost 3 percent per year in 2014-2017. This means that growth in consumption per capita will be high during these years, and in 2017 it will be close to the average for the latest 30-year period (see Diagram 25).

There are several reasons for the strong growth in consumption. First, the saving ratio is high to begin with, enabling households to increase their consumption (see Diagram 26). Second, recovery in household consumption expenditure will be stimulated by low interest rates (see the section "Monetary Policy and Exchange Rates" in this chapter). But fiscal policy will be contractionary in 2015-2017, curtailing household consumption somewhat (see the section "Fiscal Policy" in this chapter).

General government consumption will increase by an annual average of 1.1 percent in 2013-2017. Growth in general government consumption will be higher toward the end of the period, partly because of the demographic tendency, described above, which will increase the need for public services, and partly because local government finances will improve as the economy strengthens. Beginning in 2015, general government con sumption will grow 0.4 percentage point faster than the demographically determined need. (4) This is somewhat below the average improvement of 0.6 percentage point in standard-of-service in 1995-2012 in addition to the demographically determined need, and it will be achieved in part through improved productivity of public authorities (see also the special analysis "Updated View of Potential Output and Employment" in this chapter). Investment dropped sharply in 2009 and recovered somewhat during 2010-2012 (see Diagram 27). This is a normal cyclical pattern, since investment varies much more than household consumption, for example, over an economic cycle. Despite a relatively high rate of growth in investment, particularly in 2010 and 2011, investment as a share of GDP was only 18.8 percent in 2012 (see Diagram 24). This year investment will again be rising slowly, and investment as a share of GDP will fall somewhat. When the uncertainty subsides during the current year, there will consequently be a need for increased investment. In the NIER's assessment, investment will be equivalent to approximately 20 percent of GDP in the long run. Since the investment share will be only 18.6 percent of GDP in 2013, there will be a need to increase the rate of investment in the period ahead. From 2014 to 2017, therefore, investment will increase by some 4-7 percent per year (see Diagram 27).

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All factors considered, this means that GDP growth will gradually increase to about 3 percent in 2015-2016. But recovery will take a long time since resource utilization will be so low when the economy reaches a turning point. Not until 2016 will resource utilization, as measured by the output gap, be roughly in balance (see Diagram 28).

NO DOWNTURN IN UNEMPLOYMENT UNTIL 2014

The number employed increased during 2012, but unemployment rose nonetheless because of a relatively substantial increase in the labour force (see Diagram 29). For the full year 2012, unemployment averaged 8.0 percent, more than 1 percentage point higher than the NIER's assessment of equilibrium unemployment this year. There will be a slight continued rise in unemployment this year, due initially to a weak tendency in de mand. But although actual GDP growth will exceed potential GDP growth beginning in the second half of this year, unemployment will not start to decrease until the end of next year. This is a normal cyclical pattern on the labour market. When demand begins to recover toward the end of the current year, firms will initially increase output primarily through more efficient use of existing personnel. Hiring will not pick up until resource utilization at firms has been normalized, and unemployment will begin slowly to decrease starting at the end of next year. Recovery on the labour market will take a long time. Not until 2017, when unemployment will be 6.5 percent, will cyclical balance return to the labour market; in other words, the labour market gap will close that year (see Diagram 28 and Table 6).

RATE OF PAY INCREASES DROPPING TO A LOWER LEVEL

Earnings in the business sector increased by about 2.5 percent per year in 2010 and 2011. This is less than the average of 3.4 percent for the period 2000-2010. For 2012, it is estimated that pay increases in the business sector will have been 3.3 percent. This year and next year, the rate of pay increases will drop to a lower level (see Diagram 30). This lacklustre development is partly explainable by low resource utilization and slow growth in potential productivity. Another factor that will hold back growth in earnings in the period ahead is the weak profit situation of firms. This year the profit share of firms, or the operating surplus as a share of total value added, will fall below 39 percent, which is lower than the average since 1980. Relatively low pay increases and initially rising capacity utilization will mean that the profit share will be slowly rising from and including next year until 2017.

LOW INFLATION FOR THE NEXT FEW YEARS

Inflation as measured by the CPIF, that is, the CPI with a constant mortgage interest rate, has remained below the Riksbank's inflation target of 2 percent since 2010 (see Diagram 31). In the future as well, the rate of increase in consumer prices will be modest because of low resource utilization, one effect of which is to hold down pay increases. Firms will thus be able to improve their profits somewhat from 2014 on despite modest price increases. Not until around 2017 will inflation in terms of the CPIF reach 2 percent (see Table 7). Since the Riksbank will raise the repo rate in 2015, home mortgage interest rates will increase (see the section "Monetary Policy and Exchange Rates" in this chapter). This will contribute to an increase in inflation as measured by the CPI, which is affected by mortgage interest rates, so that it exceeds 2 percent in 2016-2017.

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Monetary Policy and Exchange Rates

RIKSBANK TO LEAVE THE REPO RATE UNCHANGED FOR AN EXTENDED PERIOD

The Riksbank decided to leave the repo rate unchanged at 1 percent at their monetary policy meeting in February. At the same time, the Riksbank's forecast for the repo rate was adjusted downward marginally and means that the first increase in the repo rate will not come until the first quarter of 2014. The pricing of forward contracts for the repo rate indicates that investors are expecting the rate to be unchanged during 2013 (see Diagram 32).

With the weak state of the economy in many OECD countries, the tendency of international prices has been slack in recent years. In combination with a strengthening of the krona, this has had a dampening effect on prices of Swedish imports. Moreover, the weak demand situation has made it harder for Swedish firms to pass on cost increases to consumers. The aggregate effect has been low inflation. The prolonged recovery of demand means that the quantity of unused resources in Sweden remains considerable. This has a dampening effect on the development of earnings, and together with low prices of imports will contribute to continued low inflation.

The Riksbank could lower the repo rate further for the purpose of speeding up the recovery of the Swedish economy without risk of high inflation. (5) The Riksbank's announcement, however, suggests that a majority of its Executive Board continue to attach special importance to financial stability in their monetary policy decisions. In view of the development of household debt and housing prices, the majority of the Executive Board hold that an excessively low interest rate may increase the risk of financial imbalances, which would allegedly make it more difficult to meet monetary policy targets beyond the Riksbank's forecasting horizon.

All factors considered, the NIER assumes that the Riksbank will leave the repo rate unchanged through the second quarter of 2015, when a period of interest rate increases will begin. There is a price to be paid for not pursuing a more expansionary monetary policy: lower inflation and higher unemployment in coming years (see the section "Developments in Sweden" in this chapter.

MONETARY POLICY TO REMAIN EXPANSIONARY IN 2014-2017

An expansionary monetary policy will help the Swedish economy to begin recovering in the second half of 2013. The prolonged recovery, however, will mean that monetary policy can remain expansionary for an extended time. To avoid overly high resource utilization later on and an inflation rate that exceeds the target, the Riksbank will raise the repo rate gradually beginning in the second quarter of 2015. The forecast development means that resource utilization in the economy as a whole will be in balance in the latter part of 2016. At this point the repo rate will still be at a level below what has historically been considered compatible with balanced resource utilization. The reason is that interest rates in other countries will still be very low, and that a higher rate in Sweden could therefore give rise to a stronger exchange rate, which in turn could delay recovery and dampen inflation to an undesirably high degree. The Riksbank will thereafter raise the repo rate to 3.25 percent at the end of 2017 (see Diagram 33).

VERY LOW INTEREST RATES ON GOVERNMENT BONDS The weak tendency in recent years and the uncertain economic climate have meant that investors on financial markets have sought to transfer their investments from riskier assets to assets that they have considered safer. Moreover, the bigger central banks have purchased government bonds on a large scale. In combination with low policy interest rates in several major economies, this has meant that interest rates on government bonds have fallen in many countries to levels that are extremely low by historical standards. A seemingly higher risk appetite on financial markets at the outset of 2013 has contributed to rising interest rates on government bonds in countries such as Sweden, the US, the UK and Germany. An orderly resolution of the debt crisis in the euro zone will probably contribute to continued normalization of risk appetite and help reduce demand for safer, more liquid investments. When recovery also in the longer run entails a less expansionary monetary policy, with interest rate increases in many countries, short-term interest rates will begin rising. All factors considered, this means that interest rates on long-term government bonds will increase in the next few years, with the rate on Swedish 10-year government bonds gradually rising to 3.2 percent in 2014 and further to 4.5 percent in 2017 (see Diagram 34 and Table 8).

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LITTLE REAL WEAKENING OF THE KRONA AHEAD

The krona has shown a strong tendency in the first months of this year. As measured by the KIX nominal effective exchange-rate index, the appreciation has been close to 4 percent since December. The forecast development, with reduced foreign-trade surpluses in in the future, indicates that the krona will continue to strengthen in real terms against the currencies of many of Sweden's trading partners. At the same time, the KIX index includes the currencies of several emerging economies. With these economies expected to show higher medium-term productivity growth than Sweden, it is suggested that the krona will weaken in real terms against the currencies of these countries. As measured by the KIX, the krona, with consideration given to its most recent appreciation, is expected to be slightly less than 5 percent weaker 2017 in real terms. Since inflation is expected to be higher abroad than in Sweden during this period, the nominal weakening will be only around 1 percent (see Diagram 35). The forecast development of the krona entails small nominal changes against the dollar and the euro, respectively (see Diagram 36 and Table 9).

Fiscal Policy

UNFUNDED MEASURES WILL CONTRIBUTE TO AN EXPANSIONARY FISCAL POLICY THIS YEAR

In the proposed Budget Bill for 2013, there are unfunded measures equivalent to some SEK 23 billion. The most sweeping measure is the reduction of the corporate tax from 26.3 to 22 percent. (6) The NIER forecasts no further unfunded measures during the year. In total, the net lending of the general government sector is calculated to be about -1.4 percent of GDP this year, double the amount of the deficit compared to last year. After net lending is adjusted for cyclical effects, it will be -0.3 percent of potential output this year compared to 0.4 percent last year. The decrease in cyclically adjusted net lending means that fiscal policy has been given an expansionary stance this year c (see Diagram 37 and the explanation in the margin).

For 2014 the NIER forecasts that the Government will implement a further SEK 15 billion in unfunded measures, of which the largest item is expected to consist of tax cuts for households. (7) With these unfunded measures, cyclically adjusted net lending will decrease only marginally to -0.4 percent of potential GDP. As a consequence, fiscal policy can be considered neutral next year.

NEED FOR AUSTERITY MEASURES IN 2015-2017 IN ORDER TO REACH THE SURPLUS TARGET

In the short run the fiscal policy forecast is governed by proposals and announcements in the Budget Bill and the Spring Budget Bill. For coming years, when this information is not available, the fiscal policy forecasts are based on the NIER's assessment of how the fiscal policy framework will be applied. In this assessment, the surplus target is the cornerstone, but the expenditure ceiling and the balanced budget requirement for the local government sector are also considered. The surplus target means that the actual net lending of general government is to average 1 percent of GDP over an economic cycle.

For the surplus target to be met, it is the NIER's opinion that cyclically adjusted net lending must gradually rise to the level of 1.2 percent of potential GDP when the economy is in balance (see the special analysis "The Surplus Target for General Government Finances" at the end of this chapter). According to the current forecast, the economy will be in balance at the end of 2016 with the closing of the output gap at that time (see Diagram 38).

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With unchanged rules in the systems of taxes and transfers, the revenue of general government will increase largely at the same rate as GDP, whereas public expenditure will increase more slowly than GDP. (8) This form of automatic budget reinforcement, however, will not be sufficient to reach the target for cyclically adjusted net lending: 1.2 percent of potential GDP in 2017. Rather, it is the NIER's assessment that a total of SEK 8 billion in measures to strengthen the budget will be required during the period 2014-2017 in order to meet the surplus target. Given the forecast of unfunded measures totalling SEK 15 billion next year, there will thus be a need for budget-reinforcing measures totalling SEK 23 billion during 2015-2017 (see Table 10). The austerity measures in public finances are to be introduced gradually, so that cyclically adjusted net lending in proportion to potential GDP increases from -0.4 percent in 2014 to 1.2 percent in 2017. Fiscal policy will thus be given a contractionary stance after 2014.

The NIER's fiscal policy forecast may be compared with the alternative scenario of no changes in rules during the forecast period; in other words, neither unfinanced nor budget-reinforcing measures are taken. (9) In this alternative scenario, cyclically adjusted net lending in general government is zero next year and positive in the following three years (see Table 11). When net lending increases without the taking of an}- active political measures, this can be described as a passive contractionary fiscal policy. The tightening of policy means that cyclically adjusted net lending will reach 1.0 percent of potential GDP in 2017, just below the level required, in the NIER's opinion, in order to meet the surplus target.

MAINTAINING THE STANDARD-OF-SERVICE COMMITMENT OF THE PUBLIC SECTOR WILL REQUIRE ADDITIONAL FUNDING ON THE REVENUE SIDE

Services provided by the public sector--such as health care, schools and nursing--as well as investment in, and maintenance of, roads, railroads and other collective utilities, may be given a common designation as the standard-service commitment. This commitment also includes institutional functions, such as the system of justice, and social security functions in the form of sickness insurance, parental allowances and other transfers to households. The extent of the standard-of-service commitment of the public sector is determined in the final analysis by political decisions of central and local government.

If the set of rules governing the expenditure of the public sector is left unchanged, the coverage of public services, as well as the level of allowances in various systems of transfers in relation to nominal earnings, will in time be undermined. This is discussed in the special analysis "The NIER's Assessment of the Scope for Reforms" at the end of this chapter. In order to maintain the current level of the commitment of the public sector, active political decisions on changes in rules to permit an increase in expenditure are required.

The NIER calculates that the increased cost of maintaining the commitment of the public sector, in addition to that entailed by unchanged rules, during the period 2014-2017 would be SEK 66 billion (see the special analysis for a detailed presentation of these calculations). As discussed above, there will be a need in the same period for SEK 8 billion in measures to strengthen the budget in order to achieve the surplus target. Fully maintaining the commitment of the public sector while at the same time meeting the surplus target thus creates a financing need estimated at SEK 74 billion during the period 2014-2017.

Fiscal Policy Concepts

The term unfunded measures refers to fiscal policy decisions on increasing expenditure and/or reducing taxes, when such decisions are not funded by equally large decreases in expenditure and/or higher taxes in some other area. Thus, these measures in themselves constitute a deterioration in the net lending of the general government sector and, in addition, normally have a positive effect on GDP.

Cyclically adjusted net lending is a calculation of what the net lending of the general government sector would be with balanced resource utilization (a cyclically neutral state) and a normal composition of major tax bases. It is usually presented as a share of potential GDP.

The fiscal policy stance in a particular year is derived from the change in cyclically adjusted net lending in relation to potential GDP. If cyclically adjusted net lending is decreasing as a share of potential GDP, this indicates that the fiscal policy stance is expansionary in regard to resource utilization in the economy. The reason may be that cyclically adjusted tax revenue is not keeping up with the increase in potential GDP, that potential general government expenditure is rising faster than potential GDP, or a combination of both. Correspondingly, if cyclically adjusted net lending is increasing relative to potential GDP, this indicates that the fiscal policy stance is contractionary. Finally, fiscal policy is neutral when cyclically adjusted net lending is un-changed in relation to potential GDP.

In the area of fiscal policy, the term unchanged rules refers to the development of fiscal policy variables when no further fiscal policy decisions are taken by the Riksdag and the Government. In practice, however, there are significant problems in drawing boundaries.

(3) All figures in this section are calendar-adjusted unless otherwise indicated.

(4) For a more detailed description of the calculations, see "Konjunkturinstitutets berakning av Iangsiktig hallbarhet i de offentliga finanserna" ("The NIER's Estimate of the Long-Term Sustainability of Public Finances"), fordjupnings-pm (brief paper) no. 20, NIER, 2013.

(5) See the special analysis "An Even Lower Repo Rate Should Be Considered," The Swedish Economy, December 2012, NIER.

(6) Budget Bill for 2013 (prop. 2012/13:1).

(7) This forecast is highly uncertain, as there are not presently any clear suggestions from the Government. The assessment is based on the NIER's interpretation of communications from different Government representatives.

(8) See the special analysis "The NIER's Assessment of the Scope for Reforms" at the end of this chapter.

(9) See www.konj.se for a model-based forecast excluding measures to strengthen the budget in 2014-2017. Here a comparison is made of the effects on the macroeconomic development and public finances between the forecast and with unchanged rules.

Table 3 GDP and CPI World-wide

Percentage change

 2012 2013 2014 2015 2016 2017

GDP, OECD 1.4 1.3 2.3 2.6 2.7 2.5
GDP, emerging markets (1) 5.1 5.6 5.9 6.2 6.3 6.4
GDP, world-wide 3.1 3.3 4.1 4.4 4.5 4.5
CPI, OECD 2.2 1.9 2.0 2.0 2.1 2.2
CPI, world-wide 3.9 3.7 3.7 3.7 3.6 3.6

(1) The term emerging markets here denotes all non-OECD member
countries.

Note. GDP figures are calendar-adjusted and in constant prices.
Aggregates are calculated using purchasing-power adjusted GDP
weights from the IMF.

Sources: IMF, OECD and NIER.

Table 4 Potential Variables

Percentage change unless otherwise stated

 2012 2013 2014 2015 2016 2017

Potential GDP 1.5 1.7 1.8 2.0 2.1 2.1
Potental hours worked 0.8 0.5 0.5 0.5 0.5 0.5
 Of which potential
 employment 0.7 0.6 0.5 0.5 0.5 0.4
 Of which demografic
 contribution 0.4 0.4 0.4 0.4 0.3 0.3
Potential productivity 0.8 1.2 1.3 1.4 1.6 1.6
Potential productivity,
business sector 1.5 1.5 1.6 1.8 2.1 2.1

Note. The calculations are calendar-adjusted.

Sources: Statistics Sweden and NIER.

Table 5 GDP by Expenditure

Percentage change, constant prices, calendar-adjusted values

 2012 2013 2014 2015 2016
Household consumption
 expenditure 1.7 2.5 2.7 3.3 3.2
General government
consumption expenditure 1.3 1.0 0.9 1.1 1.2
Gross fixed capital formation 4.0 1.3 3.8 6.9 6.9
Final domestic demand 2.0 1.8 2.4 3.4 3.4
Stockbuilding (1) -1.1 0.0 0.0 0.0 0.0
Total domestic demand 0.8 1.9 2.5 3.4 3.4
Exports 1.4 1.2 4.8 6.0 6.4
Total demand 1.0 1.6 3.3 4.4 4.5
Imports 0.6 2.4 5.2 7.4 7.4
Net exports (1) 0.4 -0.4 0.1 -0.3 -0.1
GDP 1.2 1.3 2.4 3.0 3.1

 2017
Household consumption
 expenditure 2.5
General government
consumption expenditure 1.4
Gross fixed capital formation 4.7
Final domestic demand 2.7
Stockbuilding (1) 0.0
Total domestic demand 2.7
Exports 5.5
Total demand 3.7
Imports 6.0
Net exports (1) 0.1
GDP 2.6

(1) Change in percent of GDP preceding year.

Sources: Statistics Sweden and NIER.

Table 6 Labour Market

Percentage change

 2012 2013 2014 2015 2016 2017

Hours worked (1) 0.6 0.2 0.6 1.1 1.2 1.0
Employment 0.7 0.5 0.4 1.0 1.2 1.0
Labour force 0.9 0.7 0.4 0.5 0.4 0.4
Unemployment (2) 8.0 8.2 8.2 7.7 7.0 6.5

(2) Calendar-adjusted. (2) Percent of labour force.

Sources: Statistics Sweden and NIER.

Table 7 Wages and Prices

Percentage change
 2012 2013 2014 2015 2016 2017

Hourly earnings (1) 3.1 2.8 2.7 2.8 2.9 3.1
Hourly earnings,
business sector (1) 3.3 2.7 2.7 2.8 2.9 3.1
Unit labour cost,
business sector 2.3 1.9 0.5 0.7 0.6 1.2
CPI 0.9 0.2 1.1 1.9 2.4 2.9
CPIF 1.0 1.1 1.4 1.6 1.8 2.0

(2) According to Short-term Earnings Statistics.

Sources: National Mediation Office, Statistics Sweden and NIER.

Table 8 Interest Rates

Percent

 2012 2013 2014 2015 2016 2017
At year-end
 Repo rate 1.00 1.00 1.00 1.50 2.25 3.25
 Annual averages
Repo rate 1.5 1.0 1.0 1.3 1.9 2.8
 5-year government bond 1.1 1.8 2.7 3.5 3.9 4.3
 10-year government bond 1.6 2.3 3.2 3.8 4.3 4.5

Sources: The Riksbank and NIER.

Table 9 Exchange Rates

Index 1992-11-18=100 and SEK per currency unit, respectively

 2012 2013 2014 2015 2016 2017

KIX index for
 the Swedish krona 106.1 101.7 102.2 103.2 103.0 102.7
TCW index 120.9 115.0 115.4 116.4 116.2 115.8
Euro 8.71 8.44 8.41 8.45 8.44 8.41
Dollar 6.78 6.43 6.54 6.64 6.59 6.53

Table 10 Fiscal Policy Measures 2014-2017, Forecast

SEK billion, change from preceding year

 2014 2015 2016 2017 2014-2017
Unfunded/budget
 strengthening
 measures -15 4 8 11 8

Note. Effect on general government net lending.

Source: NIER.

Table 11 General Government Net Lending and Cyclically
Adjusted Net Lending With Forecast Fiscal Policy and
Excluding Further Measures 2014-2017, Respectively

Percent of GDP and percent of potential GDP

 2012 2013 2014 2015 2016

Net lending -0.7 -1.4 -1.1 -0.5 0.3
Net lending excl. further
measures 2014-2017 -0.7 -1.4 -0.8 -0.4 0.1
Cyclically adjusted net lending 0.4 -0.3 -0.4 0.1 0.6
Cyclically adjusted net lending
excl. further measures
2014-2017 0.4 -0.3 0.0 0.4 0.7

 2017

Net lending 1.1
Net lending excl. further
measures 2014-2017 0.6
Cyclically adjusted net lending 1.2
Cyclically adjusted net lending
excl. further measures
2014-2017 1.0

Source: NIER.