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Swedish Economic Trends February 2006 Sources of GDP Growth (%y-o-y) Economic Growth 4 2 0 -2 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Domestic sales Export growth has stabilised, helped by accelerating euro-area demand which has boosted growth in Sweden’s major export markets. Investment spending has been the most rapidly growing element of economic activity. Dwelling investment has been rising by around 20% y-o-y. Private consumption growth was steady at 2% from 2003 to early 2005 but then accelerated to 3% last year. Dec-04 Mar-05 Jun-05 Sep-05 Consume2.1 1.4 2.6 3.0 Govt -0.5 -0.5 -0.3 0.2 Invest 9.2 10.1 10.4 10.5 Stocks* -1.5 -0.2 -0.3 -2.0 Exports 11.0 5.3 3.1 8.2 Imports 8.2 5.8 4.4 6.9 GDP 2.9 2.3 2.3 2.8 6 GDP growth reaccelerated towards 3% y-o-y in the second half of 2005. Slower export growth caused a slowdown in the first half of the year but accelerating domestic spending has now become the dominant force. The acceleration of growth has led to rising capital utilisation. Higher investment spending by firms stabilised the situation last year but the degree of spare capacity is lower than historical norms. Employment growth resumed in the past year. Labour market developments in the past few years have been surprisingly slow in comparison with the robust GDP growth. Unemployment stopped rising in the first half of 2004 and has since declined. The unemployment rate was a little over 5% of the labour force by the middle of last year. Stocks Net exports *GDP Stocks are contribution to growth Fixed Capital Investment (% y-o-y) Exports and Global Demand (% y-o-y) 21 6 Exports 30 Dwelling 20 14 4 7 2 0 0 10 0 -10 Non-Dwelling -20 -7 Mar-85 Trading partner growth (rhs) Mar-90 Mar-95 Mar-00 -2 Mar-05 -30 Sep-93 Sep-96 Sep-99 Sep-02 Sep-05 Current Account (% of GDP) Private Consumption (% y-o-y) Consequences of Economic Growth Despite the period of slower export growth and the recent acceleration of domestic demand, the current account remains in a surplus of over 6% of GDP. Real GDP (%y-o-y) 9 6 6 4 3 2 0 0 -3 -2 Mar-93 Mar-98 -6 Mar-92 Mar-03 Mar-95 Mar-98 Mar-01 Mar-04 Labour market (% of labour force) Capacity Utilisation (%) (%) 2 92 4 Employment (rhs) 89 4 1 86 6 -2 83 8 -5 Unemployment 80 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 10 Mar-85 Mar-90 THIS DOCUMENT IS FOR INFORMATION PURPOSES ONLY AND IT SHOULD NOT BE REGARDED AS AN OFFER TO SELL OR AS A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OR OTHER INSTRUMENTS MENTIONED IN IT. NO PART OF THIS DOCUMENT MAY BE REPRODUCED IN ANY MANNER WITHOUT THE WRITTEN PERMISSION OF PENRICH CAPITAL. WE DO NOT REPRESENT THAT THIS INFORMATION, INCLUDING ANY THIRD PARTY INFORMATION, IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS PROVIDED WITH THE UNDERSTANDING THAT PENRICH CAPITAL IS NOT ACTING IN A FIDUCIARY CAPACITY. OPINIONS EXPRESSED HEREIN REFLECT THE OPINION OF PENRICH CAPITAL AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. THE PRODUCTS MENTIONED IN THIS DOCUMENT MAY NOT BE ELIGIBLE FOR SALE IN SOME STATES OR COUNTRIES, AND THEY MAY NOT BE SUITABLE FOR ALL TYPES OF INVESTORS. Mar-95 Mar-00 -8 Mar-05 Inflation Consumer price inflation is substantially below the central bank’s 2% target. Inflation has been steady at a little below 1% since early 2004. Falling prices for food, clothing and communications have suppressed overall inflation in recent years. Transport has provided the biggest source of inflation. Labour productivity has accelerated sharply from the cyclical trough of 2001. In the past year, labour productivity has grown by 3%-4%. Wage inflation has been steady for most of the past three years, remaining at about 3% per annum. In conjunction with rapid labour productivity growth, this has led to falling unit labour costs. Consumer Price Inflation (%y-o-y) 10 8 6 Riksbank Target 4 2 Underlying 0 Headline -2 Mar-85 Mar-90 The Riksbank has increased official rates by 0.5% since their trough. The very low level of inflation has meant the Swedish central bank was one of the last to begin raiding rates. Real interest rates are close to 1%. The Krona appreciated as the central bank raised interest rates but, in real terms, the currency is still near the low point reached in 2001. Mar-05 Unit Labour Costs and Wages (% y-o-y) 6 6 4 4 2 2 0 0 Wages ULC Mar-90 Government Policy Ongoing fiscal surpluses have allowed the government to gradually reduce its debt level. Debt is close to 50% of GDP. Mar-00 Labour Productivity (% y-o-y) -2 Mar-85 The government accounts have been in surplus for most of the past decade. Expenditure has stabilised after the widespread spending cuts enacted after the crisis of the mid 1990s. Mar-95 Consumer Price Inflation (% y-o-y) 2003 2004 2005 Total 1.9 0.4 0.5 Core 2.2 0.8 0.8 Food 0.3 -0.4 -0.7 Clothing 0.0 -1.9 -1.1 Housing 4.3 0.2 0.4 Health 2.8 3.8 2.3 Transport 1.8 3.8 4.3 Communicate -1.5 -4.4 -6.2 Recreation -0.2 -1.5 -1.7 Mar-95 Mar-00 Mar-05 -2 Mar-90 Mar-95 Fiscal Balance (% of GDP) Mar-00 Mar-05 Government Debt % of GDP) 71 6 90 Balance (rhs) 75 66 0 45 Revenue 61 60 -6 30 15 Expd 56 -12 1985 1989 1993 1997 0 1985 2001 1993 1997 2001 Real Trade-Weighted Krona (J.P. Morgan Index) Official Interest Rates (%) 125 12 Nominal 9 115 105 6 3 0 Mar-85 1989 95 Real Mar-90 Mar-95 Mar-00 Mar-05 85 Jan-90 Jan-95 Jan-00 Jan-05 Other Developments House prices have risen rapidly in recent years, probably fuelled by low interest rates. House price inflation has averaged 9% in the past three years. Rising house prices are almost certainly a factor supporting dwelling investment. Despite low interest rates and rapidly rising asset prices, household savings have remained relatively high. Household Savings Rate (% of Disposable Income) House Prices (% y-o-y) 12 20 9 15 6 10 3 5 0 0 -5 Mar-90 -3 -6 Mar-95 Mar-00 Mar-05 1985 1989 1993 THIS DOCUMENT IS FOR INFORMATION PURPOSES ONLY AND IT SHOULD NOT BE REGARDED AS AN OFFER TO SELL OR AS A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OR OTHER INSTRUMENTS MENTIONED IN IT. NO PART OF THIS DOCUMENT MAY BE REPRODUCED IN ANY MANNER WITHOUT THE WRITTEN PERMISSION OF PENRICH CAPITAL. WE DO NOT REPRESENT THAT THIS INFORMATION, INCLUDING ANY THIRD PARTY INFORMATION, IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS PROVIDED WITH THE UNDERSTANDING THAT PENRICH CAPITAL IS NOT ACTING IN A FIDUCIARY CAPACITY. OPINIONS EXPRESSED HEREIN REFLECT THE OPINION OF PENRICH CAPITAL AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. THE PRODUCTS MENTIONED IN THIS DOCUMENT MAY NOT BE ELIGIBLE FOR SALE IN SOME STATES OR COUNTRIES, AND THEY MAY NOT BE SUITABLE FOR ALL TYPES OF INVESTORS. 1997 2001