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Swedish Economic Trends September 2007 Sources of GDP Growth (%y-o-y) Economic Growth 4 2 0 -2 Mar-00 Net exports have become a negative influence on overall growth. Export growth has slowed as global demand has decelerated. Economic growth has led to rising capital utilisation. Increased investment spending by firms has ameliorated the situation but the degree of capacity utilisation is the highest for the past two decades. As a result of ongoing economic growth, employment has been rising during the past three years. Employment has accelerated through the past year rising above 2% y-o-y. Unemployment has been declining since the peak in 2004. The unemployment rate began to fall more rapidly last year and has moved down towards 4%. Mar-04 Mar-06 Stocks Net exports *GDP Stocks are contribution to growth Fixed Capital Investment (% y-o-y) Private Consumption (% y-o-y) 30 6 Dwelling 20 4 10 0 2 -10 Non-Dwelling 0 -20 -2 Mar-93 Mar-98 -30 Sep-93 Mar-03 21 Sep-96 Sep-99 Sep-02 Sep-05 Current Account (% of GDP) Exports and Global Demand (% y-o-y) Consequences of Economic Growth Despite the deterioration of net exports, the current account remains in a surplus of 6% of GDP. Mar-02 Domestic sales Private consumption growth has been steady at 2.5%-3.0% during the past twelve months. Investment spending has been the most rapidly growing element of economic activity. Investment has grown by close to 10% y-o-y. Sep-06 Dec-06 Mar-07 Jun-07 Consume2.5 2.6 2.5 2.6 Govt 2.1 2.3 1.9 1.9 Invest 7.0 8.9 9.9 10.0 Stocks* 0.9 -0.4 0.9 0.3 Exports 6.3 7.5 6.4 5.5 Imports 6.9 8.3 9.8 7.5 GDP 4.2 4.3 3.4 3.2 6 GDP grew by 3%-3.5% during the past twelve months, a deceleration from the pace of 2006. Domestic demand, particularly private sector expenditure, has been the dominant expansionary force. Real GDP (%y-o-y) 6 9 Exports 14 4 7 2 0 0 6 3 0 -7 Mar-85 Trading partner growth (rhs) Mar-90 Mar-95 Mar-00 -2 Mar-05 Capacity Utilisation (%) -3 -6 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04 Labour market (% of labour force) Mar-07 (%) 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 -8 Mar-90 Mar-95 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-00 Mar-05 Inflation Consumer price inflation accelerated in the past year and is now close to the central bank’s target of 2%. Inflation has accelerated across most categories of consumer prices with transport and clothing prices being the notable exceptions. Lower oil prices in early 2007 reduced transport prices. Labour productivity has decelerated this year as economic growth has slowed. In the past twelve months, labour productivity has grown by 2%. Wage inflation has been steady for most of the past three years, remaining at about 3% per annum. In conjunction with labour productivity growth, this has led to generally static unit labour costs. Consumer Price Inflation (%y-o-y) Consumer Price Inflation (% y-o-y) 2005 2006 2007 Total 0.5 1.4 1.9 Core 0.8 1.2 1.1 Food -0.7 0.8 1.6 Clothing -1.1 3.2 2.5 Housing 0.4 3.5 4.1 Health 2.3 0.5 2.0 Transport 4.3 1.6 -0.3 Communicate -6.2 -6.5 -4.7 Recreation -1.7 -1.4 -0.1 10 8 6 Riksbank Target 4 2 Underlying 0 Headline -2 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 Labour Productivity (% y-o-y) Unit Labour Costs and Wages (% y-o-y) 6 6 4 4 2 2 0 0 Wages ULC Government Policy The government accounts have been in surplus for most of the past decade. Expenditure has been stable in recent years after the widespread spending cuts enacted after the mid 1990s crisis. Ongoing fiscal surpluses have allowed the government to gradually reduce its debt level. Debt is close to 50% of GDP. The Riksbank has increased official short-term interest rates by 2.25% since the trough at 1.5% in 2005. Because inflation was substantially below target until this year, the Riksbank was one of the last major central banks to begin raising rates. Real interest rates are still below 2%. The Krona has been stable during the past year after the appreciation of 2005/2006. In real terms, the currency is still low by historical standards. -2 Mar-85 Despite very low interest rates and rapidly rising asset prices, household savings have remained relatively high. Mar-95 Mar-00 Mar-05 Mar-95 Fiscal Balance (% of GDP) 71 Mar-00 Mar-05 Government Debt % of GDP) 6 Balance (rhs) 90 75 66 0 61 60 45 Revenue -6 30 15 Expd 56 -12 1985 1989 1993 1997 2001 0 1985 2005 1993 1997 2001 2005 125 12 Nominal 9 115 105 6 3 0 Mar-85 1989 Real Trade-Weighted Krona (J.P. Morgan Index) Official Interest Rates (%) Other Developments House prices have risen rapidly in recent years, probably fuelled by low interest rates. House price inflation has averaged close to 10% in the past three years. Mar-90 -2 Mar-90 95 Real Mar-90 Mar-95 Mar-00 Mar-05 85 Jan-90 Jan-95 Jan-00 Jan-05 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 1990 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. 1995 2000 2005