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Swedish Economic Trends March 2011 Sources of GDP Growth (%y-o-y) Economic Growth 8 GDP growth resumed in 2009 and accelerated to 7% in 2010. The acceleration was dominated by an expansion of private sector expenditure. Private consumption began rising in 2009 and, supported by rising employment, grew by 4% in 2010. Investment spending fell very sharply during the 2008/2009 recession and rebounded by 10% in 2010. As a percentage of GDP, investment is now close to historical norms. Firms began restocking in 2010 and inventories made a sizeable contribution to economic growth during the year. Resumed expansions in Sweden’s trading partners led to rapid growth in exports. However, imports grew just as rapidly so net exports did not make any contribution to growth. Real GDP (%y-o-y) Real GDP Growth (% y-o-y) Mar-10 Jun-10 Sep-10 Dec-10 Consume 3.6 2.43.6 4.4 4 0 Govt 1.3 Invest -1.3 Stocks* 0.8 -4 -8 Mar-05 Mar-07 Domestic sales 2.6 2.4 2.9 5.6 11.7 2.4 2.5 10.0 1.8 Mar-09 Stocks Net exports *GDP Stocks are contribution to growth Change in Inventories (% of GDP) Private Consumption (% y-o-y) 2 6 4 1 2 0 0 -1 -2 -2 Mar-93 -4 Mar-93 Mar-98 Mar-03 Mar-98 Mar-03 Mar-08 Mar-08 Current Account (% of GDP) Exports and Global Demand (% y-o-y) 16 12 5 Exports Consequences of Economic Growth The current account has been in surplus for the past decade and a half. The surplus in 2010 was equivalent to 6% of GDP. Surveys of firms indicate that the recovery in output has resulted in a rebound in capacity utilisation. The degree of utilisation is no longer low by historical standards. Employment resumed growing in late 2009. The number of people employed rose by 2% through 2010. The unemployment rate peaked at just below 6% in early 2010. During the past year, unemployment has declined towards 4% which is low by historical standards. 10 3 8 4 1 4 -2 -1 0 Trading partner growth (rhs) -8 -14 Mar-90 -3 Mar-95 Mar-00 Mar-05 -5 Mar-10 -4 Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Labour market (% of labour force) Capacity Utilisation (%) (%) 2 4 89 4 1 86 6 92 -2 Employment (rhs) 83 8 80 77 Mar-90 -5 Unemployment 10 -8 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-95 Mar-00 Mar-05 Mar-10 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. Inflation Consumer price inflation has moved back up to the Riksbank’s target of 2%. “Underlying” inflation has been similar to overall inflation. High oil prices do not appear to have had a substantial impact upon transport prices during 2010. The sharp rebound in economic activity has led to an equally sharp rise in labour productivity which rose by 4% during 2010. Wage inflation was lower in 2009 and 2010 than in previous years. Nominal wages rose by 3% last year. The combination of slower wage inflation and a sharp rise in labour productivity led to a drop in unit labour costs. Government Policy The 2008/2009 recession pushed the government accounts back into small deficits during the past two years. Previous fiscal surpluses had allowed the government to reduce its debt level below those of many developed countries. Hence, despite recent deficits, Government debt is still barely 50% of GDP. Consumer Price Inflation (%y-o-y) 10 8 6 Riksbank 4 Underlying 2 0 Headline -2 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Consumer Price Inflation (% y-o-y) Dec-08 Dec-09 Dec-10 Total 2.4 -0.4 1.9 Core 1.9 1.9 1.7 Food 6.4 1.2 2.1 Clothing -1.5 2.8 1.6 Housing 6.5 -8.9 4.0 Health -4.2 4.3 2.4 Transport -1.1 6.2 2.8 Communicate -5.6 -1.2 -1.8 Recreation -2.5 0.6 -1.2 Labour Productivity (% y-o-y) Unit Labour Costs and Wages (% y-o-y) 6 6 Wages 4 4 2 0 2 -2 0 -4 ULC -6 Mar-95 Mar-00 Mar-05 Mar-10 -2 Mar-95 Fiscal Balance (% of GDP) Mar-10 6 90 Balance (rhs) 75 65 0 60 45 Revenue 58 -6 30 Expd 15 51 -12 0 1985 1985 1989 1993 1997 2001 2005 2009 1989 1993 1997 2001 2005 2009 Real Trade-Weighted Krona (BIS Index) Official Interest Rates (%) The Riksbank has increased official short-term interest rates since the middle of 2010. However, at only 1.5%, the repo rate is still extremely low by historical standards and real interest rates are negative. 12 135 9 125 The krona has rebounded after the sharp fall at the end of 2008 and early 2009. The currency is currently close to historical norms in real terms. -3 Mar-90 Other Developments 20 15 15 12 10 9 5 6 0 3 Despite very low interest rates, household savings have remained relatively high by historical standards. Mar-05 Government Debt % of GDP) 72 The government loosened fiscal policy in 2009 to cushion the decline in private sector spending. No substantive further actions are planned. Perhaps fuelled by low interest rates, house prices have been rising again. Prices rose by 5%-10% per year through 2009-2010. Mar-00 6 115 Nominal 3 105 0 95 Real Mar-95 Mar-00 Mar-05 Mar-10 85 Jan-90 Jan-00 Jan-05 Jan-10 Household Savings Rate (% of Disposable Income) House Prices (% y-o-y) -5 0 -10 -3 -15 Mar-90 Jan-95 -6 Mar-95 Mar-00 Mar-05 Mar-10 1985 1990 1995 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. 2000 2005 2010