Swedish nominal GDP far below trend

Riksbanken's next meeting is less than two weeks ahead. The repo rate is currently at 2%. Inflation figures are close to the 2% goal. CPI is up 3.2% compared to a year ago, while HICP is only up 1.5%. Seasonally adjusted unemployment is 7.4% (6.6% without adjustments), quite a bit over the natural rate of 5.5%. My guess is that Riksbanken will most likely leave the repo rate at 2%.

But what if we look at the situation from a nominal GDP level target perspective? David Beckworth wrote a blog post a few months ago about how Riksbanken had managed to get NGDP back to trend. However, if you look at recent figures from SCB and use rolling four quarters, NGDP is actually 6% below trend (trend is based on 1993 - 2008).

swedish unemployment and nominal GDP

So the overall verdict for Riksbanken doesn't look very good. The repo rate needs to be lower to make it possible for NGDP to catch up.

Sources and calculations available at ngdp.info.

Update: The 10% gap was incorrect. It should be 6%.

1 comment:

  1. Swedish companies are in general very productive and the country and have done well during the economic crisis.