Erik Thedéen: Productivity – a key factor for longer-term developments

Governor Erik Thedéen today gave a speech at Danske Bank in which he described the monetary policy conducted in recent years and the interest rate decision taken in Falun on 6 November.

Date: 22/11/2024 14:00

Speaker: Governor Erik Thedéen

Place: Danske bank

Erik Thedéen, governor

Erik Thedéen, governor.

“The policy rate cut of 0.5 percentage points provides further support to the economic recovery at a point where we recognise that the risk of excessive inflation has diminished. But it is important to emphasise that there is now also greater uncertainty about developments going forward. If the outlook for inflation and economic activity remains the same, we can continue to cut the policy rate in December and during the first half of 2025, in line with what we communicated in September. But if the conditions change, this may justify a higher or lower interest rate in the period ahead,” Mr Thedéen said.

In his speech, Mr Thedéen also addressed challenges that will characterise in various ways the environment in which monetary policy will operate in the long run. He highlighted the ongoing discussions on the structural problems of the European economy, including the weak development of productivity in the EU.

“Productivity is crucial for a country’s prosperity and GDP growth. Weak GDP growth and high levels of public debt may require tough priorities to be set and lead to a failure to make necessary investments. However, Sweden is not one of the European countries where this problem is most severe. Over the past 30 years, productivity growth in Sweden has been stronger than the European average, while public debt has been significantly lower,” said Mr Thedéen.

He also noted that productivity growth is important for monetary policy.

“In the shorter term, there is a link between productivity growth and inflationary pressures in the economy. From a longer-term perspective, productivity is also important for monetary policy as it influences the long-term growth rate of the economy, which, in turn, influences the normal level of the real interest rate.”

Updated 22/11/2024