Tax cuts boost consumption
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The economic expansion is gathering pace, with output growing faster than its potential rate, driven by strong exports and a rebound in investment. Export growth is projected to remain robust, and household consumption will be boosted by tax cuts and rising house prices. Those factors should drive the long-awaited improvement in employment, which will also support domestic demand.
Inflation is likely to pick up, as spare capacity will be absorbed by the end of 2004. The central bank will therefore need to begin raising interest rates soon. In September, the government added a substantial fiscal stimulus to an already-buoyant economy. This will make the job of monetary policy more difficult and risks jeopardising the medium-term fiscal target for the general government surplus of 2% of GDP.
| Population (000s), 2003 | 8 958 |
| Area (000 sq km) | 450 |
| Currency | Krona |
| GDP (Billion USD), 2003 | 301.6 |
| Life expectancy at birth (Women, Men), 2002 | 82.1, 77.7 |
| Total labour force (000s), 2003 | 4 497 |
| Government type | Constitutional Monarchy |
| Indicators | % change unless otherwise indicated |
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| 2004 | 2005 | 2006 |
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| GDP growth | 3.3 | 3.3 | 3.2 |
| Household savings ratio | 8.3 | 7.8 | 7.1 |
| Consumer price index | 0.4 | 1.8 | 2.5 |
| Short-term interest rate (%) | 2.1 | 3.2 | 4.6 |
| Unemployment rate (%) | 5.6 | 4.9 | 4.3 |
| General government financial balance (% GDP) | 0.5 | 0.7 | 1.2 |
| Current account balance (% GDP) | 7.4 | 6.4 | 6.5 |
Source: OECD©
OECD Observer No 245, November 2004
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