Interest rate and inflation

Interest rate and inflation

Interest rate is related to the currency, inflation and net export. Basically speaking,

the normal interest rate cannot be below zero. But last month the Sweden central bank cut the interest rate to -0.1%. Here is the news I got from BBC.

After that, some economists said that Sweden became the latest Scandinavian state to join Europe’s escalating currency wars. So why it happened?

This graph showed the tendency of interest rate in Sweden. After the financial crisis in 2008, Sweden kept a low interest rate which comes near to 0. Apart from the quantitative easing policy, there are some other significant reasons.

l  The instability of global economy is increasing, especially in Europe.

l  Stimulate the economy with expansionary monetary policy.

l  To relive the risks of long-term deflation and low oil price.

Central bank negative rates are intended to encourage companies and individuals to borrow more, increasing investment and consumer spending and driving up inflation.

In the other word, the deflation in Sweden hinders the economy. Deflation can be regarded as the negative inflation, Sweden suffered from the deflation recent years.

 

 

The deflation means that the prices, money supply and economic growth continue to decline, which will finally cause the high unemployment and recession. it usually begin with the price declining, falling prices mean consumers hold off purchasing goods in the belief that they will get even cheaper, which in turn damages the economy as demand drops, producers suffer and unemployment ensues. Sweden's price growth of just 0.1 percent is well below the central bank's target of 2 percent and this has put pressure on the Riksbank (central bank in Sweden) to stimulate more spending, which could be problematic for a country with high levels of borrowing and household debt. The low interest rate policies are aimed to ride up the inflation rate to 2%, so that the country could avoid the risk in Japan, Japan experienced what has become known as a "lost decade" to deflation in the 1990s.

 

 

The welfare system in Sweden

 

The welfare system in Sweden

 

Sweden is famous for its social welfare system which is modeled by many countries. The welfare system is based on the government income and social development, it has a tight relationship with people’s living standard. Next is a brief analysis about this system.

 

The welfare in Sweden is defined as financial security in the case of illness, old age and for the family; social services; health care; promotion of health and children's rights; individual help for persons with disabilities and coordination of the national disability policies



education spending 1995-2012, 2005=100

About the education, most of the responsibility for education rests with local municipalities. The majority of the education budget is financed by local taxes, and approximately half of the municipal budget is spent on education.

 

 

Most elderly care is funded by municipal taxes and government grants. In 2010, the total cost of elderly care in Sweden was SEK 95.9 billion (USD 14.0 billion, EUR 10.7 billion), but only 3 per cent of the cost was financed by patient charges. Health care costs paid by the elderly themselves are subsidized and based on specified rate schedules.

There is no doubt that the welfare system is of great benefit to the Sweden people. However, it is not as good as we see. Despite a few excellent social policies, the redistributive goal of the social security system is failing, with increasing portions of benefits going to relatively well-off families instead of the poorest. Besides, it’s a big deal for government to maintain the high level expenditure on the welfare. It is not easy under this economic circumstance.

Unemployment situation in Sweden

Unemployment situation in Sweden

Benefit from the high development level and the advanced industrial structure, unemployment is not serious in Sweden. Its unemployment rate ranks No. 115 among 199 countries in the world. But due to the thorough education and economic situation recent years, Swedish start to worry about their jobs. Here is some aspects about the unemployment in Sweden.

 

1.     Background of unemployment in Sweden

Unemployment rate, 1980-2010, Sweden

Long-term unemployment rate, 2002-2013, Sweden

Sweden has always maintained a low unemployment rate until 1990s. At the beginning of 1990s, more and more immigrations came to Sweden and many European countries started to adjust the government policy and industrial structure, which lead to a short-term economic crisis. Then, the unemployment declined to the normal level. 

 

 

 

2.   Reasons of the low unemployment rate in Sweden

From the above picture we can see it clearly that the unemployment rate really hasn't changed much from 2002 to 2010, meanwhile, it fluctuates around 7%. The possible reason is listed.  

l  Building national institutional framework by the employment policy, relevant laws and regulations.

l  To set up specialized agencies, provide more employment guidance.

l  To emphasize the positive employment, reform the employment methods.

l  Education and effective exploiting of human resource.

 

3.     Youth unemployment

The youth unemployment rate is the number of unemployed 15-24 year-olds expressed as a percentage of the youth labor force. Youth unemployment is high in Sweden. Too many graduated students swarm into the labor market every year. The number actually exceeds the quantity of demand. It is a serious problem not only to the Sweden government but also extra countries.

 

As an important economic entity of the global trade system, the development of Sweden has a big impact on the world-wide economy, and the unemployment rate has a big impact on the Sweden economy. That deserves our attention.