III. Economic developments and prospects
High investment has been a large feature of economic developments in the recent period. Investment in power intensive industry has been most prominent but other investment has also grown considerably. As a result, domestic activity and demand have risen sharply. National expenditure is projected to increase by more than 6.7 percent in 1997, on the heels of 7.1 percent growth in 1996. This growth has been the engine of economic activity. GDP is projected to expand by 4.5 percent this year, on top of 5.2 percent in 1996. Since the current upswing began four years ago, economic growth has on average been considerably faster than in other industrial countries.
In the coming period, production from the new power intensive facilities will to growing extent show up in exports while investment activity will slow. Growth will, therefore, be held up by exports rather than domestic demand. National expenditure is expected to grow by 3.9 percent in 1998 and GDP by 3.5 percent. Favourable growth is expected to continue over the medium term, and to average 3 percent per year during 1999-2002. The growth rate could be even higher if plans for further power intensive projects come to fruition. These favourable prospects imply growing employment and higher disposable income. Furthermore, inflation is also expected to stay within acceptable limits. It is, nevertheless, essential to keep a watchful eye on price developments in the coming months as signs of overheating of the economy can be discerned.
The current account has, as was to be expected, deteriorated as a result of the sharp increase in investment. The current account deficit is forecast to be 17.5 billion kronur in 1997 and 19 billion 1998. The current account deficit is expected to narrow once the greatest investment bulge subsides. However, the current account is, nevertheless, projected to remain in deficit averaging some 1½ percent of GDP per year for the ensuing four years.
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