The effects of digitalisation on the economy

Entreprenörskapsforum (26 March 2019)

Cecilia Skingsley,

Deputy Governor

My speech today

Societal changes due to technology shift

Changed conceptual framework for monetary

policy

Digitalisation:Increase productivity?Where are we now?

“You can see the computer age everywhere but in the productivity statistics”*

*Robert Solow (1987), “We’d better watch out”, New York Times Book Review,

12 July 1987, p. 36.

Low productivity in recent years

Falling productivity trend... ...and downward revisions to our forecasts

Note. Annual percentage change. The productivity trend is calculated as the GDP trend divided by the trend in hours worked. The GDP trend is calculated with the aid of a production function and the trend for hours worked is assessed by the Riksbank. The forecasts refer to productivity trends and are the forecasts made prior to the monetary policy meetings in February each year.

Sources: Statistics Sweden and the Riksbank

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-1

0

1

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82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Are we in the installation or deployment phase?

Installation phase

• Creative destruction

• Exploring new markets

• Growth in a couple of sectors and companies

Deployment phase

• Creative build-up

• Markets consolidated

• Broad acceptance and major benefits for the entire economy

Digitalisation a possibility, mostly among

industrial companies

Note. Percentage of responses. Sources: Bart van Ark (2016) and the Riksbank’s Business Survey in May

2018.

Major structural changes over time...

Major changes in the labour force... ...but employment rate has been high

Sources: Edvinsson, R, (2005) ‘Growth, Accumulation, Crisis: With New Macroeconomic Data for Sweden’, Almqvist & Wiksell Inte rnational;

Stockholm. Edvinsson, R (2014), ‘The Gross Domestic Product of Sweden within present borders, 1620 –2012’, in Historical Monetary and

Financial Statistics for Sweden, Volume II: House Prices, Stock Returns, National Accounts, and the Riksbank Balance Sheet, 1 620–2012 (eds.

Rodney Edvinsson, Tor Jacobson and Daniel Waldenström) Sveriges Riksbank and Ekerlids and Statistics Sweden.

30%

35%

40%

45%

50%

55%

60%

30%

35%

40%

45%

50%

55%

60%

18

50

18

60

18

70

18

80

18

90

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10

19

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30

19

40

19

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60

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70

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80

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90

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00

20

10

Note. Percentage of employed and

percentage employed in the population.

...with steady increases in welfare

Note. SEK, year 2000 prices. Source: Edvinsson, R (2014), ‘The Gross Domestic Product of Sweden within present borders, 1620 –2012’, in Historical Monetary and Financial

Statistics for Sweden, Volume II: House Prices, Stock Returns, National Accounts, and the Riksbank Balance Sheet, 1620 –2012 (eds. Rodney

Edvinsson, Tor Jacobson and Daniel Waldenström) Sveriges Riksbank

Real GDP per capita

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50000

100000

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200000

250000

300000

350000

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50000

100000

150000

200000

250000

300000

350000

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

However, clear challenges in the short term...

• Changeovers look simple in data terms

• Overall improvements are not

frictionless at individual level

...but they can be tackled

• Embrace life-long learning

• The transfer system is the primary tool

for managing economic redistribution

• If necessary, some markets can be

regulated to safeguard efficiency and

competition in the interests of the

general public

Source: Article “Digitalisation and inflation”

Monetary Policy Report, February 2015

How digitalisation can affect inflation

Digital technological developments

Automation

Pressure on wages

Lower costs

Lower price mark-ups

Lower inflation

Increased competition

Higher productivity

e-commerce

Better-informed consumers

Cheaper ICT products for consumers

Often lower employment is expected in Swedish companies...

Note. Response frequency, per cent. Consumer-related companies are those selling

goods or services to private individuals. The question was: How do you think the use of

digital technology will affect the number of employees in your company over the

coming three years?

Sources: The Riksbank's Business Survey in May 2018 and Fudurich et al, “Adoption

of digital technologies: Insights from a global survey initiative”, to be published as

Staff Analytical Note, Bank of Canada

...and primarily among consumer-related companies

Note. Response frequency, per cent. Consumer-related companies are those selling goods or services

to private individuals. The question was: How do you think the use of digital technology will affect the

number of employees in your company over the coming three years?

Source: The Riksbank’s business survey in May 2018

We are buying things online more oftenRising percentage have bought goods or

services online...

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10

20

30

40

50

60

70

80

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

...high profitability in a European perspective

Note. Refers to percentage of population that have bought a product or service

online in the past three months.

Source: Eurostat.

E-commerce has become increasingly important in Sweden

Note. Percentage of retail trade turnover Sources: HUI Research and E-Barometern.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ICT goods - little affect on inflationICT goods not contributing more negatively to

inflation now than before...

...and on the whole the contribution to the

CPIF is small

Note. Annual percentage change. The blue line represents ICT-related products,

which include household appliances, telephony, TVs, cameras, CDs, DVDs, toys,

books and newspapers. The red trend line is a three-year moving average.

Sources: Statistics Sweden and the Riksbank.

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Similar effects on prices as in other countries expected...

Note. Response frequency, per cent. Consumer-related companies are those selling goods

or services to private individuals. The question was: How do you think the use of digital

technology will affect the selling price of your goods and services over the coming three

years?

Sources: The Riksbank's Business Survey in May 2018 and Fudurich et al, “Adoption

of digital technologies: Insights from a global survey initiative”, to be published as

Staff Analytical Note, Bank of Canada.

...but primarily lower consumer prices

Source: The Riksbank’s business survey in May 2018 Note. Response frequency, per cent. Consumer-related companies are those selling goods or

services to private individuals. The question was: How do you think the use of digital technology will

affect the selling price of your goods and services over the coming three years?

Inflation and e-commerce in Europe

Note. The y axis shows the annual percentage change in the HICP and the x axis shows the country's share of trade in the form of e-commerce. Each

circle in the figure represents a country for one year. The countries included are Austria, Belgium, Bulgaria, Croatia, Cypru s, Czech Republic,

Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, N etherlands, Norway,

Poland, Portugal, Rumania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

Source: Eurostat.

Credible inflation target an anchor for the economy

Note. Annual percentage change. The CPIF is formal target variable since 7

September 2017.

Source: Statistics Sweden

Summarising points

• Changes such as digitalisation are decisive to our welfare in the long run

• But transitions are never painless

• Can often be managed by other policy areas

• Clear game rules facilitate structural changes

• Reliable price stability, in terms of purchasing power, is one such game rule