Economic Prospects by the LO Economists Spring 2009

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Large-scale fiscal measures needed to slow down lasting workforce marginalization

The LO economists published one of their most dismal prospects of all time. This year, the Swedish GNP will plummet by 4.5 per cent. This corresponds to the biggest drop during a single year since the 1940s, and it is on a level with the three years’ decline at the beginning of the 1990s.

Employment is expected to decrease by 300 000 persons during 2009 and 2010, and by some further 35 000 persons in 2011. This employment crisis is comparable to that of the 1990s. Although the number of those losing their jobs is not higher than that of the 1990s, the rate of employment is lower. A continuous rocketing unemployment rate will run up to over 12 per cent in 2011.

The LO economists, at the same time, alert of the possibility that the economic development in Sweden might deteriorate even more than is now being alleged in the prospects.

The risks of the economic development becoming inferior are considerable. The international development may recover later and at a slower pace, which will thwart the increase of exports. If the households choose to save more and the crisis in the financial markets is renewed and aggravated, the situation of the Swedish economy will become even worse than is now estimated, LO senior economist, Lena Westerlund, says.

Seen from the prospects now feasible, the LO economists want the Government to table a temporary fiscal policy which is more expansive. The method of lowering the interest rate is almost exhausted, and therefore powerful fiscal measures are needed to prevent a lasting marginalization of workforce and to guarantee strong national finances in the long run. The LO economists estimate that the expenses for temporary fiscal measures, which can contribute to increasing employment by some 50 000 persons in 2010, and the provision of active measures and training posts for ten of thousands of jobless, will amount to some 75 - 80 billion SEK in 2010 and 2011.

Enduring improvement of the unemployment insurance is also included among the adequate measures suggested by the LO economists. This would imply the reduction of the insurance fee to some 100 SEK/month, considerable increases of the insurance’s income margins as well as the revocation of the gradual cut in percent of the compensation. The high unemployment causes these expenses to amount to some SEK 25 billion annually in 2010 and 2011.

In the present situation, it is important that the Government makes everything possible to counteract the consequences of the crisis for the wage earners. The aversion to make use of the very strong national finances to shore up the demand is disquieting, and has a high price which implies both temporary and permanent marginalization of the labour market, Lena Westerlund concludes.