Progress in sight in terms of growth, but still difficult situation on the labour market

Inflationary pressure from the labour market will be low during coming years, the LO chief economist Lena Westerlund states in LO economists’ update of the spring economic forecast.
The Bank of Sweden should maintain a low rate of interest in long term and interest rate increases should be made step by step. A too early phase-out of the stimulation of the economy, generated by the monetary policy, would prematurely put a brake on the recovery of employment, Lena Westerlund says.

Economic prospects in Sweden got brighter during this summer and growth is expected to accelerate by the end of 2009. GDP is however estimated to decrease by slightly more than 5% this year, but it will then increase by 1.8% in 2010 and 2.7% in 2011.

The global economic situation has reached bottom, and the recovery is expected to be slow. Growth is among other things held back by high indebtedness. Low capacity utilization leads to a continuing decrease in the investment level. The increase in economic activity, both in Sweden and internationally, is expected to be relatively slow.

The situation on the labour market will continue to be very serious, and employment is estimated to decrease at a more rapid pace this autumn than during the first half of this year. Employment is estimated to decrease by about 250,000 jobs during the period 2009-2011. Unemployment will increase to the 1990 level and is estimated to be 8,6% this year, 10,2 % in 2010 and 11,2% in 2011, according to the ILO standard.

The fiscal policy needs to be more active and effective in fighting the unemployment crisis. I assume that the government now in the budget proposals puts forward explicit proposals to slow down the employment decline in the Swedish economy, instead of further ineffective tax deductions for those who have a job. There is a risk that the government causes exclusion of workers on the labour market, Lena Westerlund states.