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OECD: Sweden must raise interest rates

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14:39 CET+01:00
The Organization for Economic Co-operation and Development, OECD, has reported that unemployment rates in Sweden are falling and GDP is rising. Interest rate rises will be needed to ensure continued growth, the organisation warns.

Swedish Gross Domestic Product will be 4.3 percent this year, only to fall to 3.6 percent next year and 2.9 percent in 2008.

Open unemployment in Sweden is expected to fall from 5.5 percent this year and 5.3 percent next year. It will continue to fall during 2007 and settle at 4.3 percent, according to the report. The OECD used Statistics Sweden's measure for unemployment. This measure is not fully accepted by other international bodies such as Eurostat, as it does not include some groups such as students who are looking for work.

Other figures presented by OECD showed that economic growth in the western world has reached its peak this year. The overall GDP of OECD countries will increase by 3.2 percent this year and will then decrease by 2.5 percent and stay at 2.7 percent in 2008.

The Paris-based organisation praised the European Central Bank's policy of interest rate rises to control inflation, and encouraged Sweden's Riksbank to raise interest rates considerably, at least to a neutral level, to ensure continuous economic growth. A neutral level, according to Riksbanken, should be somewhere between 3.5 and 5.0 percent.

“This is how Riksbanken defines it. A more classical rule of thumb is to say that the neutral level should equal the inflation plus the average economic growth of the country in question,” says Peter Kaplan, interest analyst at Handelsbanken.

This would mean for Sweden, a raise in interest rates to about 4 or 5 percent.

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