Economy ‘to grow more than expected’

Sweden's economy will grow by more than previously expected in the next two years, the Swedish National Institute of Economic Research (Konjunkturinstitutet) has predicted. Interest rates will rise, contrary to previous predictions by the Riksbank.

“Strong growth in investments is the main reason for us increasing our prediction for GDP with several tenths of one percent both this year and next year,” the institute’s director Mats Dillén said.

He said that the large pay increases in the current pay round could lead to a fall off in job creation.

“But the fall off will not take place for a few years,” he said.

The higher wages and increased costs for industry mean that the Riksbank will have to raise interest rates significantly to prevent the Swedish economy from overheating, Dillén said.

The institute calculates that Sweden’s GDP will grow by 3.9 percent this year and 3.4 percent in 2008. Employment will increase by 148,000 people in 2007 and 2008.

Open unemployment will stand at 4.8 percent in 2007 and 4.3 percent in 2008, according to the prognosis. Inflation will be 2.1 percent this year and 2.4 percent next year. The institute expects interest rates to be 3.5 percent at the end of 2007 and 4.0 percent one year later.

Recently signed collective agreements have led the institute to increase its predictions for wage levels. Average hourly wages in the private sector will rise 4.1 percent in 2007 and 4.5 percent in 2008.

The predictions take into account those collective agreements already to be signed. There remains, however, a number of collective agreements yet to be decided upon.

“There remains a risk therefore that the collective agreements result in higher wage increases than predicted,” the institute writes.