Jobless Growth Comes to Sweden?

Despite GPD growth above trend, the Swedish labour market has so far failed to recover. The debate on this gained new strength as business confidence weakend and household's inflation expectations plunged, according to a report released last week by the economic research institute NIER. The Central Bank, the Riksbank, was by NIER's head critizised for running a too hakish policy, a critique that the Social Democratic PM soon followed up upon. The PM was in his turn attacked by a prominent bank economist during the weekend, who blamed the PM's policy for hidering rather than stiumulating job-growth. Much the same ideas were echoed in the business daily DI's editorial this morning. Proposed measures by the goverment seem rather directed towards making the labour market statistics look better than actually making the labour market work better.

Interestingly, the critique sees based upon the ideas about changes in the business cycle presented in the paper by Grosher and Potter called "Has Structural Change Contributed to a Jobless Recovery?". Old sectors are shut down or offshored, and the job growth is created in new and developing sectors, Grosher and Potter shows. Updated statistics from Cleveland FED could be found here (thanks to the Big Picture for the link). The Swedish government does not at all try to enhance labour market efficiency to facilitate growth in new sectors; even worse, they are actively stopping private initiatives in the domestic service sector.

According to figures from Statistics Sweden, it is now make or break for jobless growth in Sweden. In their quarterly economic review, employment should pick up this quarter if its traditional link to GPD still holds. There is however scant evidence of this so far.

A First World Debt Crisis!?

It's not only the USA, most large first world economies' governments are running deficits amounting to several percentage of GDP. From a bondmarket perspective, it's a conundrum why economists think that long term interest rates are 'artificially' pushed too low. Why, first world governments are holding rates up by flooding the markets with bonds. According to the Financial Times,
Standard & Poor's says if fiscal trends prevail, the cost of ageing populations will fuel downgrades of France, the US, Germany and the UK from investment grade to speculative, or junk, category France by the early 2020s, the US and Germany before 2030 and the UK before 2035.
Even though the buyers of these bonds might look irrational from this perspective, the first world governments sure do not. As long as they can bring large volumes of debt that is still top rated (AAA) to the market at high prices, they should. And they do. At least as long as they could find good use for the money raised. Let's hope they will...

Unemployment - Everyones Argument

Despite the rapid growth of Swedish GDP, the employment situation fails to improve. Day before yesterday, Statistics Sweden released figures pointing to a shrinking labour-market during the last quarter of 2004, while production was lifted (although at a slightly slower pace) by a strong productivity development. Yesterday, the Labour Market Admin. reported disappointing news for the February unemployment, up 0.7% to 8.5% in total (forget about the headline figure of 5.5%, that's just cosmetics). Now the unemployment is everyones argument. Head of the nat'l union wants more fiscal stimulus and a more dowish central bank, pundits and politicians on the right want to reform the structure of the labour market. At any rate, it's good to see that they all seem to be troubled over the severe problem that the Swedish unemployment represents.

Economist Bias

Economists have to an increasing extent tended to over-estimate the monthly inflation-rate in Sweden. Are they using an old map that lacks e.g. the recent trend towards inexpensiveness, "billighetstrenden" in retail? Here is what one analyst wrote yesterday a propos the soon to be announced Swedish February CPI:
The February CPI figure, due Friday, is expected to print 0.1% according to economists polled by Bloomberg, 0,2% says Sweden-based pollster SME-Direkt. ... For a quantitative perspective, economists have on average overestimated inflation by 0.05% since Oct 02. During last year, they overestimated inflation in most months, on average the figure came out 0.1% below expectations. The very last number, the Jan CPI came out -0.5% and was estimated -0.2% in Bloomberg’s poll

Popular Posts