Worry over these tendencies increases if one takes into account the fact that future retirements may further limit the labour supply. However, let us leave the discussion of the labour supply and concentrate instead on the productivity aspect. The combination of price stability and budget stability is an important explanation for the development 1 in productivity. Price and budget stability increase households’ and companies’ willingness to make long-term decisions. Stable prices also entail better information value in relative prices, which improves the allocation of resources. If we consider other factors that have stimulated the upturn in productivity in recent years, there are several central changes. One generally seeks explanations in factors such as technological developments, education, competence and incentives among the work force, as well as the allocation of resources in society. At the same time, the pressure on companies to use resources efficiently has increased during the 1990s. Greater competitive pressure resulting from both increased internationalisation and deregulation in various sectors has increased the need for companies to economise their scant resources. Less extravagant use of resources means that the labour force and capital are employed in other areas where they contribute better to the national economy. Although the changeover can be difficult for those who lose their jobs, a better allocation of resources is a necessary condition for improving welfare. Openness is important Productivity is also affected by a country’s capacity to utilise technological progress in other countries.
As always, we are monitoring developments carefully and in connection with the Monetary Policy Update in April will make a renewed assessment of the international outlook in which we will also take into account how events in Japan may affect the development of the global economy in the slightly longer term. Sweden At the latest monetary policy meeting in February, we decided to raise the repo rate from 1.25 per cent to 1.50 per cent and our assessment was that the repo rate would need to be increased to 3.6 per cent by the end of the forecast period, that is in three years’ time. My assessment was that we will need to raise the repo rate by 0.25 per cent at every meeting in 2011 to 2.75 per cent at the end of the year. This entails a somewhat steeper upward path in the second half of 2011 than the repo-rate path presented in the main scenario of the Monetary Policy Report. However, in light of the uncertainty about the development of interest rates, I did not enter a reservation against the repo-rate path but confined myself to commenting on this at the meeting (see Figure 17). I will now discuss my view of monetary policy in the years ahead in a little more detail and take the picture of the economic outlook presented in the latest Monetary Policy Report as my starting point.