The strained financial situation in the public sector would seem to indicate weak employment growth for at least the coming year, while the economic upturn will probably only lead to a relatively small increase in employment in the private sector. There is, of course, a risk that the weak labour market will affect households' expectations and consumption propensity; a risk that we pointed out already in December and which may have been reinforced. The higher the rate of unemployment, the more caution households will probably show when purchasing and consuming. This could in turn lead to a risk of lower growth during 2004. All in all, the view of the demand situation in Sweden remains essentially the same as in December; demand will increase and approach the economy's long-term sustainable level. Lower domestic cost pressure The relationship between unit labour costs and inflation is usually fairly clear. Thus, when we made a downward revision to the figures for unit labour costs in December, it was not entirely insignificant for the inflation forecast. The background was primarily the signs we saw of an improvement in productivity growth, combined with a weaker labour market. I shall return to the subject of productivity in more detail in a moment. With regard to wage developments, the wage bargaining rounds are currently a central issue. Their outcome will have great significance for the rate of wage increase and thereby also to a large extent for inflation in coming years.
1  See Rubin, R.E and J. Weisberg, In an Uncertain World: Tough Choices from Wall Street to Washington, New York: Random House, 2003. 2  Lawrence Summers, who was Treasury Secretary towards the end of Clinton's period in office, has even designated criticism of the Federal Reserve by politicians as “a fool's game”, which is at best ineffective and at worst counterproductive. “[I]t does not change short-term interest rates because the Fed does not respond, but it does increase long-term interest rates because the bond market does”. (http://www.ustreas.gov/press/releases/rr2401.htm)  10  BIS Review 9/2004