Instead, there are many reasons to believe that more stable economic performance over time also leads to conditions that foster high growth and employment. Moreover, a simple comparison of unemployment data between the periods before and after the shift in regime proves rather misleading. This is because of the attempts in the 1970s and 1980s to meet the target of full employment through a policy that was unsustainable in the long run - it was exactly because of this that the change in regime was implemented. As I mentioned earlier, this policy involved Sweden devaluing the krona as soon as we were hit by a cost crisis that resulted in weaker developments in exports and employment in the private sector. The devaluation of the krona restored competitiveness by lowering real wages for a number of years until excessive increases in prices and wages compared with abroad once again eroded the scope that had been created. The other way in which unemployment could be kept down was through a sharp increase in public sector employment. From having comprised 15 per cent of the labour force in 1960, the proportion of the employed accounted for by the public sector rose to just over 30 per cent by the end of the 1980s. So even though jobs were being lost in the private sector, employment held up through increased employment in the public sector. However, neither the decreases in real wages due to the devaluations or the increased public sector employment could solve the problems in the long run.
One important explanation for the relatively low domestic inflation is, as I mentioned earlier, the high productivity growth. Combined with low wage increases, the favourable productivity growth has meant that cost pressures in the Swedish economy have continued to be moderate. This has been the case despite electricity prices failing to fall as sharply as we assumed in May. Imported inflation, which I also touched upon earlier, has been weak as well. The high oil price has been countered by price falls for other imported goods, including clothes and footwear. This question is in turn connected with another: how is it that we expect inflation to remain relatively low during the forecast period when we have revised up our growth forecast? One explanation is that we have allowed our assessment to be affected by the new productivity figures, the lower wage outcomes and the continued weak situation in the labour market. In our current assessment, inflation would probably have been around a tenth of a percentage point higher if we had not taken into account the new information received. The balance of risks To sum up, the forecast in the main scenario is that Swedish GDP growth will be 3.6 per cent this year and 3.2 per cent a year in 2005 and 2006. Private consumption and investment are expected to take over from exports as the main driving forces behind the pickup in demand in 2005 and 2006.