The duration of these stops will depend on the COVID-19’s behavior, but in any case, it will take a big toll on second-quarter investment. The baseline scenario assumes that these projects will resume normally towards the third quarter of this year. We must bear in mind that the economy’s performance since last October provides a weak starting point to deal with the COVID-19 emergency. Although the latest IMACEC2 showed a recovery in activity levels— including the February figure (2.7%) we published this morning—the sanitary measures affect more acutely those sectors that had already been hit by the social unrest. Also, household consumption is coming from a significant contraction in the latter part of last year, while investment was sustained by construction and other works, mainly mining projects. In the labor market, the national unemployment rate as reported by the National Statistics Institute for the moving quarter ending in February showed a bigger increase than in previous months, while other indicators point to a marked worsening in employment quality. Particularly striking is that in recent months a large proportion (92%) of the increase in total employment has been in salaried informal jobs, which do not provide the benefits that formal salaried employment does, including paid sick leave (Figure 7). Some financial variables such as the exchange rate, stock prices, and credit growth were also in less favorable levels than they showed at the onset of the social crisis.
Inflation was assumed in the main scenario to be in line with the inflation target one and two years ahead, albeit at the lower edge of the interval. The risks we foresaw for Swedish inflation were mainly related to developments in the financial markets and to wage formation. In that situation, we chose to leave the repo rate unchanged and decided to hold an extra monetary policy meeting, which will take place tomorrow. The Municipal Workers' Union's termination in advance of the third year of its collective agreement need not in itself constitute a threat to the inflation target, as long as other groups in the labour market are prepared to stand back in favour ot this union's members. However, if other groups were also to demand higher wages, the inflation target might be threatened. The Riksbank would then be forced to tighten monetary policy by raising the repo rate, which would lead to lower growth and employment. During the past two wage bargaining rounds in 1998 and 2001, the social partners indicated that wage formation had improved. It remains to be seen whether wage formation is now sufficiently flexible to manage the necessary changes in relative wages. Thank you. BIS Review 63/2002  7