Rather the reverse; the weak labour market and the unusually low resource utilisation point to low wage increases. This, combined with the fact that productivity usually improves when economic activity turns around, implies that unit labour costs will be weak in the coming period. We are also assuming that the krona will strengthen, which will hold back import prices. It is also difficult to believe that demand would become so strong that it pushes up inflation. It is considerations like this that are behind the assessment that I made in July; that the repo rate will probably need to remain at a low level for a long time to come. Resource utilisation will remain low during the foreseeable future and it is difficult to envisage any inflationary pressures. At the same time, borrowers should be aware that the current situation is an extreme one and that at some point in the future we will need to raise the interest rate back to a more normal level. Concluding remarks I have now described the Riksbank’s view and my personal view of developments in Sweden and abroad. Despite GDP falling heavily this year, employment falling and unemployment rising, there are now signs that an improvement is on the way. The situation in the financial markets has improved and the new information received during the summer confirms the view that the deep recession has bottomed out. But the improvement is from unusually low levels and the recovery will probably be weak.
The contribution of labour is negligible, bringing to the fore the question on declining labour participation in the region, underpinned by the demographics and the intensive emigration of young and skilled workers. But, the marked slowdown in TFP, which is an indicator on how efficiently production factors are used, is worrisome. There are many forces that can influence total factor productivity and they are all endogenously interlinked. The competiveness of the economy, the quality of human capital, quality of institutions, innovation and technological readiness are just some of them. Unfortunately, the region is not well positioned along those dimensions. The average ranks for quality of institutions and human capital, according to the global competitiveness index, stand at 63 and 53 out of 141 countries, which is still distant compared to more advanced countries. The recently published EBRD digitalisation index, on average for the region, is gravitating around 70, with a wide gap to be closed compared to the frontier of 100. Is there any role for central banks in supporting the structural agenda? Although this is obviously beyond the central banks' remit, still they can provide a support in some segments such as digitalization, which can unleash productivity revival or tackle climate risks - an issue that is becoming intensively proliferated among central banks. It is neither a coincidence nor an attempt for central banks to be more impressive and fancy. Climate risks can severely affect the capacity to grow, the prices dynamics, financial stability as well.