Since the monetary policy meeting in August, the government and its collaboration parties have announced proposals, intended to be presented in more detail in the budget bill, which may entail a more expansionary fiscal stance in the period ahead. These proposals include cutting income tax for households, abolishing inheritance and gift tax, lowering wealth tax and increasing support to local governments. In total, this is estimated to provide a stimulus of just over SEK 20 billion in 2005 and 2006. How large the impact of this will be on economic growth and inflation is not so easy to forecast. This is partly dependent on the extent to which households save their increased incomes. Using traditional rules of thumb it could entail a few tenths of one per cent higher GDP growth in both 2005  BIS Review 51/2004  3  and 2006. As things stand, therefore, there is reason to expect growth to average above 3 per cent in the coming two years. In spite of the fact that the economy has performed fairly well for almost two years, developments in the labour market so far have been weak. Even though the demand for labour is still low, the situation is nonetheless judged to have stabilised somewhat. The historical pattern is for employment to lag behind a change in output somewhat. It is common for economic upswings to begin in manufacturing, which then results in a rise in manufacturing employment.
I have already mentioned the uncertainty surrounding international developments. Another uncertainty factor concerns developments in the labour market, which in turn are related to productivity growth. On the whole it is likely that there will be reason to revise up somewhat the inflation forecast compared with the May Inflation Report. Inflation a couple of years ahead can nevertheless be expected to be roughly in line with the Riksbank’s target. But as economy activity continues to strengthen, which is likely to imply less idle resources in the economy, there is reason to expect gradually rising inflationary pressures. Thank you! 6  BIS Review 51/2004