At the same time, the strained financial situation in the public sector points to weak employment growth in local governments in the period ahead as well. Thus, employment growth is likely to be somewhat weaker during the year compared with our December forecast. As early as February, we changed somewhat our outlook for the rate of wage increases as a result of the situation in the labour market. There is reason to expect total rises in wage costs to average around 3.5 per cent in 2004 and 2005, which in terms of average collectively agreed levels leaves little room for more than about 2 per cent on average in the years ahead. The wage bargaining round appears so far to have gone relatively well, but the historical experiences of Swedish wage formation suggest that one should be cautious about assuming that we are home and dry. The parties appear to be far from agreement on a number of issues, and there are risks of conflicts arising. As long as the agreements are reached at moderate levels from an inflation perspective, longer agreement periods are preferable. This would alleviate some future uncertainty and should thereby contribute to a better economic situation. So while employment, measured by the number of hours worked, in the business sector was weaker than expected last year, GDP growth was roughly in line with the Riksbank’s expectations. This means that productivity was higher than anticipated.
It seems unlikely, however, that the upswing could be derailed entirely for this reason. As regards inflationary pressure, there are a number of question marks as I mentioned earlier. We don’t know how long the recent rise in productivity will last. In the inflation outlook that I have presented, some consideration has been given to the new data. At the same time, there are good arguments pointing to both higher and lower productivity growth. The same applies to our view of international inflation. As regards wages, there are also risks on the upside, which are essentially related to the way in which wage formation in Sweden is conducted. It can still not be ruled out entirely that the wage bargaining round will be derailed. Should the outcomes prove higher than expected, it is likely to have an impact on the future level of interest rates. So far I have not said anything about the exchange rate. There may be reason to touch upon this. For a long time, we have expected a krona appreciation that over the course of the forecast period would bring us to levels approximately in line with what we believe to be appropriate in the long term, given mainly the competitiveness of the Swedish economy. During the period 2002-2003 as a whole, the krona strengthened roughly as expected. Recently, however, this strengthening has been curbed. One reason for this appears to be expected relative interest rates, where there has been a certain shift since the autumn.