In the main scenario the recovery in the United States and the euro area is expected to begin during the second half of this year and next year growth will largely be back at the trend level. Growth in Sweden is expected to be approximately the same this year as last year, but in reality this is a weakening if one takes into account the larger number of working days this year. Inflation in Sweden rose rapidly in the autumn and, measured by both the CPI and the CPIX, is expected to exceed the inflation target during a large part of the forecast period. The uncertainty over future economic developments is still considerable, however, and to highlight this a number of alternative scenarios are described in the Monetary Policy Report. One of these involves greater financial turmoil and that growth abroad will slow down more sharply. In this scenario growth in the US economy will fall more than in the main scenario, at the same time as the borrowing costs for households and companies in the whole world will  BIS Review 30/2008  1  be higher. This leads to a general dampening of demand and to lower GDP growth and inflation both abroad and in Sweden. But, as we have written in previous reports, there is also a risk that inflation will be higher than in the main scenario if wage developments are stronger and productivity weaker than expected.
Employment, measured as the number of hours worked, increased at an unexpectedly high rate and productivity growth last year was weaker than expected in the Report. The National Institute of Economic Research’s business tendency survey for February shows a clear slowdown in economic activity in the business sector as a whole. The business tendency survey suggests that employment has continued to increase, but at a slower rate. Companies have adjusted their recruitment plans downwards ahead of the coming months. In contrast, the purchasing managers index displays a more positive view in February. The total index rose somewhat and during several months fluctuated around the level of 55, which is close to the average since 2001. However, at the same time, the survey shows that growth in employment has slackened and that companies have become less optimistic about output growth in the future. In January inflation in Sweden was somewhat lower compared with the forecast in the Monetary Policy Report. However, this was largely connected with the fact that the weights in the CPI basket, as at the end of each year, had changed. The effects of this change were unusually large this time. This could be interpreted as though consumers, to a greater extent than normal, have replaced goods and services that increased rapidly in price in their consumption. The so-called substitution effect was then greater than the Riksbank and most other analysts had assumed.