In the past few years, Sweden’s labor market has greatly rebounded. The jobless rate has dropped from more than 9% to below 7%, while employment has been strong, growing close to 1.5% y/y in 2015. However, hours worked have not improved greatly. This shows that decline in average hours worked gives certain explanation in the solid labor market, according to Danske Bank. Moreover, the rate of participation has decreased.
Labor market indicators such as vacancies, lay-offs, lack of skilled labor, employment plans etc are benign. This will accelerate employment growth in the near future, noted Danske Bank. However, an anticipated decline in demand growth in the future might suggest moderation of employment growth, but the constant growth of public expenditures might push growth of employment above forecast, according to Danske Bank.
“On balance we expect employment to remain buoyant, growing between 1-1½% y/y in the coming years, with hours worked almost as strong, effectively putting a halt to the fall in average hours worked. The unemployment rate is expected to fall further and approach 6½% by the end of the forecast horizon”, says Dankse Bank.
Meanwhile, growth in hours worked has been solid in the past year, but since GDP growth was also very strong, growth in productivity reached 2.8% y/y in 2015. The capital intensive export industry is likely to remain on the stronger growth path in the near future. Labor-intensive and domestic sectors are also likely to grow, although at a lower rate than witnessed in the past few years. However, Sweden’s growth in productivity, following the global crisis, has been weaker than projection.
“Bearing in mind that post-crisis productivity has been about 1pp lower than pre-crisis, our forecasts for productivity growth of 1.6% y/y (wda) in 2016 and 0.8% y/y (wda) in 2017 will hopefully not come across as unduly weak”, noted Danske Bank.
