relatively large in sweden ; it investments have been extensive ; the previous phase - out of product markets has increased competition ; sweden is a small, open economy which also leads to great competitive pressure and so on. my impression is that it will continue to contribute to a relatively rapid development of productivity in sweden, while higher real interest rates and energy prices may subdue the rate of growth. all in all, we expect to see a lower long - term rate of increase than we saw from the mid - 1990s to the mid - 2000s. the current economic situation and monetary policy i will now briefly address current monetary policy. the situation can be summed up as follows : the economy is weakening, inflation is falling rapidly and the riksbank is reducing the interest rate. the financial crisis is reinforcing the downturn in economic activity gdp growth is now declining in sweden and abroad. we expect to see negative growth in the swedish economy next year ( see figure 8 ). it is predicted that employment will fall by approximately 120 000 over the next two years and that unemployment will rise to approximately 8. 4 per cent ( see figures 9 and 10 ). an important reason for the dramatic downturn in economic activity we see ahead of us is that the global financial crisis has worsened during the autumn. inflation has been unusually high over the past year. but it will probably fall rapidly in the year ahead. in the usa it has fallen in three consecutive months and in the euro area it fell to 2. 1 per cent in november. in sweden, inflation fell to 4. 0 per cent in october, but our assessment is that it has fallen significantly in november here too ( see figure 11 ). inflation is high but is declining rapidly one of the issues that we have had to take note of during the year has been the considerable fluctuation in the prices of food and energy. one of the reasons that we increased the interest rate in the period up to the autumn was to prevent the price increases that started on the world market spreading to other areas via price - setting and wage formation. during the year, i have argued that it did not appear to be especially likely that short - term increases in the prices of food and energy would push up wages by leading to demands for compensation for the price increases. the slowdown in growth and the weakening of the labour market are factors that weighed against such a scenario. there are also three - year agreements on large sections of the labour market that regulate agreed pay increases and these

. the share of workers with tertiary level education has increased. these are encouraging developments, resulting from the implementation of structural reforms in product and labour markets, increased immigration and wage moderation. nevertheless, progress has been quite uneven across countries and significant challenges remain. from a monetary policy perspective, four conclusions can be drawn. first, there is a need to further increase the labour market participation and employment rate of all groups of society. we have not yet reached the lisbon employment rate target of 70 %. lower labour taxes, stricter work availability requirements and reduced incentives to retire early would contribute to stimulating labour supply. reduced restrictions on labour contracts and well - designed “ work / family reconciliation ” policies would among others support participation further. increasing product market competition would also help support employment creation. second, there is a need for making labour market institutions more flexible to facilitate a better matching of the skills of those who seek a job with the characteristics of labour demand. to help match demand and supply, wage developments should reflect local labour market conditions. third, there is a need to increase knowledge and the transferability of skills. bringing unemployed or inactive people into jobs will, over time, enhance individuals ’ labour productivity and thus real wages. good quality education is of the utmost importance and the recognition and incentives for young people, workers and firms to invest in education and training must be enhanced. the efficiency and service orientation of education institutions should be improved. in addition, the labour market should play a stronger role in signalling to education systems and workers which skills are in short supply. finally, the euro area should make better use of skills from outside the euro area. immigration policy should be closely aligned with the skills needed by the labour market, and ensure the successful integration of immigrants into the active workforce and society as a whole.