middle of autumn 2003, new data has gradually been received that has warranted changes in our view of the inflation situation. these relate to the labour market, which has been weaker than expected with consequences for our assessments of wage developments, to productivity, which has risen more than anticipated, with lower cost pressure as a result, and finally to actual inflation, which has been lower than expected, with effects also on inflation expectations, which have declined somewhat. employment growth has therefore been weaker than expected, particularly at the end of last year. the same applies to the number of hours worked. the weak employment growth coupled with a lower number of labour market policy measures has resulted in higher unemployment. this rose from 4. 5 per cent in february last year to 6. 0 per cent in february this year. business tendency data and other indicators currently suggest that employment growth in the private sector will be relatively weak in 2004. there are some signs that the labour market may be about to turn, but these are weak. very recently, for example, the number of new job vacancies has increased slightly and redundancy notices have declined. 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. this picture has been confirmed by the latest national accounts

inflation now remains relatively stable around the target of two per cent ( figure 1 ). the lower inflation rate has not been associated with weaker growth in output, rather the opposite. gdp growth has averaged roughly half a percentage point higher a year in the past decade than in the two previous decades, and the fluctuations in the real economy also appear to have lessened ( figure 2 ). productivity growth has been surprisingly robust – stronger than in the rest of the eu – and there now seems to be broad consensus that the long - term rate of productivity growth, and thus the economy ’ s potential growth rate, has been raised. real wages have also improved considerably ; since 1995 they have risen by roughly 2. 5 per cent a year on average, compared with less than 1 per cent on average during the 1970s and 1980s ( figure 3 ). growth in employment has not been quite as good, but it nonetheless is worth pointing out that the situation today is far better than it was in the mid - 1990s. at that time unemployment was commonly judged to have become entrenched around 8 per cent. those of us who experienced the crisis years know that this performance was by no means a certainty. that there was a shift in stabilisation policy is in itself perhaps not that surprising given both the seriousness of the situation at the time and the pressure imposed by an environment with free movement of capital. but the decisiveness and speed with which the changes were implemented is something that is still brought up when i speak with colleagues abroad. compared with other countries it is perhaps above all the changes in fiscal policy that have made sweden stand out, in spite of the fact that the limits in the fiscal policy framework have been stretched somewhat in recent years – 1 / 7 inflation targeting is, after all, now conducted in some twenty countries around the world and there also are other reasons than inflation targeting that have contributed to lower price increases globally. the comparatively sound central government finances have been a great strength for our country over the past ten years. in the years ahead demands will rise even further if we are to meet the challenges posed by an ageing population. more surprising, in a positive sense, has perhaps been wage formation. it is not that long ago since swedish wage formation used to be highlighted in economic circles as a warning to other countries. but with the odd exception wage formation in sweden since the mid - 1990s has worked well from a macroeconomic perspective. i think the fact that the swedish trade union confederation has said that “