the normative effect of the first agreements remains uncertain. among other circumstances, it will depend on the level of coordination of negotiations between employers and employees. another problem was that teknikforetagen, an employers ’ organisation in the engineering industry, revoked the industrial agreement last year. the industrial agreement is an important reason that wage formation has worked so well since the mid - 1990s. the revocation of this agreement by one of the signatories meant that the future of the agreement became uncertain. this has been sorted out now, with a new proposed industrial agreement having been accepted by all parties except the swedish paper workers ’ union. i view the new industrial agreement as a success. it cements the principle that the parts of the business sector that are exposed to international competition should play a normative role in wage bargaining and gives the impartial chairmen a stronger role in the coordination within the manufacturing sector. it is thus positive that there is a new industrial agreement. but there is reason to remind ourselves of our experiences from the wage bargaining rounds in 1995. the coordination of the demands from the swedish trade union confederation failed in these wage bargaining rounds. the swedish paper workers ’ union and the employers ’ federation of swedish forest industries were first out then, and concluded a relatively high agreement that set the level for a large part of the labour market. the result of this was wage increases of over 5 per cent in the years 1996 and 1997, levels which were altogether too high in relation to the inflation target and the weak employment situation. the economic conditions for wage formation in the years ahead i will now briefly present the riksbank ’ s assessment of economic development in recent years. i will refer to the most recently published forecast from april. of course, quite a lot has happened since then, but, at the same time, two months later you don ’ t normally know a great deal more about developments two to three years ahead. in any event, we will be publishing an updated assessment in the monetary policy report in july. the international recovery is proceeding at a good rate for the world as a whole, we expect to see a gdp growth of over 4 per cent per year for the next three years. this is a high growth rate from an historical perspective ( see figure 4 ). but bis central bankers ’ speeches developments across the world are divided, with weaker growth taking place in the developed economies and stronger growth in emerging economies. the recovery of the united states and europe is continuing at a fairly

measure of inflationary pressures at present is provided by cpif inflation. the wage growth rate influences inflation, unemployment and interest rates in the riksbank ’ s most recent forecast, we estimate that hourly wages will increase by about 3. 5 per cent per year in 2012 and 2013, and that this corresponds with underlying cpif inflation of close to 2 per cent towards the end of the forecast period. at the same time, unemployment will only fall to just above 6 per cent at the end of the forecast period. the national institute of economic research ’ s most recent report of wage formation, from may of this year, presents calculations of the impact of the size of wage increases on inflation and employment. these indicate that wage increases would have to be limited to about 3 per cent per year in 2012 – 2014 for unemployment to be sustainably decreased to 5 per cent, in accordance with the government ’ s ambitions. i assume that we will be hearing more about this later today. the riksbank has made similar calculations that also indicate a connection between wage trends, inflation and unemployment. the basic mechanism in these calculations is that higher wage increases lead to increased costs for companies. if companies wish to retain profitability, they have to choose between raising their prices or decreasing their personnel costs by reducing employee numbers. the most likely scenario is that a combination of these measures will be adopted. inflation will increase and employment will decrease. to meet the when interpreting the figure, it may be useful to know that prospera ’ s wage expectations systematically underestimate wage trends by around 0. 5 percentage points. bis central bankers ’ speeches inflation target in such a situation, the riksbank would have to raise the repo rate more rapidly. this would further dampen employment. however, the result also depends on the reason for the higher wage increases. if these are due to the stronger development of productivity, costs will not increase and the intensifying effects on inflation and unemployment will not be experienced. my assessment is still that if wage increases were to be slightly lower than the approximately 3. 5 per cent per year in 2012 and 2013 that the riksbank estimated in its april forecast, not only inflation and unemployment, but also interest rates, could be lower. this would be preferable from the wider perspective of welfare. it would also reduce the risk that increasing energy and commodity prices or rising inflation and wage expectations will push up inflation beyond our expectations. conclusion the riksbank is not a party in the