MNI EXCLUSIVE: Near-Term Riksbank Hike Not Undone By Jobs Data

--Headline Labour Force Survey Data Have Shown Marked Jobless Pick-up

--Riksbank Research Highlights Weakness In LFS Data; Experts See Slower Growing

Workforce

By David Robinson

     LONDON (MNI) - Doubts about the reliability of Swedish unemployment data

should lower expectations that its eye-catching rise will tilt the Riksbank

against near-term tightening.

     In its October Monetary Policy Report on Thursday, the Riksbank may nudge

up last month's forecasts for unemployment to increase to 6.7% in 2020 and 6.8%

in 2021, from 6.6% in 2019. But the central bank is unlikely to pencil in any

rapid acceleration in the rate, despite a jump to 7.1% in September from 6.0% at

the end of 2018, with a spike to 7.6% in June.

     Market participants are split over whether there will be a near-term

Riksbank hike. A SEB survey of fixed income and foreign exchange participants

saw 91% expecting the next move to be a rate increase, but the division is more

even over timing. Some 45% anticipated such a move in December or February - in

line with the Riksbank's September guidance.

     --FLAT LINE UNEMPLOYMENT

     Those who don't see a near-term increase cited the spike in unemployment in

Labour Force Survey data as the nail in the tightening coffin.

     But Statistics Sweden has confirmed the view of Riksbank economists and

labour market specialists, including in the government's forecasting agency (the

Swedish National Institute of Economic Research - NIER), who highlight the

erratic and partial nature of the data.

     The Riksbank's recently-published work spells out the limitations of the

LFS figures while experts responding to MNI point to the volatility of the

monthly numbers, and add that rising unemployment is likely to be restrained by

slower workforce growth.

     Statistics Sweden published a note towards the end of last week

acknowledging "quality flaws" with the data for September and "for some time

previously", saying that it had underestimated the number of unemployed early in

the year and had overestimated it now.

     The most recent projection from NIER was for unemployment to more or less

flat-line going forward, coming in at 7.1% in 2020 and 7.2% in 2021.

     --IMMIGRATION CURBS

     "The reason why we don't forecast a further increase in the unemployment

rate is that, while employment is forecast to grow only modestly, so is the

labour force," Karolina Holmberg, Head of Labour Market and Price Analysis, told

MNI.

     Slower growth in the labour force will be due in part to weaker economic

growth but will also reflect curbs on immigration, according to Holmberg.

     Nils Gottfries, a professor at Uppsala University, points to a significant

tightening in Sweden's previously generous asylum rules, similar to the trend in

Germany.

     "We had a large immigration wave a few years ago, peaking at some 160,000

asylum seekers in a population of 10 million in 2015," with many of these

immigrants coming from unstable countries outside the European Union, he said.

"A substantial fraction of them have (had) big trouble finding jobs."

     "Population growth is projected to slow in the coming years (mostly due to

reduced immigration). This means that the labour force will grow in line with

population growth in the ages 15-74 years," Jonas Kolsrud, Research Economist at

NIER, said, curbing LFS unemployment growth.

     Riksbank research has also noted that the LFS survey is blighted by low

returns. Riksbank economist Iida Iida Hakkinen Skans wrote in a commentary

published last month that the non-response rate has been over 50 per cent for

the first time. The data also do not capture recent immigrants, producing

volatility in the series and risks to short-term interpretations.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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