MNI INTERVIEW: Riksbank Jobs Outlook Overly Optimistic: NIER

-Sweden Job Scheme Take Up Could Be Less Than Central Bank Sees: NIER

By David Robinson

     LONDON (MNI) - The Riksbank may be underestimating the potential rise in

unemployment across Sweden following the Covid-19 outbreak due to more

optimistic assumptions of take up for the government's job support scheme, a

senior fellow at the country's leading economic research group told MNI.

     The central bank sees unemployment at 9-10% this quarter, well below the

National Institute of Economic Research's forecast for unemployment to hit

11.5%, or over 15% in the absence of government support, although the Riksbank's

different set of assumptions make comparisons difficult, said Goran Hjelm, head

of the labour market division at NIER.

     The official short-time working scheme, in place throughout 2020, allows

firms to lower employees' working hours while the government covers up to 75% of

wage costs.

     The divergence between the Riksbank and NIER forecasts may be because "they

are assuming that companies will use the short-term work programme to a greater

extent than we have assumed," Hjelm said.

     "We are explicit with our figures, but we haven't seen any figures from the

Riksbank," he added.

     --IN FLUX

     The government scheme, like similar programmes elsewhere, has also been in

a state of flux. The maximum reduction in working hours was temporarily raised

from 60% to 80% for the May to July period. NIER raised its forecast of the

number of people working short-time to an average 360,000 in the second quarter

while expecting usage to decline gently during the second half of 2020.

     Together with different calculations regarding short-time work, Hjelm said

another explanation for the lower Riksbank forecast may be that it expects a

greater eagerness among companies to hold onto workers whom they fear may be

difficult to replace in a recovery.

     "A second possible interpretation, and it is likely that there is some

truth in both explanations, is that the Riksbank is assuming that there will be

greater labour hoarding within the companies," he said.

     Past experience has shown central banks tend not to publish labour market

scenarios that are at the more alarmist end of the spectrum. The Riksbank was

criticised before the crisis for earnings forecasts that repeatedly proved

overly optimistic.

     From a policy perspective, the Riksbank is aiming to mitigate the major

negative effects from the unpredictable spread of coronavirus rather than fine

tune any response to the economic outlook guided by its own forecasts - a task

which Governor Stefan Ingves said recently would be almost impossible.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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