Sweden’s employment growth likely to decelerate, but remains above historical averages

Employment in Sweden has been steadily rising in the past few years with the help of solid growth in construction industry and other personnel intensive sectors. Trend growth rates have been close to 1.5 percent on a year-on-year basis. There is very little evidence of a slowdown in employment as yet.

Employment growth was stable at 1.5 percent on a year-on-year basis in the first quarter of 2016. The rate is back to the pre-crisis level of 67 percent. However, Swedish employment growth is likely to slowdown but continue to be above historical averages, said Danske Bank in a research note.

In the past few years, employment has grown predominantly in the service sectors such as restaurants and accommodation, retail trade, education and healthcare. In the first quarter, goods producing sectors recorded improved hours worked, along with investment goods industry firms registering strong growth in employment.

Labor force growth has also been solid in spite of strong employment growth partially due to high immigration and entry of large youth age cohorts into the labor market. This has kept the jobless rate quite high in spite of strong growth in employment. Currently, the jobless rate is slightly above 7 percent of the labor force. But the demand for labor has been solid.

Labor force growth is likely to continue due to immigration and youth. Therefore, the jobless rate is expected to improve, albeit at a slower rate. Unemployment rate is expected to be more than 6.5 percent by the end of 2017. Only in 2019 will the jobless rates be low enough to provoke inflationary pressures incompatible with the inflation target, according to Danske Bank.

“Hourly wage growth is projected at 3.1 percent y/y in 2016 and 3.4 percent in 2017, which is far below the Riksbank, but we feel are on the high side given a currently low, even negative, wage drift,” added Danske Bank.