For Sweden's Central Bank, Talk of Strike Is Cause to Rejoice

  • Wage demands may help the central bank meet its inflation goal
  • Deal expected in coming hours; strike's impact seen as limited

Sweden’s central bank has found an unlikely ally: angry workers.

After years of crisis-induced restraint, trade unions representing almost half of Swedish blue- and white-collar workers are threatening to go on strike unless employers agree to generous wage deals. If a deal is not found soon, work stoppages could start as soon as next week.

With the economy having grown at a robust annual rate of 4.5 percent in the final quarter of 2015, the country’s five traditionally trend-setting industrial unions want salary increases of 2.8 percent. Employers have responded with a counteroffer of 1.75 percent, while the biggest construction union is demanding a 3.2 percent pay rise.

That’s all good news for Governor Stefan Ingves, who has been struggling to meet his 2 percent inflation target for more than five years (underlying consumer prices rose just 1.2 percent in February).

“This plays into the hands of the Riksbank,” said Knut Hallberg, an analyst at Swedbank in Stockholm. “Given the strong economy and labor market in many sectors, the unions have a clear advantage in the talks. Their willingness to fight convinces me they will succeed in pushing through better pay deals than in previous years.”

Target in Sight

The Riksbank has said it will finally hit its inflation target in the first half of next year. That forecast is based on wage increases of 3.2 percent in 2016, up from 2.4 percent last year.

So-called wage drift -- whereby actual wages end up being higher than the negotiated wages -- puts the Riksbank forecast within reach, said Swedbank’s Hallberg.

But not everyone is enthusiastic about this new appetite for pay rises.

Exports Protection

Prime Minister Stefan Loefven last week unconventionally weighed in on the talks by appealing for wage moderation, particularly to protect the country’s export industry.

Still, “employers will give in pretty quickly,” Hallberg said. “They will be really angry and bitter and complain, but they will simply give in because things are going really well for many of them. They want to make money.”

Hallberg anticipates that any possible work stoppages resulting from a collapse in labor talks would be short-lived and would not impact the economy in a major way.

To be sure, the fact that the economy is showing signs of robustness doesn’t mean the Riksbank will actually succeed in meeting its inflation target any time soon, said Andreas Wallstrom, chief analyst at Nordea Bank in Stockholm.

“We’re seeing domestic inflation that’s slowly edging up toward 2 percent,” Wallstrom said. “But against that is imported inflation, which will slow going forward as the krona will strengthen and work against the Riksbank.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE