High labour costs and slower corporate investment could hinder Swedens economic growth after 1987 the Organisation for Economic Cooperation and Development OECD said. The Swedish economy grew at a slower rate in 1986 than in previous years. GDP rose about 1.7 pct in 1986 compared with 2.2 pct in 1985. But this growth depended largely on external factors particularly lower oil prices the OECD secretariat said in its latest annual report on Sweden. It warned that labour costs had risen more rapidly in Sweden than in other OECD countries. Because of high labour costs Swedish industry which largely relies upon export markets was losing market share. Wages in the manufacturing sector grew by seven pct in 1986 in line with 1985 increases while public sector wages rose an estimated 9.2 pct in 1986 up from six pct in 1985. This was significantly higher than average wage increases of 3.75 pct for the seven largest members of the OECD in 1986. The report said wage moderation was central to maintaining economic growth in Sweden. It suggested that wage negotiations should be at least partly centralised to control the total wages bill and hold down inflation and unemployment levels. Helped by low oil prices and the governments tight fiscal policy inflation fell to just over three pct in 1986 from almost six pct in 1985 but remained higher than in most other OECD countries the report said. Unemployment a principal policy target was at 2.7 pct in 1986 in line with 1985s 2.8 pct and well below the OECD average of 8.6 pct. The report said Swedens employment policies accounted for the high levels of wage inflation. It also said that economic growth in 1986 relied increasingly on private consumption because corporate investment in machinery and equipment had shrunk. The total volume of industrial investments dropped by two pct in 1986 with sharp declines in spending by the wood pulp and paper industries. This compared to a 19 pct rise in 1985 when there was heavy investment in these industries. The OECD said Sweden should now make an effort to boost corporate investments and reduce its dependence on domestic consumption for economic growth. It suggested there was room for reform in the tax system. Sweden should continue to cut public sector spending especially in local government to keep in line with its tighter fiscal policy the report said.
OECD WARNS SWEDEN ON LABOUR COSTS