Labour market forecast 2024-2025

We are glad to present this summary of the labour market forecast 2024 - 2025. Take a deeper look at the Swedish labour market trends, economy and challenges. The summary also provides an overview of the world economic development.

Global soft landing in 2024

The global economy has shown good resilience in the year 2023 and everything indicates that there will be a cyclical soft landing in the year 2024. There are more and more positive signs in that direction, and one is that the rate of inflation has peaked and reduced. This has opened the door for the central banks to begin a period of interest rate cuts starting in late spring 2024. The labour market has remained stable in many countries, which can be read from the fact that unemployment has remained at a relatively low level despite the recession. One likely explanation is that there are major recruitment problems and that the companies have therefore chosen to retain labour instead of quickly adapting the workforce based on the demand situation. What worries is the geopolitical situation, including the war in Ukraine and major tensions in the South China Sea. Although there are still some remaining uncertainties, Svamac expects global growth to reach around 3 percent for 2024 and around 3.3 percent in 2025.

The United States is the locomotive in global perspective

The US economy has shown strength and the increased interest rates implemented by the American Central Bank (FED) have not dampened households' desire to buy. It relates to the fact that households have a large proportion of loans tied to longer periods of time. Added to this are large investments in green technology that the US administration has supported. The labour market has remained very strong, and unemployment remains low, with recruitment issues continuing to be at the fore. Inflation has fallen back, but so far in 2024 has been at a higher level than the market expected. There is thus a remaining concern that the FED will postpone its first decision to lower the interest rate. However, Svamac still believes in a first reduction in late spring 2024. GDP growth is estimated to be reduced from around 2.5 percent in 2023 to 1.5 percent in 2024. A recovery will take place in 2025 and GDP is estimated at around 2 percent.

The euro area is the brake in global growth perspective

The economic slowdown has been more evident in the euro area than in, for example, the United States, and the area is likely to enter a technical recession in the second half of 2023. Europe has been hit harder by increased energy prices, which has weakened the competitiveness of the export industry at the same time as household purchasing power has been eroded by inflation and rising interest rates. The forward-looking indicators are weak, which is most evident in Germany. The labour market is and remains stable. The recovery is estimated to be slow, and GDP is estimated to increase by only 0.5 percent in 2024, which is approximately the same as in 2023. For 2025, forecasts are more positive, and GDP is estimated to increase by approximately 1.5 percent.

Weak indicators but signs of improvement for Sweden

The Swedish economy weakened in the second half of 2023 and forward-looking indicators point to a continued relatively low level of economic activity even if some strengthening takes place. The positive thing is that the inflation rate has been reduced and everything points to it reaching the Riksbank's target of 2 percent during the year. It also means that the Riksbank will lower its key interest rate in stages, which will positively affect households' real incomes, something that could provide a much-needed injection for the economy. Most things indicates that the first interest rate cut will only be implemented after both the FED and the ECB (European Central Bank) have begun a process of reductions. It relates to the fact that if the Riksbank lowers its interest rate before other central banks, the Swedish krona may lose value, which leads to an increased inflationary pressure from rising import prices. Svamac makes the assessment that the Riksbank will make its first interest rate cut at the May or June meeting.

Swedish GDP is estimated to increase by a modest 0.5 percent in 2024

Although household forward-looking indicators have strengthened, they are still well below the historical average. As before, households are gloomier about their own finances than about the country's economy. The companies have also become somewhat more positive, but the forward-looking indicators are still lower than normal.

However, industry has moved closer to an assessment that is in line with the historical average, while trade and the private services sector can still be considered gloomy, although there has been some strengthening. The construction companies are an exception as they have become gloomier about the current situation and the near future.

Existing statistics indicates that GDP will decline by 0.2 percent between 2022 and 2023 and, overall, indicators shows that GDP will continue to develop weakly in the coming quarters. Svamac estimate that GDP will increase by 0.5 percent between 2023 and 2024, but that GDP will increase more significantly in 2025 or by closer to 3 percent.

Employment declines in 2024 but reverses in 2025

The Swedish labour market has remained strong, although there has been some deterioration in recent quarters. Employment, which is very high, has decreased somewhat since the beginning of the second half of 2023. For the full year 2024, employment is estimated to decrease, and the decline can be estimated at approximately 30,000 people. Svamac assesses that employment may begin to increase sometime in the second half of 2024 and that this development will strengthen in 2025. The increase in employment for 2025 can be estimated at 36,000 people.

Unemployment rose during 2023 and the negative trend has continued during the beginning of 2024. It is mainly temporary employees who have been affected by the deterioration and groups who are entering the labour market. This is most noticeable for young people and those born abroad. There are signs that unemployment will start to decrease sometime in the second half of 2024.

Unemployment increased to 7.7 percent in 2023, which can be compared to 7.5 percent in 2022. Svamac estimates that the level will rise to around 8.4 percent in 2024 and that there is a reduction to 8.0 percent in 2025. Unemployment will also be affected downwards since the addition of new labour will be lower than before.

The foreign-born have to a very large extent sought out the labour market in recent years, which has generated an increase in employment of approximately 200,000 people for that group since the end of 2020. The foreign-born thus accounted for 85 percent of the total increase in employment during that period. Employment's share of the active population, the so-called employment gap, has decreased significantly between domestic and foreign-born. The gap amounted to just under 4 percentage points in the fourth quarter of 2023 compared with just over 9 percentage points in the corresponding quarter of 2020. However, unemployment is still higher for foreign-born than for domestic-born. It amounted to 15.4 percent for foreign-born versus 4.6 percent for domestic-born in the fourth quarter of 2023.

Changed regional map image

The changed regional map of the labour market that Svamac previously predicted has been realized. Municipalities that historically had the highest unemployment now have the lowest and that the available labour resources in these areas are very limited. There are two important factors that create the conditions for increased employment. One is the size of inflow of people to the labour market. The second is the unemployment rate, or more specifically the part of unemployment that contains the skills that are in demand for recruitment.

The change in the workforce now shows a trend break with a negative outcome for municipalities located in sparsely populated areas. The same applies to other small and medium-sized municipalities in the country. Svamac assesses that this image will persist throughout the 2020s and that it will have an increasingly negative impact on employment in affected municipalities. In general, it can be said that all municipalities will experience a slower or negative development of employment compared to the 2010s.

During the past six months, unemployment has increased in all municipal groups except in municipalities within sparsely populated areas. This means that the general availability of skilled labour improves, but this is only short-term. In the long term, the new addition of educated labour will be low at the same time as unemployment falls back to a level where it largely consists only of the structural unemployed, which makes it difficult to increase employment or even avoid a decrease in employment in many municipalities. A slower or negative development of employment means lower tax revenues and that municipalities have to decide if they should raise taxes and fees and/or cut back on municipal services to their residents.

Biggest labour market policy challenges in modern times

There are two overall major challenges in the labour market during the 2020s. These challenges will become significantly more acute as the 2020s continue. This development is having an increasing impact on many local and regional labour markets.

• Increased structural unemployment

• Lack of trained workforce with in-demand skills

The future scenario of the labour market contains the biggest challenges of modern times. There is no indication that the above-mentioned challenges are about to decrease, but everything points to their increasing significantly in the 2020s. This applies to the unemployed who have a vulnerable position on the labour market and find it very difficult to find work in parallel with limited growth opportunities for companies and public services due to a large lack of trained labour.

The division between the unemployed with good skills and the unemployed who lack the skills in demand is becoming even sharper. It is a rejection of the labour market policy that the lack of educated people is great at the same time as unemployment is very high. In the last 20 years, structural unemployment has taken a big step upwards with every economic downturn, and during periods of stronger economic activity the level has not decreased to the desired extent. There have simply not been effective enough interventions to break the long-term upward trend. The content of the labour market policy initiatives has not been adapted to the nature of the challenges. In most cases, the road to work is long for the unemployed with a deficient educational background because a chain of efforts is required, primarily training at different levels.

The shortage of trained labour is about to become the largest ever

Svamac has for a long time warned that the lack of trained labour will increase and become significantly greater than what has previously happened in history. Sweden is now seriously in the long-term, very problematic phase of the labour market, even if there are short-term reductions in the shortage, the long-term trend is a given. The situation is affected by large retirements, a low influx of younger people with in-demand vocational training, an insufficiently well-functioning education system and a very high structural unemployment.

The lack of trained labour will, beyond the current economic downturn, lead to significantly greater difficulties in recruitment in all local labour markets. It is important to urgently address the challenge of labour supply. Political representatives and officials at various levels in society has still not realized the extent of the consequences the ongoing development has for the Swedish economy and business, and not least consequences for the public service around the country.

Among other things, there is an acute shortage of people trained for professions in the public service sector. A clear consequence of the lack of trained people is, among other things, that care departments are forced to close and the queues in Swedish healthcare are record long. In some cases, healthcare units cannot guarantee patient safety, and there is a great risk that this situation will become more common.

In parallel with the healthcare crisis, large investments in industry are taking place in several parts of the country, not least in northern Sweden. All the new investment projects are grappling with a troublesome lack of trained labour. If the positive expansion plans are to be fully realized, the companies need to recruit a large number of people from other industries and/or from other local labour markets where the lack of educated people is also great, which drains the workforce situation in these locations. In parallel with this, a large amount of labour needs to be recruited from countries within and outside the EU.

At the same time, Sweden's strategy regarding labour immigration stands in contrast to that in other countries. From a political point of view, surprisingly stricter rules for labour immigration from countries outside the EU are being introduced, including through a fixed salary floor (SEK 27,360). In a recently published investigation, it is also proposed to raise the wage floor to SEK 34,200 plus that there should be an administrative process to handle labour immigration.

The salary floor makes recruitment for expansive companies more difficult and worsens the labour skill situation in the public sector. Employers need to recruit workers quickly and not after a delayed administrative process. There is an obvious risk that very many recruitments will not be made due to the salary floor and through the proposed bureaucratic process. All restrictions slows down economic growth and employment, not least regionally and locally.

A more efficient, offensive, and more growth-oriented labour market policy

Labor market policy must become significantly more efficient and more growth-oriented in order to produce better long-term results. The labour market policy that has been pursued in the 21st century has gone in the direction of becoming social policy and has become more of the nature of storing the unemployed in order for them to have a kind of income. A high percentage of the unemployed have moved between various measures within the labour market policy system for a long time and have been qualified for the job and development guarantee. The current guarantee programs have more or less become an administrative construction for those who are further from the labour market.

A very big challenge in the 2020s is the low new addition of educated labour at the same time as unemployment is at a record low among unemployed people who possess in-demand skills. It is necessary to take measures at all levels to increase the availability of in-demand labour, locally, regionally, and nationally.

Svamac suggest six measures which aim for the labour market policy to move towards a pure operation in order to improve the functioning of the labour market, see further sections in the report where there is a more detailed description of our suggested measures.

• State and municipality coordinate resources for a strong job placement function locally as well as investment in developed support for foreign recruitment within shortage areas of labour market

• Education investment aimed at those with the weakest education

• The labour market education is aimed entirely at a purely shortage vocational education

• New work with support within public activities

• Community service for long-term enrolled vulnerable unemployed

• Early retirement of health reasons, mental and/or physical, for severely vulnerable unemployed people

Get in contact with us via info@svamac.com. You can also have a look at our services in the english section linked here.