By Niklas Pollard and Johan Sennero
STOCKHOLM (Reuters) - The head of Sweden's trade union confederation urges the central bank to cut interest rates to support the slowing economy and says union demands for wage hikes would not trigger inflation.
Sweden's economy, which had been one of the most robust in Europe, is slowing sharply. The central bank has indicated that rates are more likely to fall next year than rise but has been reluctant to lower borrowing costs because it is worried about high levels of household debt.
"There is not a single reason not to lower rates," Karl-Petter Thorwaldsson, chairman of the Trade Union Confederation (LO), told Reuters on Thursday.
Unions, a powerful voice in Sweden which has one of Europe's most unionised workforces. Thorwaldsson said unions would not back down on their demands for an across-the-board wage rise next year of at least 2.8 percent with a bigger rise for those on low salaries, and improved benefits. Given a benign inflation forecast, that would mean a rise in households' real income.
"There will be increases in real incomes in Sweden in 2013 as well. Remember where you heard it first," he said.
Unions are due to begin talks with employers on a wage deal for next year in the next few months.
LO has about 1.5 million members, but a wage deal would cover about 3.5 million workers, or two thirds of the labour force.
Thorwaldsson said LO's demands were far from excessive and should not cause inflation fears for the central bank. The bank cut rates in September for the first time in seven months but has kept them at 1.25 percent since.
Employers have said such wage rises would put jobs at risk, just as thousands have had redundancy notices, including from blue-chip exporters like truck maker Volvo, telecom giant Ericsson and garden gear maker Husqvarna.
Thorwaldsson said the current downturn was not as bad as the 2008/2009 recession, when unions struck an accord with employers on temporary cuts in wages and working hours.
"Swedish organised labour has never made demands that we don't believe can be accepted and would never call for levels that we believed could not be supported economically."
Thorwaldsson said he saw the likelihood of a need for such deals again, but pointed to the possibility of a German-style, state-sponsored system for temporary shorter work weeks that is currently being examined by the centre-right government.
(Reporting by Niklas Pollard and Johan Sennero; Editing by Susan Fenton)
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