Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

The Swedish Economy, No. 1/2011


Published on

The Swedish Economy - 2011 January: A continued strong confidence

Published in: Technology, Economy & Finance
  • Be the first to comment

  • Be the first to like this

The Swedish Economy, No. 1/2011

  1. 1. The Swedish EconomyMonthly letter from Swedbank’s Economic Research Departmentby Magnus Alvesson No. 1 • 31 January 2011 A continued strong confidence • Recently released data indicate that the Swedish economy continues to expand at a brisk pace. Sentiment in many sectors strengthened in January and exports continued to increase. Employment grew although the unemployment rate was unchanged as the labour force expanded. • There are, however, signs that the rate of expansion could slow. A weaker momentum was registered in sectors such as input goods and in retail. Household confidence in their personal finances and for the Swedish economy as a whole was solid, but increasing prices and borrowing costs could limit the room for consumption growth. • Public finances are benefiting from the economys rapid recovery, but also as a result of reforms that have already been implemented. Government revenue is growing as the labour market has recovered rapidly, while at the same time the social insurance reforms are limiting spending. It is estimated that local governments had relatively large surpluses already in 2010, but when central government subsidies are phased out and demographic costs grow, the balanced budget rule could be jeopardised.Swedish economy quickly normalising Contribution to Swedish GDP growth, Q1 2006 – Q3 2010 (Percentage points and GDP growth annually in percent)Recent data show that the economic recovery 10.0remains strong. Confidence is increasing in many Public cons. Invest. Private cons. 8.0 6.9sectors of the economy and exports continue to 5.4 Inventories Net-export GDP 5.0 4.5grow. At the same time there signs that the 6.0 3.2 4.1 4.0 2.7 3.2recovery could be weakening. While still strong, 4.0 3.4 2.2 2.7confidence indicators are levelling off and the 2.0 0.5 0.5effects of temporary factors, especially the 0.0inventory build-up, are subsiding. In addition, therecovery in important trading partners is somewhat -2.0shaky, which means that external demand could -4.0 -1.4decline slightly. -6.0 -5.3 -6.1Confidence indicators in the Swedish economy -8.0 -6.8 -7.1turned higher in January after having shown a -10.0weaker momentum late last year. Sentiment among Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10consumers was especially strong after the index Source: Statistics Sweden.had pulled back the previous three months. It was in particular households’ views on the Swedish economy that improved, but expectations on their own personal finances also strengthened. Ekonomiska sekretariatet, Swedbank AB (publ), 105 34 Stockholm, tfn 08-5859 1000 E-mail: Ansvarig utgivare: Cecilia Hermansson, 08-5859 7720. Magnus Alvesson, 08-5859 3341, Jörgen Kennemar, 08-5859 7730
  2. 2. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 1 • 31 January 2011Confidence indicators, Jun 2006 – Jan 2011 It was primarily durable goods took off late last year(Netbalance) after a big decline in 2009. This is probably 60 because many households decided to put off big ticket purchases at a point when they felt most 40 uncertain about their personal finances. When the effects of this pent-up demand abate, spending may 20 slow again. At the same time, rising food and energy prices, and higher borrowing costs could 0 also limit the room to expand consumption. Growing borrowing costs may also have contributed to falling -20 lending rates to households – to 7.8% on an annual basis in December from 8.4% in November. -40 Unemployment rose to 7.4% in December, Manufacturing Retail Consumer compared with 7.1% in November, but remained -60 unchanged at 7.8% in seasonally adjusted terms. At jun-06 dec-06 jun-07 dec-07 jun-08 dec-08 jun-09 dec-09 jun-10 dec-10 the same time employment numbers rose slightly,Sources: National Institute of Economic Research and Swedish which means that the labour force is expanding.Trade Federation. The improved job market is encouraging more people to begin looking for work again. TogetherBusiness confidence was mixed. In manufacturing, with a growing share of long-term unemployed,sentiment turned higher, and the construction slightly over 35% in December, this could make itindustry in particular continued to show signs of harder to reduce unemployment at the same rate asrapid expansion. Input manufacturers, on the other in the autumn of 2010.hand, which are usually early in the business cycle,began to slow during autumn of last year as orderbookings fell, but also in this segment did Unemployment and job growth, Jan 2001 – Dec 2010sentiments grow. Retail sales dropped, however, 10.0 5.0while the service sector reported slight growth. In 9.0 4.0other words, the normalisation of the Swedisheconomy from record-low levels in 2009 appears to 8.0 3.0be continuing. 7.0 2.0 6.0Retail sales volumes rose modestly at the end of 1.0 5.0last year. Despite an increase compared to 0.0December 2009, the trend tapered off. On a 4.0 -1.0seasonal basis, sales fell compared to November. 3.0This can be attributed somewhat to the unusually 2.0 -2.0cold weather, which may have dragged down the Employment (ann. change in %, rs) 1.0 -3.0 Unemployment (% of labour force)willingness to consume. 0.0 -4.0Consumption and retail sales, Jan 2008 – Dec 2010 jan-01 jul-02 jan-04 jul-05 jan-07 jul-08(Index June 2008=100) 112 0.8 Source: Statistics Sweden. 110 0.6 Against the background of a persistently high 108 unemployment rate, rising prices are making 106 0.4 economic policy more tricky. Consumer prices 104 began to rise in December, reaching 2.3%. KPIF, 0.2 the measure of underlying inflation excluding 102 100 interest expenses, also reached 2.3%. Because the 0.0 98 increase was mainly in energy and food prices, it -0.2 can be argued that it is temporary. On the other 96 hand, price increases could spread. Higher energy 94 -0.4 and transportation prices in particular could, 92 Retail sales (vol., m-o-m, %, trend, rs) Durables however, easily spread to other sectors. Thus, there Non-durables Retail 90 -0.6 are reasons for a continued normalization of the Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 monetary policy, in line with our forecast fromSource: Statistics Sweden. January. However, to reduce unemployment there 2 (4)
  3. 3. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 1 • 31 January 2011is also a need for targeted policy initiatives and State revenue and expenditure, and budget balance, Jan 2007 – Nov 2010growth enhancing reforms. (SEK billion, 12-month moving average)Swedish exports are growing quickly, exceeding 80export market growth. Demand has especially risenfrom the US, where exports jumped 30% fromJanuary to November 2010 year-on-year. This was 60at a time when US growth reached 3.2% at anannualized rate. In the last month of 2010 export 40 Budget balance Expenditures Revenuesgrowth exceeded import growth. As a result, thetrade surplus continues to rise. Swedish exports 20benefited from the inventory build-up on a globallevel after the retrenchment in 2009 and fromgrowing demand for input and investment goods. 0International trade, Jan 2000 – Dec 2010 -20(SEK billion, trend) jan-07 aug-07 mar-08 okt-08 maj-09 dec-09 jul-10 110 16 Trade balance (rs) Exports Imports Sources: Swedish National Financial Management Authority and 14 National Debt Office. 100 90 12 Government spending has also continued to fall. 10 The improved labour market has helped to limit 80 unemployment costs. Spending on social insurance 8 also continues to trend lower. This is due to the 70 substantial decrease in the number of people 6 receiving sick leave and activity compensation. This 60 4 is expected to continue. The social insurance 50 authority (Försäkringskassan), is predicting that the 2 number of people receiving compensation will fall 40 0 from around 440 000 in 2010 to 300 000 in 2015. jan-00 jun-01 nov-02 apr-04 sep-05 feb-07 jul-08 jan-10 Although many will leave the labour force due toSource: Statistics Sweden. demographic reasons, it will remain a challenge for the labour market to absorb the remainder.Fiscal policy towards surpluses Otherwise the costs will be shifted to other parts ofThe strong increase in economic growth and the social insurance system.improvement in the labour market mean that Sick leave and rehabilitation compensation and benefits,government revenue is trending upward again, Jan 2000 – Nov 2010despite tax cuts in recent years. In particular, (SEK billion excluding old-age pension fees)indirect taxes, mainly in the form of VAT, have 8.0remained steady, mainly due to the stablehousehold consumption. 7.0 6.0 5.0 4.0 3.0 2.0 Totalt 1.0 Sick leave and rehabilitation compensation 1/ Sick leave and rehabilitation benefits 0.0 jan-00 jul-01 jan-03 jul-04 jan-06 jul-07 jan-09 jul-10 1/ Prior to 2003, early retirement Source: Försäkringskassan. Sweden’s municipal and county budgets were generally strong in 2010, with an estimated surplus 3 (4)
  4. 4. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 1 • 31 January 2011of about SEK 19 billion. This was due in no smallpart to temporary central government transfers, butalso to spending restraint and better than expected Economy still strong, but risks remaintax revenue. Going forward, these surpluses will In summary, recent indicators show that theshrink, and the municipal sector could find it hard to Swedish economy is continuing its rapid its balanced budget requirement. This is partly After a quick rebound last autumn, we anticipate abecause the transfers will be phased out, but also stable but slightly slower economic expansion inbecause costs stemming from demographic 2011 and 2012.changes will rise. In addition, uneven progress inthe labour market will affect municipalities The risk situation hasn’t changed significantly.differently. A large presence of service industries Worries about indebted economies in southernwill likely lead to a more stable development, while Europe still remain. However, the forecast risksthose parts of the country where manufacturing stemming from economic policy has increased. Thedominates will see more volatility. balancing act for both monetary and fiscal policy has become more difficult. Consumer prices areAll in all, the budget deficit is now shrinking and we increasing at the same time as unemploymentexpect the public sector to reach a surplus as early remains high. Thus, economic policy will have toas this year. From an international perspective, apply the brake and accelerate at the same time.Sweden compares well. This means that largebuffers to meet future crisis are being built up, but italso provides room for reforms to reduce Magnus Alvessonunemployment and for investments in futureeconomic growth.Budget deficits and public debt 2011(Forecast, per cent of BNP) 250 JAP 200 150 GRE ITA BEL US IRL 100 POR FRA UK 60 % GER SWE LAT SPA 50 FIN DEN LIT EST 0 2 0 -2 -3% -4 -6 -8 -10 -12 Budget balanceSources: IMF (WEO) and Swedbank’s forecast.Swedbanks Ekonomiska sekretariat105 34 Stockholm Swedbanks Månadsbrev om den Swedish Ekonomin ges ut som en service till våra kunder.tfn 085859 7740 Vi tror oss ha använt tillförlitliga källor and bearbetningsrutiner vid utarbetandet avek.sekrå analyser, som redovisas i publikationen. Vi kan dock inte garantera analysernas eller fullständighet and kan inte ansvara för eventuell felaktighet eller brist i grundmaterialet eller bearbetningen därav. Läsarna uppmanas att basera eventuella (investerings)beslutAnsvarig utgivare även på annat underlag. Varken Swedbank eller dess anställda eller andra medarbetareCecilia Hermansson, 085859 7720. skall kunna göras ansvariga för förlust eller skada, direkt eller indirekt, på grund avMagnus Alvesson, 085859 3341 eventuella fel eller brister som redovisas i Swedbanks Månadsbrev.Jörgen Kennemar, 085859 7730 4 (4)