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The Swedish Economy No.2 - March 29, 2012


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The Swedish Economy No.2 - March 29, 2012

  1. 1. The Swedish EconomyMonthly letter from Swedbank’s Economic Research Departmentby Magnus Alvesson No. 2 • 29 March 2012 Signs of a stronger economy – but revised economic statistics could lead analysis and policies astray Contracting exports reduced Swedens GDP at the end of 2011, but economic data in early 2012 suggest that the decline has slowed. Industrial production grew on an annual basis in January at the same time that the decline in external demand showed signs of easing. Domestic demand is being supported by relatively strong household finances, and confidence indicators for businesses and households improved significantly in March. Labor market conditions remain weak, although unemployment isn’t rising quickly yet. Revisions to official data have changed the picture of the Swedish economy in recent years. Economic growth for 2010 was revised upward from 5.7% to 6.1% at the same time that economic activity for 2011 was weaker than previously reported. In particular, the number of hours worked was revised upward, which means that productivity growth was actually weaker. Household savings are also lower than the data previously suggested. The revised economic data create problems not only for forecasters but also for those who set economic policy. Lower business productivity means higher resource utilization, which is an argument for a less expansive monetary policy. On the other hand, rising unemployment suggests that resource utilization is still low. Lower savings is an indication that households are more vulnerable, but also that consumer spending could be more limited going forward. This impacts the assessment of the economic conditions.Dead stop in the fourth quarter, but looking GDP developments, 2000-2011 (Change in percent)better in early 2012 4,5 8The Swedish economy shrunk significantly during 3,5 6the fourth quarter of 2011, mainly due to declining 2,5external demand. In seasonally adjusted terms, 4GDP fell by slightly over 1% compared with the third 1,5 2quarter, while growth at an annual rate is estimated 0,5at 1.1%. On a full-year basis the Swedish economy -0,5 0grew by 3.9%. Compared with 6.1% in 2010, growth -2 -1,5slowed significantly in 2011. GDP (quart. rate, sa) -4 -2,5 GDP (ann.rate, rs) -3,5 -6 -4,5 -8 00Q1 01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 Source: SCB Weak external developments pulled down Swedish exports, but signs of improvement could be seen in January and February of this year. The biggest Economic Research Department, Swedbank AB (publ), 105 34 Stockholm, +46 8-5859 1000 E-mail: Responsible publisher: Cecilia Hermansson, +46 8-5859 7720. Magnus Alvesson, +46 8-5859 3341, Jörgen Kennemar, +46 8-5859 7730
  2. 2. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 2 • 29 March 2012 decline was in exports to European markets, at the Domestic demand was stronger than expected, and same time that imports didn’t slow to the same household finances in particular point to continued extent. As a result, net exports cut into growth. stable development. Private consumption and Somewhat unexpectedly, machinery exports investments contributed positively to growth during remained strong, while sales of autos and the fourth quarter after having shrunk in the electronics weakened. January and February previous quarter. Household disposable income surprised with stronger than expected exports. At grew in real terms by slightly over 3%, and with the same time the decline in indicators such as weak spending at the beginning of the year savings purchasing managers’ export demand and rose and debt levels declined slightly. In addition, corporate export backlogs eased. This may indicate rising interest expenses were offset by declining that the rapid drop late in 2011 has slowed during energy prices. the first quarter of 2012. Household economy, 2000 – 2011 Export demand and order books, Jan 2001 – feb 2012 (Change in percent and percent of disposable income) (Net balance) 10,0 Disposable income Consumption 180 Interest payments* Debt (rs)* 160 30 70 8,0 140 60 6,0 120 10 50 100 4,0 -10 80 40 2,0 60 -30 30 40 20 0,0 Export order books (sa) * share of disposable income 20 -50 10 -2,0 0 PMI-export demand (sa, rs) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -70 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: SCB Sources: NIER and Swedbank. In January consumption continued to rise driven by consumables, which confirms that household Industrial production also showed signs of confidence in economic development has improved. stabilizing after having declined since mid-2011. In Retail sales also grew at the beginning of the year. January production rose by 2% compared with the Corporate investment is expected to continue same month in 2011, mainly in machinery and higher, but not at the same rate. Capacity utilization pharmaceuticals, while transportation equipment is still relatively low and industrial companies have retreated. At the same time the National Institute of revised their investment plans downward for the Economic Research’s confidence indicator for current year, according to Statistics Swedens manufacturing rose by no less than 11 points in investment survey. March, which suggests a continued rise in production. Although household confidence is improving, the labor market remains sluggish. The number of Production and households, Jan 2008 – Mar 2012 hours worked and employment levels are growing (Change in percent and net balance) at a slower rate at the same time that an increase in25 50 the labor supply is keeping unemployment from Industrial production20 Retail sales 40 falling. In February unemployment was 7.5%15 Manuf acturing - conf idence 30 (seasonally adjusted). We expect it to continue to Household conf idence10 20 rise throughout 2012, but not reach the same levels 5 10 as in 2009. There is a risk, however, that the 0 0 structural problems in the labor market will worsen -5 -10 as those who have been outside the market will-10 -20 again have a hard time getting back in. This is-15 -30 especially true of young and foreign-born workers,-20 -40 whose share of unemployment rose from 29%-25 -50 during the fourth quarter of 2009 to 35% in the Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 same period of 2011. Sources: SCB and NIER. 2 (4)
  3. 3. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 2 • 29 March 2012Labor market developments, 2006 –2011 Productivity and hours worked, 2008 –2011(Change in percent and percent of labor force) (Productivity level and change in percent ) 4,8 510,0 Hours worked (rs) 4 4,7 8,0 Hours worked rev. (rs) 3 Productivity 4,6 2 6,0 Productivity rev. 1 4,5 4,0 0 2,0 4,4 -1 4,3 -2 0,0 -3-2,0 Employment 4,2 -4 Hours worked-4,0 4,1 -5 Unemployment rate (sa) 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3-6,0 Sources: SCB and Swedbank. 2006 2007 2008 2009 2010 2011 Source: SCB The household savings ratio was also revised inEconomic conditions in Sweden appear to have connection with the presentation of the lateststabilized after a substantial weakening in late national accounts. In this case it was largely2011. We do not expect a rapid recovery, however. because Statistics Sweden, in a reassessment,There are still major uncertainties that could quickly revised its distribution of production between thelead to an economic decline, including the global corporate sector and the household sector. Thesituation and possibility of an escalation of the debt new data implies a significant downward revision incrisis in Spain, for example, which would cause the household saving ratio in recent years, and fromfinancial stress and weaker external demand. an historical perspective household savings are lower than previous statistics indicated. This affectsRevised data change the economic picture the outlook for private consumption, and thus forin Sweden growth.Although changes in short-term indicators are Household savings ratio, 2003 –2010receiving a lot of attention, Statistics Sweden’s (Percent of disposable income)latest revisions underscore the risk of letting them 14,0factor too much into economic analysis. When the 12,0fourth quarter GDP data were published, growthwas revised several years back in time. GDP 10,0growth for 2010 was revised upward from 5.7% to 8,06.1%, while the growth path for the first threequarters of 2011 was revised downward. This 6,0 Savings ratiomeans that the recovery after the financial crisis 4,0 Savings ratio, rev.was stronger, but that the Swedish economy 2,0entered a weaker phase already in 2011. 0,0One of the more important changes was the upward 2003 2004 2005 2006 2007 2008 2009 2010revision in the number of hours worked for 2010 Source: SCBand the first three quarters of 2011. This means,despite a higher growth rate, that productivity in the The major revisions in economic data createSwedish economy was weaker than previously problems not only for forecasters but also affectshown, which could impact economic policy, those who conduct economic policy. The fact thatespecially monetary policy. Weaker productivity the number of hours worked is higher means thatgrowth means lower potential GDP and that resource utilization is also higher, which shouldresource utilization is higher, which could lead to a restrain Riksbank’s monetary policy.higher inflation pressure. By itself, this wouldsuggest a higher benchmark rate and tightermonetary policy. At the same time other factorssuch as rising unemployment indicate that resourceutilization remains weak in the Swedish economy,which also affects monetary policy. 3 (4)
  4. 4. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 2 • 29 March 2012Lower household savings could mean that private In addition, this means that households are moreconsumption will not contribute as much to growth vulnerable to variations in income and asset prices.going forward, which should be factored into anyanalysis of economic policy options. Magnus AlvessonSwedbank Economic ResearchDepartment Swedbank’s monthly The Swedish Economy newsletter is published as a service toSE-105 34 Stockholm, Sweden our customers. We believe that we have used reliable sources and methods in thePhone +46-8-5859 7740 preparation of the analyses reported in this publication. However, we cannot the accuracy or completeness of the report and cannot be held responsible for error or omission in the underlying material or its use. Readers are encouraged to baseLegally responsible publisher any (investment) decisions on other material as well. Neither Swedbank nor itsCecilia Hermansson, +46-8-5859 7720 employees may be held responsible for losses or damages, direct or indirect, owing toMagnus Alvesson, +46-8-5859 3341 any errors or omissions in Swedbank’s monthly The Swedish Economy newsletter.Jörgen Kennemar, +46-8-5859 7730 4 (4)