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The Swedish Economy No.4 - June 26, 2012


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The Swedish Economy No.4 - June 26, 2012: Export demand is shaky – and concerns among households and businesses are growing as summer begins

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The Swedish Economy No.4 - June 26, 2012

  1. 1. The Swedish EconomyMonthly letter from Swedbank’s Economic Research Departmentby Magnus Alvesson No. 4 • June 26, 2012Export demand is shaky – and concerns amonghouseholds and businesses are growing as summerbegins  Demand for Swedish exports is at risk of weakening as practically all of Sweden’s key export markets face growing uncertainty. After zero growth in the first quarter, we are likely to see continued sluggish exports over the summer.  Domestic demand also appears to fall back after a strong first quarter. Declining confidence indicators, rising unemployment and falling stock values are affecting household spending, and global concerns make it less likely that the strong corporate investment growth from the first quarter will be repeated.  Our short-term economic outlook for Sweden therefore calls for lower growth prospects, and also increased risks. The debt crisis in Europe as well as weak development in the US and China could produce chilly summer showers for the Swedish economy.Key export markets are weakening Contribution to growth in export goods, volume, 2006 - Q1 2012Swedish exports show signs of stagnating after a (Contribution in percentage points and annual growth in %)rapid recovery since 2009. During the first quarter 20 Machinery and volume was slightly positive at 0.3% compared with 15 transport equip. Manufactured the same quarter in 2011, while the value of exports goods 10fell. The biggest decline was in pharmaceuticals, Chemical productswhich were down by about one fourth, although 5engineering goods also shrunk. In this product Energy products 0group, motor vehicles as well as electronic and ‐5 Mineralstelecom products declined. Commodity exports, ‐10 Food productsespecially metals besides iron and steel, providedthe biggest contribution to export growth. This is a ‐15 Othersegment especially prone to fluctuations in the ‐20global market, and underlying demand for Swedish 2006 2007 2008 2009 2010 2011 2012  Exportexports is therefore likely to trend lower in the short Q1term. Source: Statistics SwedenIncreasingly sluggish exports are mainly due to Sales to neighboring Nordic markets are strong,weaker demand in key markets. During the first however, a trend that continued in early 2012.quarter Swedish exports dropped to the US and Norway in particular is becoming more important,China, which accounted for the biggest gains after although Denmark and Finland, which have postedthe financial crisis. weaker economic development, are also growing in importance for Swedish exports. France, the Netherlands and Belgium are important and stable export markets for Swedish companies and during the last decade have accounted for around a fifth of the exports to the ten largest recipients, which exceeds Germany at 15 %. Weaker development in Economic Research Department, Swedbank AB (publ), SE-105 34 Stockholm, tel +46-8-5859 7740 E-mail: Internet: Responsible publisher: Cecilia Hermansson, +46-8- 5859 7720, Magnus Alvesson, +46-8-5859 3341, Jörgen Kennemar, +46-8-5859 7730, ISSN 1103-4897
  2. 2. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 4 • June 26, 2012the US and China in coming months as well as Institute of Economic Research indicates thatgrowing uncertainty in Europe are likely to mean household confidence in the Swedish economy fell,continued sluggishness for Swedish export. while their opinion of their own finances was stable despite slightly higher unemployment expectations.Destination of goods exports, 2000 - Q1 2012 Among companies, confidence declined mainly in(% of total of the ten largest recipients, and annual change in %) manufacturing and construction, while service 2000 ‐ 2011  (share)100 China 12 Q1 2012/Q1 2011 companies helped to soften the downturn. Belgium 1090 (% change) France 8 Confidence indicators, businesses and households, Jan80 Netherlands 6 2005 – May 201270 USA 4 (Index) 260 Finland 0 6050 ‐2 Services Denmark 50 ‐440 Household  Great Britain ‐6 4030 Confidence ‐8 30 index20 Norway ‐10 2010 Germany 10 0 0 Source: Statistics Sweden ‐10 ‐20 ManufacturingThe demand picture for Swedish companies hasbeen mixed in recent months. Export demand for ‐30manufacturers strengthened slightly in April and ‐40May, but the export orders component in the ‐50purchasing managers index is still hovering around 2005 2006 2007 2008 2009 2010 2011 201250, which indicates no change. On the other hand, Source: National Institute of Economic Researchpurchasing managers in the manufacturing sectorreport shrinking domestic demand. Moreover, The labor market is sending mixed signals.service companies are seeing a significant Seasonally adjusted unemployment rose from 7.4%weakening compared with the relatively strong first in April to 7.8% in May. This comes afterquarter. This means that economic conditions are unemployment had been surprisingly low during thefairly weak as the summer begins. spring. On the positive side, a large part of the increase is due to a growing labor supply, i.e., manyPurchasing managers index, demand components, Jan 2007 people continue to look for jobs, which is a sign of– May 2012 persistent confidence in opportunities to find work.(Diffusion index, a reading of 50 indicates unchanged conditions) This is confirmed by the fact that employment and80 the number of hours worked continue to rise. Even though the labor market is performing better than70 Manufacturing‐ expected, we anticipate that unemployment will60 domestic near 8% this year. Manufacturing‐50 export Unemployment and employment levels, Jan 2007 – May 2012 Services‐total (’000 and % of the labor force, seasonally adjusted)40 4750 9,530 4700 920 4650 8,5 Jan‐07 Mar‐08 May‐09 Jul‐10 Sep‐11 4600 8 4550 7,5 Sources: Swedbank and SILF Employment 4500 7 Unemployment 4450 6,5Concerns could affect consumption and 4400 6investments 4350 5,5After the first quarter’s strong growth in 4300 5consumption and investment, cautiousness among Jan‐07 Oct‐07 Jul‐08 Apr‐09 Jan‐10 Oct‐10 Jul‐11 Apr‐12households and businesses has increased in recent Source: Statistics Swedenmonths. In its most recent survey, the National 2 (3)
  3. 3. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 4 • June 26, 2012In addition to employment and the labor market, Household wealth and stock market performance, Q2 2006 – Q2 2012private consumption is also affected by household (SEK billion and index)wealth and savings habits. Household savings rose 7000 450during the first three months of the year at the same Cash, bank depos time that loan growth leveled off. This reflects 6000 400positive real economic development, although 350 Other financial  5000precautionary savings also grew. The increase in 300 assetsbank savings in particular is an indication of the 4000 250 Equities, fundslatter. In recent months stock values have again 3000 200declined, and in combination with increased 150 Collective pension  2000 savingsconcerns about unemployment and growing global 100risks this could reduce the willingness to consume 1000 Condominiums 50going forward. 0 0 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2  Stock market level  06 06 07 07 08 08 09 09 10 10 11 11 12 (index, rhs) Source: Statistics Sweden 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 3 (3)