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The Swedish Economy No.7 - October 25, 2011


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The Swedish Economy No.7 - October 25, 2011

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The Swedish Economy No.7 - October 25, 2011

  1. 1. The Swedish EconomyMonthly letter from Swedbank’s Economic Research Departmentby Magnus Alvesson No. 7 •27 October 2011Economic slowdown on the way – global concerns reducegrowth forecasts  Economic development in Sweden has been overshadowed this fall by signs of a rapid slowdown. Economic activity is slowing mainly due to concerns about the European sovereign debt crisis and weaker than expected development in the US.  The Swedish economy is relatively strong and well-balanced. Global concerns will have an impact, however, both directly through falling export growth and indirectly through growing uncertainty among households and businesses. This will mean more cautious spending and investment going forward.  We, therefore, revised down our growth outlook in the Baltic Sea report (October 19) for the current year to 3.9%, against 4.3% in our August forecast. Export demand is the main reason for the Swedish economy’s slower expansion in the short term. We then expect growing uncertainty to impact consumption and investment. We have revised growth from 2.2% to 1.1% in 2012 and from 2.3% to 2.2% in 2013 (for details, see the tables on the last page). Swedish economic policymakers are in a good position, however, and can alleviate the slowdown through more expansive monetary and fiscal policies if needed.After a strong first half of 2011 the mood Confidence indicators for households and businesses (Index)has darkened 40 30The effects of the rapid recovery in 2010 and 2011 20are now fading as the Swedish economy enters aslower phase. It is highly likely, however, that the 10weak development outside the country, especially 0in the neighbouring region, will further impact the -10Swedish economy. Export demand is already -20showing signs of a decline, and many companies -30have begun announcing production cutbacks and -40more cautious hiring plans.Global concerns are affecting sentiments in the Households BusinessesSwedish economy. Confidence indicators for Sources: Nat’l Institute of Economic Researchhouseholds and companies have dropped quickly inrecent months. Considering the stock market’s Broad-based slowdown in the economydecline and an uncertain housing market, greatercautiousness can be expected in coming quarters. Swedish exports started losing steam in the secondAs a result, we see investment and consumption quarter, when goods exports backed off their highboth growing slower than we had forecast in growth levels. Swedish goods exports, which areAugust. dominated by input and capital goods, are strongly 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. 7 •27 October 2011impacted by what is happening in the euro zone, Business investment (Volume change in %, annualised)which accounts for about 40% of exports. The 50effects of the German economic slowdown duringthe second quarter are clear. Service exports have 40remained more stable during the crisis as well as 30after. Royalties and licenses led to an increase in 20the second quarter, while Swedish consumption 10abroad exceeded consumption by foreigners in 0Sweden. The strong Swedish krona was an -10important reason why more Swedes decided to -20vacation abroad. -30 -40Exports, order bookings and forecast, Q4 2007 – Q3 2011 -50(Diffusion index) -6080 05Q1 05Q3 06Q1 06Q3 07Q1 07Q3 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 Total Manuf acturing Construction70 Services Retail Telecommunication60 Source: Statistics Sweden50 Industrial production has shown signs of a40 significant slowdown in recent months. The auto industry in particular has seen a decline, but so30 have steel and electronics. This coincides with the20 drop-off in order bookings. According to Statistics 07Q4 08Q2 08Q4 09Q2 09Q4 10Q2 10Q4 11Q2 Sweden’s latest corporate barometer (October), a Export orders, purchasing managers (PMI) Export f orecast, export managers (EMI) growing number of companies feel that the Sources: Swedish Trade Council and Swedbank economy is headed south. Optimism is also on the wane in the service sector, in retail, finance andWith sentiment and short-term indicators slumping recent months, coupled with a weaker global Industrial order bookings and productioneconomic outlook, we see Swedish export growth (Annualised monthly percent change, fixed prices)continuing to slow in coming quarters. Exportmanagers expect sales to decline further, while 40purchasing managers have reported shrinking 20export orders in recent months. Additionally, weexpect the krona to appreciate during the forecast 0period (2011-13), which will affect Swedishcompetitiveness in export markets. We have ‐20therefore revised our export forecast downward to7% this year, 3.3% in 2012 and 4.1% in 2013 (see ‐40table). Imports are slowing as well, and as a wholewe do not foresee a net contribution from falling ‐60trade to GDP growth in the years ahead. ‐80With falling export demand and growing uncertainty, Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11many companies are, furthermore, likely to hesitate Industrial production Industrial order bookingsbefore making major investment decisions. Source: Statistics SwedenBusiness investment grew quickly in 2010 and early2011, especially in the housing sector, before Expectations are also playing a big role inshrinking in the second quarter in cyclical sectors determining how households react going forward. Insuch as construction and retail. This suggests general, they have grown increasingly concernedweaker development going forward, and we have about the Swedish economy, but feel their ownrevised our investment forecast downward to 3.9% financial situation is more stable. While we see thein 2012 and 3.6% in 2013. Public investment is labour market slowing in early 2012, unemploymentexpected to rise at a faster rate, partly due to larger will then gradually begin declining again. Thisappropriations in the government budget for 2012. means that wages will be held in check and 2 (5)
  3. 3. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 7 •27 October 2011disposable household income will weaken next economies like Spain and Italy is non negligible .year. Compared with our August forecast, the That would affect the European capital market, anddecline will be tempered by a slower increase in in turn the Swedish capital market and trade.interest rates and lower price increases. We expect Among internal risks, a significant price decline inthe savings ratio to rise, however, and for the housing market is the biggest threat to growth.consumption to be weaker than in our last forecast. That would primarily impact households andConsumption growth has been stronger among consumption, but also affect the Swedish creditSwedish households than in comparable market.economies for quite some time, which increases therisk of a downward adjustment. Slower growth, but room for economic policyHousehold consumption, 2007 – 2011(Seasonally and calendar adjusted volume, 2005=100) Against the backdrop of an increasingly gloomy 114 Sweden global outlook and spreading uncertainty in the Swedish economy, we cut, in the Baltic Sea report 112 (October 19) our growth forecast for the period 110 USA 2011–2013. The adjustment for 2011, from 4.3% to 108 3.9%, is partly due to revised data for the first half- EU-15 year, but also because more indicators are pointing 106 to a rapid slowdown during the second half. In 2012 104 expected the economy to begin growing again, but 102 at a significantly slower annual rate than in 2011. Germany The biggest revisions compared with our August 100 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 forecast were in household consumption and business investment. A continued slowdown in Source: Ecowin global growth means that the Swedish economyRetail sales will particularly be affected by wont receive any external growth impulses in 2013,consumer confidence. After rising strongly in the either, when we predict growth of 2.2%, largelyfirst half of 2011, not least through robust auto unchanged compared with our August forecast.sales, growth slowed during the late summer andearly fall. Durable goods such as autos and other GDP trend and forecast, 2008 – 2013capital goods are sensitive to economic (Seasonally adjusted quarterly growth, %) 3.0fluctuations, and we expect sales to decline during 2008 2009 2011 2012 2013the remainder of the year. 2.0Retail sales, Jan 2007 – Aug 2011 1.0(Annual trend) 0.015.0 -1.010.0 2010 Total Durables -2.0 Annual rate: 5.0 2011: 3.9 % 2012: 1.1 % -3.0 2013: 2.2 % 0.0 -4.0 -5.0 Non-durables -5.0 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 11Q3 12Q1 12Q3 13Q1 13Q3-10.0 Sources: Nat’l Institute of Economic Research and Swedbank Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Source: Statistics Sweden Although the Swedish economy is now likely to weaken, macroeconomic conditions areDespite the reduction in the growth forecast, we fundamentally stable. The financial situation of thebelieve that the downward risks weigh heavier. The households is relatively strong and consumption willbiggest uncertainty is the European sovereign debt continue to contribute to growth. Also private sectorcrisis and how it is managed. Despite that euro investments are expected to increase, albeit at azone leaders have increased their efforts to slower rate, while net-exports will remain neutral.overcome the crisis, the risk that it will spread fromGreece and Portugal to considerably larger 3 (5)
  4. 4. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 7 •27 October 2011Contribution to GDP growth, 2009 – 2013 There are also opportunities for further monetary(Volume, %) policy measures. Unlike in many other countries, 8.0 the Riksbank has been able to raise its benchmark 6.0 rate and therefore has room to manoeuvre to 4.0 stimulate the economy. Given an imminent 2.0 economic slowdown, we expect the repo-rate to 0.0 remain at 2% for the rest of 2011 and all of 2012.-2.0 Underlying inflation pressures should ease slightly-4.0 compared with our August forecast, and a slight-6.0 appreciation in the Swedish krona will reduce-8.0 external inflationary impulses. 2009 2010 2011f 2012f 2013f Household consumption Public consumption Fixed investments Inventories Net-exports GDP Sources: Nat’l Institute of Economic Research and SwedbankPublic sector savings are expected to produce asurplus in 2011. Together with a relatively low Magnus Alvessonpublic debt, this leaves room for stimulus measuresbeyond those announced in next year’s budget bill. 4 (5)
  5. 5. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 7 •27 October 2011Key economic indicators – October 2011 1/ 2009 2010 2011f 2012f 2013fReal GDP (calendar adjusted) -5.1 5.4 3.9 1.5 2.2Industrial production -17.9 14.6 8.9 1.8 2.5CPI index, average -0.3 1.2 2.7 1.8 2.1CPI, end of period 0.9 2.3 2.2 1.9 2.2CPIF, average 2/ 1.7 2.0 1.4 1.4 1.8CPIF, end of period 2.4 2.3 0.7 1.7 1.8Labour force (15-74) 0.2 1.1 1.1 0.5 0.5Unemployment rate (15-74), % of labor force 8.3 8.4 7.5 7.4 7.3Employment (15-74) -2.1 1.0 2.1 0.6 0.6Nominal hourly wage whole economy, average 3.4 2.5 2.5 3.0 3.1Nominal hourly wage industry, average 3.0 2.8 2.6 3.2 3.1Savings ratio (households), % 12.8 10.5 10.3 10.4 10.1Real disposable income (households) 1.7 1.4 1.9 1.3 1.8Current account balance, % of GDP 6.9 6.2 6.6 6.3 5.8General government budget balance, % of GDP 3/ -0.9 -0.2 0.2 0.3 0.4General government debt, % of GDP 4/ 42.7 39.7 35.3 34.4 32.0Sources: Statistics Sweden and Swedbank. 1/ Annual percentage growth, unless otherwise indicated. 2/ CPI with fixed interest rates. 3/ As measured by general government net lending. 4/ According to the Maastricht critera.Swedbanks GDP forecast – October 2011Changes in volume, % 2009 2010 2011f1/ 2012f 2013fHouseholds consumption expenditure -0.3 3.7 2.2 (2.5) 1.3 (1.8) 2.2 (2.2)Government consumption expenditure 1.2 2.2 1.2 (1.3) 0.3 (0.7) 0.7 (0 8)Gross fixed capital formation -16.0 6.6 8.0 (8.1) 3.9 (6.7) 3.6 (4.8) private, excl. housing -18.5 4.9 5.1 (7.3) 4.1 (8.7) 4.7 (5.8) public 3.8 4.9 7.8 (4.7) 1.6 (1.1) 1.4 (2.9) housing -22.9 15.5 18.9 (14.3) 5.4 (5.3) 2.2 (3.2)Change in inventories 2/ -1.6 2.1 0.4 (0.4) -0.2 (-0.5) 0.2 (0.0)Exports, goods and services -13.2 11.0 7.0 (8.7) 3.3 (4.9) 4.1 (4.6)Imports, goods and services -13.8 12.7 6.6 (8.0) 3.9 (5.5) 4.6 (5.2)GDP -5.2 5.8 3.9 (4.3) 1.1 (1.8) 2.2 (2.3)GDP, calendar adjusted -5.1 5.4 3.9 (4.3) 1.5 (2.2) 2.2 (2.3)Domestic demand 2/ -3.0 3.6 2.8 (3.2) 1.4 (2.5) 1.9 (2.4)Net exports 2/ -0.6 0.0 0.6 (0.8) 0.0 (0.0) 0.0 (0.0)Sources: Statistics Sweden and Swedbank. 1/ The figures from our forecast in August 2011 are given in parentheses. 2/ Contribution to GDP growth.Swedbank Economic Research Swedbank’s monthly The Swedish Economy newsletter isDepartment published as a service to our customers. We believe that we haveSE-105 34 Stockholm, Sweden used reliable sources and methods in the preparation of thePhone +46-8-5859 7740 analyses reported in this publication. However, we guarantee the accuracy or completeness of the report and be held responsible for any error or omission in the underlyingLegally responsible publisher material or its use. Readers are encouraged to base anyCecilia Hermansson, +46-8-5859 7720 (investment) decisions on other material as well. NeitherMagnus Alvesson, +46-8-5859 3341 Swedbank nor its employees may be held responsible for lossesJörgen Kennemar, +46-8-5859 7730 or damages, direct or indirect, owing to any errors or omissions in Swedbank’s monthly The Swedish Economy newsletter. 5 (5)