The Swedish Economy No.8 - November 30, 2011


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The Swedish Economy No.8 - November 30, 2011

  1. 1. The Swedish EconomyMonthly letter from Swedbank’s Economic Research Departmentby Magnus Alvesson No. 8 • 30 November 2011The Swedish economy holds firm, while bracing itself for asignificant slowdown The recent month’s economic indicators have given a surprisingly positive picture of economic development in Sweden. This is certainly the case with growth in the third quarter (4.6% at an annual rate), which significantly exceeded expectations, and especially the contribution from net exports. Domestic consumption slowed, however, and investment grew more slowly. The labour market, furthermore, is weakening, at the same time that collective bargaining negotiations are entering a critical stage. Unemployment reached 7.5% in October (seasonally adjusted) and the number of layoffs ticked up over 5 000 for the first time since 2009. With shrinking real wages and a weakening economy there is an increased risk of labour conflict. Despite the worsening debt crisis in Europe and relatively slow growth in the US, the Swedish economy has been stable. However, declining confidence among businesses and households could by itself reduce growth going forward. In addition, we still expect the global economy to struggle, with negative consequences for the Swedish economy.No obvious effects from the euro crisis just Rapid GDP growth during the third quarter meansyet that full-year growth will likely exceed our forecast of 3.9%. The data indicate, however, that theDespite worrying signals, the Swedish economy underlying growth dynamics are weakening.continued to develop strongly during the fall. In the Exports are reliant on a global economy that islast months, however, confidence indicators have clearly slowing, at the same time that cautiousnessturned lower, though this hasn’t yet been reflected among households and companies is likely to keepin the real economy. It may be a sign that the domestic demand in check.Swedish economy has become more resistant to GDP growth and contribution, Q1 2007 – Q3 2011global fluctuations. On the other hand, as the (Annual % change and contribution in percentage points)European economy weakens, however, there is a 8growing risk that Sweden will follow suit. In addition, 6there is a risk that declining confidence among 4households and businesses will affect the Swedish 2growth rate. 0GDP growth in the third quarter was surprisingly -2strong. The Swedish economy grew by 4.6% on an -4annual basis, mainly driven by net exports. Exports -6continued to grow rapidly at the same time that -8import growth fell. That gave a boost to growth that Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11won’t last. Domestic demand declined, however. Househ. consump. Gvt. consump. Invest. Inventories Net exports GDPHousehold consumption fell and savings rose, whileinvestments increased but at a slower pace. Source: Statistics SwedenInventory investments contributed positively, Expansion in Swedish industry has slowed sinceespecially in retail, while industry inventory the summer but is still growing at a healthy rate.declined. Following an annual increase of about 15% during 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. 8 • 30 November 2011 the first half-year, industrial production rose by Service production and retail sales, Jan 2006 – Oct 2011 (Index and annual % change) about 10% during the third quarter. The rebound after the 2008-09 financial crisis has worn off and 70.0 PMI-Services 10 Production of services export demand and domestic orders both seem to 65.0 8 Annual change in % (cal.adj.) be losing speed. The purchasing managers index 60.0 Index (cal.adj., s.a.) 6 (PMI) for the manufacturing sector also points to a 55.0 weaker industrial development in recent months. 4 50.0 The index, which provides a quick measure of the 2 situation for manufacturers, has fallen below 50, 45.0 0 which suggests that production is no longer 40.0 expanding. The slowdown in the PMI has eased 35.0 -2 Retail trade slightly, but demand from important export markets 30.0 -4 such as Germany and the US will be especially Oct-06 Jun-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 important to opportunities for further growth. Sources: Statistics Sweden and Swedbank. Manufacturing industry: production, capacity utilisation and purchasing managers index (PMI) Service production, which developed strongly (Index and % change, seasonally adjusted) during the first half of 2011, also noted a slightly 120 100 slower expansion rate during the fall, though still Industrial production 110 with growth. After having risen by nearly 6% at an 100 annual rate, growth retreated to around 4.5% in the 90 90 third quarter. This coincided with weaker retail sales, which shrunk in September and October Procent 80Index compared with last year, not least due to a rapid 70 PMI decline in auto sales and weakness in other capital 60 80 goods. This was confirmed by the purchasing 50 managers index for the service sector, which fell Capacity utilization 40 below 50 for the first time since late 2009. 30 70 jan-05 dec-05 nov-06 okt-07 sep-08 aug-09 jul-10 jun-11 Recent export data also support the notion that the Sources: Statistics Sweden and Swedbank. Swedish economy hasn’t yet fully felt the impact of the global turbulence. In October the value of Industrial investment also increased, but at a slower exports continued to rise compared with October rate. Capacity utilisation has risen since mid-2009 2010, but at a slower rate. Detailed figures for from levels of around 76% to nearly 90% in the third September show that wood product and quarter of this year, which is still lower than before pharmaceutical exports were the biggest losers and the crisis. In the face of declining economic that exports to North America in particular are prospects, companies are not expected take on falling. Asia accounts for an increasing share of greater commitments. In an investment survey for Swedish exports and, somewhat paradoxically, October, they revised their investment plans exports to the EMU grew at an annual rate of 10%. downward but still reported increases of around Manufacturing exports, especially cars and trucks, 10% in real terms for 2011. Real growth of 7% is as well as mining exports continued to grow rapidly. expected next year. Corporate investment plans These are cyclical sectors, which means that a shift vary greatly, however, and further revisions are not in export demand can quickly impact Swedish unlikely. industry. In November export managers reported a deteriorating outlook for Swedish exports, another Investment is expected to grow the fastest in sign of a probable slowdown. mining, minerals and textiles, while the transport sector and wood products are reducing their investment volumes. The construction industry, which often reacts quickly to economic fluctuations, is cutting its investments as early as this year and planning for modest increases in 2012. Investments are something companies can quickly adjust, and if the global economy continues to worsen volumes could be slashed even further. 2 (4)
  3. 3. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 8 • 30 November 2011Swedish trade, Jan 2000 – Oct 2011 companies consider a lack of qualified labour to be(SEK billion) an obstacle to expansion.110 16 Net trade (rs) Imports Exports Labour market: Unemployment, employment and hours 14100 worked, Jan 2006 – Oct 2011 12 (Annual % change and % of labour force) 90 10 10 80 8 8 70 6 6 60 4 4 50 2 2 40 0 0 Jan-00 Sep-01 May-03 Jan-05 Sep-06 May-08 Jan-10 Sep-11 -2 Employment (sa) Source: Statistics Sweden -4 Unemployment rate (%, sa) Hours worked (cal.adj., sa)Many indicators, such as GDP and exports, show -6that the Swedish economy has held up fairly well in Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11the face of growing global turbulence this fall. At the Source: Statistics Swedensame time weaker domestic demand indicates anincreased risk of a significant slowdown. In addition The weaker job market means that collectiveto global developments, especially the euro crisis, bargaining negotiations, which are now entering adomestic sentiment indicators also point to greater critical stage, will have to address increasinguncertainty, and thus a slower growth rate going challenges. The Swedish economy has produced aforward. rapid recovery and high growth rates, which employees contributed to through modest collectiveConfidence indicators, Jan 2006 – Nov 2011 agreements in connection with the financial crisis in(Index) 2008-09. Together with higher inflation, this led to 60 largely negative real wage growth in 2011. This strengthened the competitiveness of the business 40 sector, but has also meant that wages have failed to keep pace. 20 Services Household Layoffs and real wage growth, Jan 2005 – Sep 2011 0 (Thousands and annual % change) Construction 20 -20 Manufact. Retail Notice of layof fs 15 -40 Real wages 10 -60 Jan-05 Mar-06 May-07 Jul-08 Sep-09 Nov-10 5 Source: National Institute of Economic Research 0The labour market is cooling ahead of -5collective bargaining negotiations Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11The Swedish labour market continued to lose steam Sources: Statistics Sweden, Swedish Public Employment Service and National Mediation Officein October. Unemployment climbed to 7.5%(seasonally adjusted), a slight gain compared with This, coupled with a weaker job market, means thatthe previous two months. Job growth fell at the the negotiating parties aren’t likely to reach ansame time that the number of hours worked was agreement before November 30, when aunchanged. Labour demand is also showing signs commitment to industrial peace runs out. Thisof weakening. In its latest economic barometer, the increases the risk of collective action and couldNational Institute of Economic Research states that affect bargaining negotiations in other parts ofa growing number of manufacturers are planning to labour market. An agreement covering 2.8 millionreduce their staffing and that fewer construction employees will be renegotiated in 2011 and 2012, 3 (4)
  4. 4. The Swedish Economy Monthly letter from Swedbank’s Economic Research Department, continued No. 8 • 30 November 2011 and certainly isnt helped by the fact that the global economy is deteriorating and the Swedish labour market is weakening. At the same time household purchasing power represents an important part of domestic demand, and weak wage growth is eroding disposable incomes and household consumption. Length of unemployment, Mar 2007 – Sep 2011 (Weeks and annual change in %) 30 40 Length of unemployment (3m MA) 25 35 20 30Annual change in % 15 25 10 Weeks 20 5 15 0 -5 Annaul change 10 -10 5 -15 0 Mar-07 Nov-07 Jul-08 Mar-09 Nov-09 Jul-10 Mar-11 Source: Statistics Sweden Moreover, long-term labour market challenges still remain. People are unemployed longer, and during the fall average unemployment exceeded 30 weeks. Youth unemployment remains at a high level of around 22%, despite a slight decrease in recent months. These problems cannot be resolved through wage policies alone, but instead require a combination of labour market measures and increased efforts by the business community. Magnus Alvesson Swedbank Economic Research Department Swedbank’s monthly The Swedish Economy newsletter is published as a service to SE-105 34 Stockholm, Sweden our customers. We believe that we have used reliable sources and methods in the Phone +46-8-5859 7740 preparation of the analyses reported in this publication. However, we cannot guarantee the accuracy or completeness of the report and cannot be held responsible for any error or omission in the underlying material or its use. Readers are encouraged to base Legally responsible publisher any (investment) decisions on other material as well. Neither Swedbank nor its Cecilia Hermansson, +46-8-5859 7720 employees may be held responsible for losses or damages, direct or indirect, owing to Magnus 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)