Sweden: More marked slowdown

Summing up what has happened since Nordic Outlook August the outlook for 2012 looks weaker. As a consequence we revise our forecast for Swedish growth in 2012 to 1.0%; 0.4 percentage points lower than previous forecast. The main driver for the revision is lower expectations for Euro-zone growth. Furthermore, household consumption is showing signs of being less resilient to the downturn than previously expected. The housing market is clearly cooling off but so far prices are only marginally lower. In general, Swedish data over the last two months has been mixed. On the one hand sentiment indicators has to some extent been disappointing, on the other hand hard data have held up better. In the near term we see upside risks for Q3 growth (forecast for Q3 2011 is 0.4%, 3.4% y/y). CPIF inflation is trending sideways, base effects will lower headline CPI going forward.

WEDNESDAY 19 OCTOBER 2011 Growth

Inflation

Labour-market

GDP growth
2.5 2.0 1.5 1.0 0.5 0.0 8 7 6

Key data Percentage change

2010 2011 2012 2013 GDP* GDP working day adjusted* Unemployment** Inflation* Government savings***
Source: SEB

5.6 5.4 8.4 1.2 -0.2

4.2 4.2 7.4 3.0 0.6.

1.0 1.4 7.3 1.7 0.2

2.6 2.6 7.4 18 0.4

SEB forecast

5 4 3 2 1 0

* Percentage change, ** Per cent of labour force, *** Per cent of GDP

Q1

Q3 10

Q1

Q3 11

Q1

Q3 12

Q1

Q3 13

Quarter-on-quarter percentage change (LHS) Year-on-year percentage change (RHS)

Source: Statistics Sweden, SEB

Swe: The labour force survey

9.0 8.5 8.0 7.5 4500 7.0 6.5 6.0 5.5 05 06 07 08 09 10 11 12 13 4300
Employment, 1000s (RHS) Unemployment, %

4700

Swe: Economic sentiment and confidence in the service sector

120 115 110 105 100 95 90 85 80 75 03 04 05 06 07 08 09 10 11 60 50 40 30 20 10 0 -10 -20 -30 Economic Sentiment (business + consumer confidence) Sentmient in the service sector (RHS)

4600

4400

Economic Insight

BUSINESS SECTOR IN EARLY PHASE OF SLOWDOWN Exports of goods are expected to be unchanged in 2012, which means they will decline on a quarterly basis in the first half of 2012. Sweden is sensitive to slower growth in the Euro-zone as it is the receiver of 70% of Swedish exports, even if exports to relatively stronger Germany dominates and the exposure to southern Europe is small. Sentiment for the industry sector has declined but hard data like goods export and industrial production has still been firm up to August. Sentiment indicators for manufacturing sector are expected to continue to decline going into 2012. Confidence in the service sector is at its historical average after a fast decline over last 3-4 months. Construction confidence is declining but is still well above its historical average. Housing starts have remained firm in Q3. Residential investment has increased and is almost at the same level as the 2007 peak, partly driven by a high level of repairs and renovations following increased tax deduction for those purposes in 2009.

Sweden: Export of goods, % y/y

20 10 0 -10 -20
Export of goods, % y/y, 3-month average New orders, NIER sentiment survey (RHS)

Swe: Manufacturing sentiment

40 20 0
-10 20 10 0 40 30 20 10 0 -10 -20 -30 -40 -50 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Confidence indicator Inflow of new orders

-20 -40 -60

-20 -30 -40

-30

99 00 01 02 03 04 05 06 07 08 09 10 11

Swe: Production, % y/y, 3-month average

20 15 10 5 0 -5 -10 -15 -20 -25 04 05 06 07 08 09 10 11 Industry Service sector 20 15 10 5 0 -5 -10 -15 -20 -25

Residential investment
Per cent of GDP
10 9 8 7 6 5 4 3 2 1 0 10 9 8 7 6 5 4 3 2 1 0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Sweden

US

Spain

Source: Local statistical offices

Swe: Confidence in construction

75 50 25 0 -25 -50 -75 -100 96 98 00 02 04 06 08 10 75 50

Swe: Housing starts

15.0 12.5
25 0 -25 -50 -75 -100

125 100 75 50 25

10.0 7.5 5.0 2.5

0 -25 -50 -75 00 01 02 1000s 03 04 05 06 07 08 09 10 % y/y (RHS)

Building activity, expectations Order books, outcome The confidence indicator

Economic Insight

HOUSEHOLDS COULD BE LESS RESILIENT TO A DOWNTURN THAN ASSUMED IN AUGUST The fast decline in consumer confidence raises question marks regarding the state of the household sector. A large decline in retail sector sentiment adds to the downside risks. The housing market is clearly cooling off, but so far prices have only leveled off or declined marginally. Our assessment that house prices will decline only gradually without declining consumption is about to be tested. Still, household indicators are mixed. Against the decline in consumer confidence and cooling housing market stands that car registration, which normally is very sensitive to the business cycle, has remained firm up to September as well as that income growth has been firm in the first half of 2011 and the savings ratio is close to record levels.
Swe: Retail sales and car registrations
50
Consumer confidence Retail sales

Swe: Private consumption and confidence

15 40 30 20 5 10 0 0
Private consumption

130 120 110 100 90

Car registrations, 1000s (RHS)

32 30 28 26 24 22

10

-10 -20 07 09 11 -30

Retail sales, index

20 18

80 70 00 01 02 03 04 05 06 07 08 09 10 11

-5

16

99

01

03

05

Swe: Household income and savings

8 7 6 5 4 3 2 1 0 -1 -2 -3 99 00 01 02 03 04 05 06 07 08 09 10 Income, fixed prices, % y/y Savings ratio, % (RHS) 17.5 15.0 12.5 10.0 7.5

Swe: House Prices, index level

1.7 1.6 1.5 1.4 1.3
5.0 2.5 0.0

1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 04 05 06 07 08 09 10 11

1.2 1.1 1.0

Swe: Lending to households

16 14 12 10 8 6 4 02 03 04 05 06 07 08 09 10 11 % m/m, annualised, SA, 3 month average % y/y 16 15.0 14 12 10 8 6 4 12.5 10.0 7.5 5.0 2.5 0.0 -2.5 -5.0

Swe: House Prices and SEB housing price indicator

100 75 50 25 0 -25 -50 -75 -100 04 05 06 07 08 09 10 11 House prices, % y/y SEB Housing price indicator (RHS)

Economic Insight

LABOUR MARKET WILL SLOW GOING INTO 2012 Unemployment is expected to trend downwards until the end of 2011 and is expected to rise somewhat in 2012. Labour market indicators for the next 3-4 months are declining from high levels. New vacancies are high and hiring plans according to the NIER survey are still at expansionary levels. Higher registered unemployment in August and September indicates that unemployment could be on the rise earlier than assumed in our forecast, although the correlation with the labour force survey is far from perfect. CPI inflation is expected to ease ahead due to base effects from mortgage rate costs. We expect CPIF inflation to trend sideways slightly above 1.5%. Core inflation (CPIF ex food and energy) is expected to rise in 2012 due to less downward pressure from exchange rate and higher wage inflation. Lower energy prices will work in the opposite direction.
Swe: Employment situation according to the NIER survey, business sector
30 30 20 10 0 -10 -20 -30 -40 -50 04 05 06 07 08 09 10 11 Actual Expected 20 10 0 -10 -20 -30 -40 -50

Swe: Registered unemployment, %

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 05
Open unemployment Open unemployment + labour market programs

9.0 8.0 7.0 6.0 5.0 4.0 3.0

06

07

08

09

10

11

2.0

Swe:New vacancies and layoffs, 1000s

90 80 70 60 50 40 30 20 10 04 05 06 07 08 09 10 11 New vacancies Notices of layoffs (RHS) 20.0 17.5 15.0 12.5 10.0 7.5 5.0 2.5 0.0

Swe: CPI, % y/y

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10 11 12 13
CPIF, ex food and energy CPIF CPI

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Swe: CPIF, % y/y

2.5
SEB

Swe: CPIF ex energy, % y/y

2.5

2.2
Riksbank

2.2 2.0 1.8

SEB

2.0
2.0 2.0

1.8 1.6

1.6 1.4 1.2 1.0

1.5
Riksbank

1.5

1.4
1.0

1.0

1.2 1.0

0.5

10

11

12

13

0.5

0.8

10

11

12

13

0.8