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Published by: Alin Mechenici on Dec 23, 2012
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The Swedish Economy 
Monthly letter from Swedbank’s Economic Research Department by Magnus Alvesson No. 6 22 November 2012 
Economic Research Department, Swedbank AB (publ), 105 34 Stockholm, +46 8-5859 1000E-mail: ek.sekr@swedbank.se www.swedbank.se Responsible publisher: Cecilia Hermansson, +46 8-5859 7720.Magnus Alvesson, +46 8-5859 3341, Jörgen Kennemar, +46 8-5859 7730
The outside world makes itself heard – rapid slowdown in the Swedish economy
The Swedish economy has underperformed expectations this fall and theslowdown in the euro zone is hurting Swedish growth prospects. Domesticdemand is holding up better, especially household consumption.
The labor market is resilient and employment numbers have not yet begun to drop.A rapidly growing number of layoff announcements suggests, however, thatunemployment will rise this winter. Forward-looking confidence indicators point toincreased pessimism, mainly in construction and manufacturing.
This implies that the economic slowdown in the Swedish economy risks becomingmore pronounced than we previously expected, and that unemployment will behigher.
Unexpected weak exports lower growthprospects
Recent macroeconomic data now clearly signal thatthe Swedish economy has cooled significantly aftera strong first half-year. The Economic SurpriseIndex, which fell drastically for Sweden this fall,suggests that most observers did not expect such aslide. This means that actual economicdevelopment was considerably worse thananticipated, in contrast with the summer months,when the strength of the economy was a positivesurprise. The unexpected slowdown in Swedenmeans that we will likely see significant downwardrevisions of our growth forecast, in particular for2013.
Economic Surprise Index, Jan 2011 – Nov 2012
(Diffusion index)Source: Citibank
The negative impulses came mainly from abroadand were evident in the decline in exports.Furthermore, Purchasing Managers’ Index showsthat new exports orders in manufacturing weaken,which suggests continued anemic external demand.Swedish companies – those dependent on exportmarkets directly or indirectly as suppliers and thosethat compete with imports – also have to deal withan unexpectedly strong krona. After a sharpappreciation this summer, the Swedish currencyhas weakened slightly, but remains at a fairly stronglevel, especially considering that external demandis declining.
Export of goods, new export orders (PMI, seasonallyadjusted) and krona exchange rate (trade weighted SEKindex, TCW), Jan 2007 – Nov 2012
Sources: Statistics Sweden, Swedbank and Riksbank
-125-75-252575125Jan-11 Jun-11 Nov-11 Apr-12 Sep-12
100105110115120125130135140145150-30-20-10010203040506070Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12
Goods exportNew orders export (PMI)SEK index (rs)
The Swedish Economy 
Monthly letter from Swedbank’s Economic Research Department, continued No. 6 22 November 2012 
2 (3)
The biggest decline has been in exports to eurozone countries, although demand from otherregions also weakened in the early fall. Thisconfirms the impression of a broad-based globaleconomic slowdown. Moreover, exports of inputand capital goods are being increasingly affected,especially exports of ferrous and nonferrous metals,vehicles and wood products. The September datapointed to a rise in export orders for investmentgoods, however, which is possibly a sign that theexport decline has eased.
Household demand limits downturn
While demand from the outside is weakening,internal demand is holding up somewhat better.Household consumption, as reflected by retailsales, seems so far fairly robust. In Septemberretail sales rose, notably sales of durable goods,although consumables also gained. Passenger carsales turned slightly higher, but still trail last year.Through August, about 10% fewer new cars wereregistered compared with the same period last year.At the same time demand from businesses hasdecreased. Domestic manufacturing orderscontinue to shrink, according to Swedbank/SILF’spurchasing managers index. Lower capacityutilization and growing inventories of late suggestthat the slump in domestic demand will continue.
Retail sales and manufacturing domestic orders, Jan 2005 –Oct 2012
 Sources: Statistics Sweden and B and Swedbank
As a whole, production volumes in manufacturingand the service sector have declined, mostnoticeably in industry. The service sector is slightlymore resilient, but also diverging. Auto sales andbusiness services are shrinking, while computerconsulting services and telecom are growing. Inmanufacturing, auto and timber production inparticular are slowing.
Manufacturing production and service production
(Index 2005 =100, seasonally and calendar adjusted)Source: Statistics Sweden
Continued economic downturn increasesthe pressure on the labor market
The weaker economy is also raising concerns in thelabor market. Many companies have recentlydeemed it necessary to increase the number ofnotice of layoffs to be prepared should demandcontinue to fall. The number of temporary workersis also being reduced. In addition, the publicemployment service (Arbetsförmedlingen) reports adeclining number of available jobs.
Labor market indicators, Jan 2006 – Oct 2012
Sources: Statistics Sweden and Public Employment Service
At the same time underlying labor market statisticsremain unexpectedly strong. Hours worked inOctober was largely unchanged year-on-year, whileemployment rose compared with September inseasonally adjusted terms. The employment ratio of65.5% was unchanged from October 2011. Thelabor supply rose however at the same time, whichmeans that the unemployment rate did not changemarkedly during the month; 7.7% (seasonallyadjusted).
010203040506070-4-2024681012 jan-05 dec-05 nov-06 okt-07 sep-08 aug-09 jul-10 jun-11 maj-12Detaljhandeln (årl. rä. i %, 3m)Orderingång hemmamarknaden (PMI, sr, hs)80859095100105110115120Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12ServicesManufacturing
02000400060008000100001200014000160001800020000-4,0-2,00,02,04,06,08,010,02006 2007 2008 2009 2010 2011 2012Employment (ann.change in %)Unemployment (% oflabor force)Notice of layoff (persons,rs)

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