• Home ::
• Fundamental ::
• Market View ::
• Sweden: Soft batch of information out

• Send
• Print
• Add To

e97908a5-26fd-4d28-b37e-83948d4d912a

0

0

Sweden: Soft batch of information out

Wed, Jan 23 2008, 11:34 GMT
by Roger Josefsson, Stefan Mellin

Danske Bank A/S

Early today we received the new forecasts from the National Institute for Economic Research (NIER), the monthly NIER consumer survey, the much appreciated NIER quarterly business survey and – to top it all off – an extremely important labour force survey.

NIER forecasts: For 2008 GDP is revised down to 2.7% y/y from 3.2% y/y. In 2009 growth is now expected to be 2.9% y/y. Inflation (CPIX) is revised up for 2008 to 2.7% y/y. In 2009, CPIX is expected to be on target at 2.0%. Consequently, NIER still expects hikes from the Riksbank: up to 4½% with hikes in Q2 and Q4. However, note that NIER expects fiscal policy to become considerably more expansionary over the coming few years, with a total stimulus worth more than 1 pp of GDP. This should explain some of the surprisingly high growth estimates and “hawkish” view on the Riksbank. We think that NIER remains too bullish on growth and too optimistic on the labour market.

More interesting, we think, is that NIER has revised its view on potential GDP to above 3% for the period 2004 to 2009. Admittedly, it seems as if potential growth is slowing quite rapidly by the end of the forecast period, but it is nevertheless a clear signal that resource utilisation is by all standards considerably lower than what was previously expected. It also indicates that in order for inflationary pressures to continue to build, growth must exceed 3% by a wide margin. Consequently NIER has revised its view on the output gap into negative territory for both 2008 and 2009.

NIER consumer survey: Household confidence fell to 5.9 from last month's 8.7 (average expectations at 7.9). Household’s unemployment expectations worsened for the fourth straight month. In addition, inflation expectations fell to 2.5% from 2.7%. While macro-related issues seem to have deteriorated quite drastically in January, micro-related issues (i.e. the household’s own economy) were more or less unchanged. Generally speaking, we don’t attach much weight to the household survey, but it is comforting – especially from a Riksbank perspective – to see that inflation expectations are receding from highs of close to 3% earlier this winter.

NIER business survey: The quarterly business survey continued its downward trend and the net balance reached 2, a notch above market consensus (incl. ourselves) at 1. The details are interesting, with both prices and employment clearly disappointing previous expectations in the corporate sector. In addition, the demand situation has deteriorated dramatically compared to previous months. Also, manufacturing new orders on both export and domestic markets is down, with expected export orders even in negative territory for the first time since 2001. Note that the companies’ views on the stock situation worsened strongly (see graph). This indicates lower production ahead (=lower GDP).

The labour force survey: The unemployment rate rose to 5.6% in December, which is somewhat above our expectations, but in line with what could be expected given the seasonal effects. Employment growth continued to subside and growth in hours worked fell dramatically. With our own seasonal adjustments, it seems as if the labour market has reached its peak and that a slight deterioration can be detected (see graph). This should have quite an impact on the Riksbank, and we expect it to be considerably less hawkish at the upcoming meeting in February.

• Download full report with charts

Published on  Wed, Jan 23 2008, 11:41 GMT