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Fast Comment SwedenSwedish economy in full swing...for now; preview of this week's key macro data

  1. Economy at full speed, GDP outcome is expected show (Wednesday)
  2. But leading indicators will continue to signal a dampening ahead (Tuesday)
  3. Wage increases keep rising in the latter phase of the global cycle (Wednesday)
Economy at full speed, GDP outcome is expected show (Wednesday)
The Swedish economy has been in full swing lately, which we expect the GDP outcome for the first quarter to confirm on Wednesday. However, the headline GDP growth number will perhaps seem unconvincing, at an estimated +0.6 percent q-o-q (seasonally adjusted / +3.4 percent y-o-y, calendar adjusted). Off-the-charts growth in the volatile imports component is one factor we expect to have slowed GDP growth from the +0.9 percent q-o-q posted for the last quarter of 2018. We also expect a recoil from last quarter's inventory investment boost. All-in-all, we expect other details of first quarter GDP to provide a more solid impression and we therefore forecast GDP growth picking up again in the second quarter. A risk to our GDP outlook is weaker-than-expected household consumption; while today's April data for retail trade show a reasonably strong tendency heading into the second quarter, there were downward revisions to the already bleak January and February readings. Consensus expectations for first quarter GDP growth are +0.5 / +3.3 percent (q-o-q / y-o-y).
But leading indicators will continue to signal a dampening ahead (Tuesday)
Looking to GDP growth further ahead, we expect the growth peak to have passed. That view is likely to be strengthened by the May data for the business and consumer surveys of the National Institute of Economic Research, which are due tomorrow. We expect overall sentiment (i.e. the Economic Tendency Indicator) to fall from 110 to 108, thereby remaining significantly more positive than average. But the devil is in the detail: several important indicators in these surveys have already started to dampen (please see graphs below).
Wage increases keep rising in this latter phase of the global cycle (Wednesday)
Despite signals about more hesitant GDP growth ahead, we expect wage increases to accelerate. Remember that the Swedish economy is already running hot, with activity well above the long-run sustainable level. Furthermore, the global business cycle is strengthening further, something the IMF, among others, has pointed to as a key factor for wage inflation. In the case of Sweden, developments in Germany seem particularly important, according to the IMF. Will there be signals in this positive direction on Wednesday? Stay tuned for news from both the national accounts and the monthly wage data.


 First quarter GDP outcome expected at +3.4 percent, y-o-y



 Imports spike expected to have dragged GDP down in the first quarter




Turnaround in residential investment on its way, reaching full negative GDP effect in the first half of 2019, we expect



More disruptive GDP deceleration than the typical smooth forecast pattern, as waning housing construction weighs on overall growth over the coming year.



Retail sales now more in line with better-than-average sector sentiment, but the start of 2018 does not bode well for household consumption in the first quarter GDP data


Source: Macrobond


We expect consumer confidence to have stopped falling, not least since housing prices are not in free fall anymore



The manufacturing confidence indicator likely followed PMI down in May, given disappointing data from export markets recently



 Forward-looking indicators have started to signal an impending deceleration in GDP growth



 Look for positive signs in labour costs and hourly wages data on Wednesday



Business sector wages now seem to be about to start responding to globally diminishing slack and faster wage increases (not least in Germany)






Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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