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Fast Comment SwedenWeek ahead: rebound in orders no reason for over excitement

  1. Production growth trend starting to slow
  2. Construction sector weighs on otherwise healthy growth
  3. Boost to orders temporary; keep your eyes on the trend
Production growth trend starting to slow
We expect business sector production growth to show signs of cooling when the April Production Value Index (PVI) is released on Tuesday. While expected annual growth of 4.3 percent (calendar adjusted) may appear strong, it actually implies monthly growth of less impressive 0.3 percent, seasonally adjusted, which is slower than the trend of the past two years.
Construction sector weighs on otherwise healthy growth
Amid waning housing investment in Sweden, the construction sector has started to hamper overall production growth. That will be an important theme throughout the year, but a broad set of leading indicators point to another couple of months of sideways movement in overall production growth. That will underpin second quarter GDP, but we forecast an orderly deceleration in GDP growth further ahead.
Boost to orders temporary; keep your eyes on the trend
April likely saw a steep rebound in orders, but remember that the sharp drop in March appeared to be a temporary result of a volatile manufacturing sub-sector ("other transports"). Therefore, the April reading will be temporary joy, as sentiment surveys such as the PMI and NIER business survey already signal slowing order growth ahead.


 Business sector production (PVI) growth trend starting to cool


Source: Macrobond


Construction sector is hampered by waning housing investment 


Source: Macrobond


For now, leading indicators signal roughly sideways movement in production growth 




After strong business sector outcome in Q1 GDP data, we expect more of the same in April PVI 



April rebound in orders brought temporary joy, as sentiment indicators signal slower order growth ahead 





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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