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Fast Comment SwedenBusiness sector production in May: only a temporary spike?

  1. Strong headline production reading masks weaker underlying trend
  2. Spike in construction likely temporary, while manufacturing growth seems to be cooling
  3. In line with our forecast for a gradual GDP growth slowdown over the next year
Strong headline production reading masks weaker underlying trend
The Production Value Index in May shows that business sector production rose 4 percent y-o-y (1.1 percent m-o-m), clearly faster than we had estimated (2.6/0.2 percent y-o-y/m-o-m, consensus among very limited number of analysts was 2.7/0.3). However, much of this surprise was due to skyrocketing construction growth (see graph below).
Spike in construction likely temporary, while manufacturing growth seems to be cooling
The trend in construction growth and other indicators in that sector signal a downward trend, so we do not expect the tall reading in the PVI to last. Instead, manufacturing will set the tone, and in that sector growth is now gradually cooling from previous highs. Orders indicate that this tendency will continue.
In line with our forecast for a gradual GDP growth slowdown over the next year
Despite support from global growth, our forecast is that Swedish GDP growth is peaking. All in all, today's PVI was in line with this view. But remember that the Swedish economy is well into a business cycle boom, and somewhat slower growth will not hurt overall conditions much in the near term.


Upswing in May takes PVI back above trend implied by our GDP forecast  



But the high May PVI reading partly due to spike in otherwise downward trending construction


Source: Macrobond



And sluggish orders seem to strengthen our forecast for a gradual slowdown in GDP growth



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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