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Fast Comment SwedenWeek ahead: Look through the monthly business sector production swings

  1. November Production Value Index to recoil after October spike
  2. Overall Q4 business production likely to lift GDP growth after Q3 scare
  3. Weakening sentiment and mixed orders data raise questions about growth ahead
November Production Value Index to recoil after October spike
We expect the Production Value Index (PVI) to show negative business sector growth in November (-0.3 percent m-o-m; due on Thursday). Turning to the annual rate, a challenging base effect further subtracts from growth, leaving it at 1.5 percent y-o-y, far below October's 4.6 percent. The poor showing should primarily be seen against the backdrop of last month's sky-rocketing growth and not as cause for alarm, in our view. Indeed, simply assuming moderate monthly growth in December will bring the annual growth rate back up above 3 percent y-o-y.
But overall Q4 business production likely to lift GDP growth after Q3 scare
While the overall business production growth we forecast for last year's fourth quarter is somewhat slower than growth prints in 2017, it is still an acceleration compared to growth in the previous quarter. In other words, the PVI supports the return to positive GDP growth in the fourth quarter 2018, after the drop in the third quarter. Those healthy growth numbers are supported by leading indicators (see graph below).
Weakening sentiment and mixed orders data raise questions about growth ahead
Leading indicators have gradually eased, albeit from elevated levels, and our long-standing forecast is for slower GDP growth in 2019 than in 2018. In the case of Sweden, the cooling started in the construction sector (please see our macro comment "As safe as houses?": https://bit.ly/2SKeZ0C), but optimism has recently decreased in other sectors too. December's PMI is a case in point, but the manufacturing sector might still have more to give in 2019, not least as some new order data have been more positive. The PVI is important, but remember to keep one eye on November's new orders too.


PVI supports a pick up in Q4 GDP growth, but still risk of downward revision to our GDP forecast (new report out January 30) 



Recoil in monthly growth after upbeat period, including October spike 



Overall indicators signal a gradual cooling off, with construction a downside risk 



New orders have pointed to above-average manufacturing growth, but now mixed after December PMI 



Even after adjusting for survey differences, discrepancy between PMI and NIER is unusually large, partly caused by mixed new order signals 



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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