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Fast Comment SwedenNovember business production shows GDP picked up toward end of 2018, but outlook weaker

  1. After series of brisk growth readings, expected backlash came in November business production
  2. But the business sector data still imply GDP pickup in fourth quarter 2018
  3. Outlook weaker, very much in line with our longstanding forecast of gradual cooling-off of Swedish economy
After series of brisk growth readings, a backlash in November business production
The November Production Value Index (PVI) showed that business production stagnated on a monthly basis (+-0.0 percent m-o-m, our estimate -0.3), but that reading follows three consecutive months of expanding production. Not least October saw a brisk rise in PVI growth. One might therefore expect annual growth to have been rather healthy, right? However, a large negative base effect from the production spike in November 2017 dragged down the annual growth to a lacklustre 2.2 percent y-o-y (our estimate 1.5). Does this mean the Swedish economy is cooling faster than forecast?
But the business sector data still imply GDP pickup in fourth quarter 2018
At this point, the answer is “not really”. Assuming average PVI growth in December, something that is supported by last year’s leading indicators, would bring annual growth back up to a decent 3.5 percent or so. All in all, that implies GDP growth picked up again in the fourth quarter 2018, after a weaker third quarter. The growth outlook for 2019 is another matter, however.
Outlook weaker, very much in line with our longstanding forecast of a gradual cooling-off of Swedish economy
Stock markets have been tumbling, partly due to growing fears of a worsening economic outlook. While our longstanding forecast is for Swedish growth to be dampened in 2019-20, it should be admitted that we too are likely to somewhat downgrade GDP growth in our next forecast report (out January 30). This is partly because 2018 appears to have turned out less impressive than anticipated, but also because the most recent forward-looking data has disappointed. A prominent example is today’s November data on new manufacturing orders, which does not support PVI growth staying at fourth quarter levels when we move into 2019 (see graph).


Business growth trend strengthened last year, after poor start 



Annual growth will likely rise again in December, simply assuming average monthly growth 



As seen in other data, the construction sector is dragging down Swedish growth 


Source: Macrobond


Statistics Sweden new orders agrees with previous PMI prints, and signals merely average manufacturing growth 2019. NIER survey still elevated though.



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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