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Fast Comment SwedenWeek ahead: December business production to confirm GDP pick-up toward the end of last year

  1. Mixed growth signals from hard and soft data
  2. NIER survey and PMI have at least one thing in common: good times now, worse to come
  3. We expect GDP to have finished 2018 on a strong note, but the sun is setting on the economic boom
Mixed growth signals from hard and soft data
A week ago, retail trade data showed that sales plunged in December, but this week survey data indicated that retail sector confidence remained stronger than normal in January. Similarly, the signals coming out of the manufacturing sector are mixed. Goods exports picked up in Q4, according to recent monthly data, but sentiment indicators are cooling. The case in the construction sector is more clear-cut, with most indicators firmly negative. So what does this all mean for next week's December data for overall business sector production, the Production Value Index (PVI)?
NIER survey and PMI have at least one thing in common: good times now, worse to come
A key factor is to get a better grip of the manufacturing sector tendency. Comparing the NIER Survey Manufacturing Confidence Indicator with PMI, the other main sentiment survey, it is apparent that the discrepancy that started a year ago shows no sign of abating. The PMI remains clearly weaker, something that is partly explained by survey question differences. But even after adjusting the two indicators to increase comparability, the signals differ a lot between NIER and PMI (see graph below). Looking under the hood, however, the key insight is that forward-looking components are falling, while outcome-oriented ones are holding up well. All told, we expect manufacturing production to have picked up again in December, boosting the overall PVI.
We expect GDP to have finished 2018 on a strong note, but the sun is setting on the economic boom
More broadly, indicators suggest that business sector production growth was still quite healthy in December, even if services production is an uncertainty after the retail sales shock in December. Remember, however, that the PVI aims to measure value-added rather than sales, so it is not entirely clear how poor retail sales growth will affect the PVI. In the end, we estimate that PVI increased by 0.3 percent m-o-m (3.2 percent y-o-y). That also means we would have a very strong indication that GDP growth accelerated again in Q4, after the negative Q3.


Well-known that construction is dragging down growth, but how will services hold up after retail sales plummeted in December?


Source: Macrobond



Today's sideways January PMI means a smaller but still unusually large gap between the two main manufacturing sentiment surveys 



Even after adjusting PMI and NIER to increase comparability, the signals differ a lot



Leading indicators say that growth probably has held up so far...




...but will deteriorate later this year; also, remember the ongoing fall in housing construction



We forecast clearly positive consecutive GDP growth in Q4 2018, meaning annual growth does not collapse, despite construction headwinds



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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