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Fast Comment SwedenBusiness sector production weighed down by manufacturing in freefall, but March PVI actually not that bad

  1. PVI weak in March, but overall the first quarter turned out as expected
  2. Is the manufacturing plunge a temporary hiccup, or an early sign of things to come?
  3. Riksbank minutes do not change our forecast for no further rate hikes this cycle
PVI weak in March, but overall the first quarter turned out as expected
The March data of the Production Value Index shows business sector production surprisingly contracted, -0.5 percent m-o-m (our estimate +0.1 percent), but as usual there were also some revisions to recent outcomes. This time the PVI was lifted significantly for February, driven by upgraded growth in construction and services. All in all, annual growth ended up at a sluggish 1.1 percent in March, far below our estimate of 2 percent y-o-y, but the average for the first quarter was 1.6 percent, well in line with expectations.
Is the manufacturing plunge a temporary hiccup, or an early sign of things to come?
Monthly growth was hampered by the manufacturing sector outcome, but at this point we expect it to be partly temporary. New orders do point to a deterioration over the course of 2019, but the production plunge in March appears to have come to soon. On the other hand, the construction sector has started the year with brisk growth, but most other data from the sector suggests the positive outcomes will not last. One hypothesis is that the early arrival of spring weather has given a boost for now.
Riksbank minutes do not change our forecast for no further rate hikes this cycle
In other news, the minutes from the April Riksbank meeting have been released. Overall, they do not change the outlook for monetary policy. Much like the case in recent years, Deputy Governors Ohlsson and Flodén are somewhat more hawkish, with the former seeming to have preferred the old rate path and the latter not excluding an earlier rate hike than the Executive Board's main message of a hike around year-end. Our forecast is that the repo rate will remain at -0.25 percent all the way through 2021.


Stagnant business sector growth in first quarter, acoording to the March PVI 



In isolation, the PVI points to slowest GDP growth since 2014, quite in line with our forecast 



Early spring spurs construction growth spike? Other construction indicators signals sluggish performance in  2019


Source: Macrobond


Manufacturing plunge came too soon, expect it to recover before it gets worse, as indicated by new orders



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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