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Fast Comment SwedenAugust sentiment indicators

  1. Sentiment eases as economic slowdown continues like clockwork
  2. Broad-based weakness in the soft indicators, underscoring risk of deepening and widening cool-down
  3. Is this the canary in the coal mine? Likely, but not necessarily and we do not forecast recession in Sweden
Sentiment eases as economic slowdown continues like clockwork
The August sentiment surveys from the National Institute of Economic Research (NIER) indicate further downside to economic growth ahead. The new prints were roughly in line with our estimates, but slightly weaker than consensus. The headline overall indicator as well as the closely monitored manufacturing and household indicators are below historical average, pointing to GDP growth below average in the near term.
Broad-based weakness in the soft indicators, underscoring risk of deepening and widening cool-down
The weakness is broad-based, with even the heavy-weight services sector posting poor numbers. At the same time, overall employment plans have now ceased being positive for the first time since 2013. While the July unemployment spike hardly represents the underlying developments and should be handled with extra care, the worsening employment plans are further proof that the best days in the labour market are behind us.
Is this the canary in the coal mine? Likely, but not necessarily and we do not forecast recession in Sweden
So are the plummeting sentiment indicators the proverbial deceased canary in the coal mine, implying imminent catastrophe? Or, is it rather a case of the little birdie temporarily fainting due to sheer exhaustion, from the ever-rising pitch in the tweeting of bigger parrots, echoing from the outside world? The first alternative seems likely, but there is a case for the latter. Because the deterioration in soft indicators like the NIER survey is not mirrored in hard data, maybe the worries are exaggerated. Consider e.g. that neither retail sales, exports nor manufacturing production data have fallen in parallel with sentiment. Sure, survey data are partly forward-looking, so worse times are ahead of us, but we do not see an outright recession in Sweden. For 2020 we stick to our below-consensus August macro report forecast of +0.8 percent GDP growth.


Broad-based drop in sentiment 


Source: Macrobond



Households mostly worried about outside world 


Source: Macrobond



Employment to stagnate ahead 




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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