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Fast Comment SwedenLike clockwork - housing starts continue to fall, hurting 2019 GDP roughly in line with our longstanding forecast

  1. Downward trend - neither housing starts nor building permits have turned a corner
  2. Regionally, some cities fare better, but waning construction not isolated to Stockholm
  3. Today's data does not materially change our near-term GDP outlook, but positive risk for Q1 next week?
Downward trend - neither housing starts nor building permits have turned a corner
Housing starts slowed only marginally in the first quarter compared to a year ago. First quarter reports from listed companies had indicated that housing starts fell more clearly during the start of the year, but that tendency was not confirmed in the economy-wide data. Permits fell more substantially and more than reversed last quarter's regulation change-related spike. Housing completions are still on track to peak in 2019, which may well be an important factor for housing price developments. Our main scenario is for stable prices this year.
Regionally, some cities fare better, but waning construction not isolated to Stockholm
Today's data brought further indications that waning housing construction is not merely a Stockholm phenomenon. While Gothenburg appears unscathed by the overall deterioration, as housing starts continue to trend up, elsewhere effects are showing up to a varying degree (see graph below).
Today's data does not materially change our near-term GDP outlook, but positive risk to Q1 next week?
Our 2019 GDP forecast of 1.5 percent y-o-y is hampered by slowing housing investments. Today's construction data has no significant impact on this forecast. If anything, it implies stronger Q1 housing investments than our forecast and could pose some upward risk to our estimate for next week's Q1 GDP print (0.1 percent q-o-q, 1.6 percent y-o-y). But looking ahead, the jury is still out on the construction trend, not least because the sector still expresses clear pessimism in business sentiment surveys (see graph below). Also, as noted above, permits are down again. Lastly, the weather was mild during the start of the year, which might temporarily have affected the construction pace positively.


Completed housing to peak in 2019, as we have anticipated, and that will boost housing supply further. Still, we expect housing prices to remain stable as demand remains rather strong. 




Housing starts continue to increase in Gothenburg, but apart form that the construction cooling is well spread. Stockholm showing some green shoots?



Construction sector's year ahead of expectations also signals that activity will dampen further. And that is even before the booming overall economic climate has really worsened.





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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