1. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department
by Magnus Alvesson No. 2 • 29 March 2012
Signs of a stronger economy – but revised economic
statistics could lead analysis and policies astray
Contracting exports reduced Sweden's GDP at the end of 2011, but economic
data in early 2012 suggest that the decline has slowed. Industrial production grew
on an annual basis in January at the same time that the decline in external
demand showed signs of easing. Domestic demand is being supported by
relatively strong household finances, and confidence indicators for businesses and
households improved significantly in March. Labor market conditions remain weak,
although unemployment isn’t rising quickly yet.
Revisions to official data have changed the picture of the Swedish economy in
recent years. Economic growth for 2010 was revised upward from 5.7% to 6.1% at
the same time that economic activity for 2011 was weaker than previously
reported. In particular, the number of hours worked was revised upward, which
means that productivity growth was actually weaker. Household savings are also
lower than the data previously suggested.
The revised economic data create problems not only for forecasters but also for
those who set economic policy. Lower business productivity means higher
resource utilization, which is an argument for a less expansive monetary policy.
On the other hand, rising unemployment suggests that resource utilization is still
low. Lower savings is an indication that households are more vulnerable, but also
that consumer spending could be more limited going forward. This impacts the
assessment of the economic conditions.
Dead stop in the fourth quarter, but looking GDP developments, 2000-2011
(Change in percent)
better in early 2012
4,5 8
The Swedish economy shrunk significantly during
3,5 6
the fourth quarter of 2011, mainly due to declining
2,5
external demand. In seasonally adjusted terms, 4
GDP fell by slightly over 1% compared with the third 1,5
2
quarter, while growth at an annual rate is estimated 0,5
at 1.1%. On a full-year basis the Swedish economy -0,5
0
grew by 3.9%. Compared with 6.1% in 2010, growth -2
-1,5
slowed significantly in 2011.
GDP (quart. rate, sa) -4
-2,5
GDP (ann.rate, rs)
-3,5 -6
-4,5 -8
00Q1 01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1
Source: SCB
Weak external developments pulled down Swedish
exports, but signs of improvement could be seen in
January and February of this year. The biggest
Economic Research Department, Swedbank AB (publ), 105 34 Stockholm, +46 8-5859 1000
E-mail: ek.sekr@swedbank.se www.swedbank.se Responsible publisher: Cecilia Hermansson, +46 8-5859 7720.
Magnus Alvesson, +46 8-5859 3341, Jörgen Kennemar, +46 8-5859 7730

2. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department, continued
No. 2 • 29 March 2012
decline was in exports to European markets, at the Domestic demand was stronger than expected, and
same time that imports didn’t slow to the same household finances in particular point to continued
extent. As a result, net exports cut into growth. stable development. Private consumption and
Somewhat unexpectedly, machinery exports investments contributed positively to growth during
remained strong, while sales of autos and the fourth quarter after having shrunk in the
electronics weakened. January and February previous quarter. Household disposable income
surprised with stronger than expected exports. At grew in real terms by slightly over 3%, and with
the same time the decline in indicators such as weak spending at the beginning of the year savings
purchasing managers’ export demand and rose and debt levels declined slightly. In addition,
corporate export backlogs eased. This may indicate rising interest expenses were offset by declining
that the rapid drop late in 2011 has slowed during energy prices.
the first quarter of 2012.
Household economy, 2000 – 2011
Export demand and order books, Jan 2001 – feb 2012 (Change in percent and percent of disposable income)
(Net balance) 10,0
Disposable income Consumption
180
Interest payments* Debt (rs)* 160
30 70 8,0
140
60 6,0 120
10
50 100
4,0
-10 80
40
2,0 60
-30 30
40
20 0,0
Export order books (sa) * share of disposable income
20
-50
10 -2,0 0
PMI-export demand (sa, rs)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-70 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: SCB
Sources: NIER and Swedbank. In January consumption continued to rise driven by
consumables, which confirms that household
Industrial production also showed signs of confidence in economic development has improved.
stabilizing after having declined since mid-2011. In Retail sales also grew at the beginning of the year.
January production rose by 2% compared with the Corporate investment is expected to continue
same month in 2011, mainly in machinery and higher, but not at the same rate. Capacity utilization
pharmaceuticals, while transportation equipment is still relatively low and industrial companies have
retreated. At the same time the National Institute of revised their investment plans downward for the
Economic Research’s confidence indicator for current year, according to Statistics Sweden's
manufacturing rose by no less than 11 points in investment survey.
March, which suggests a continued rise in
production. Although household confidence is improving, the
labor market remains sluggish. The number of
Production and households, Jan 2008 – Mar 2012 hours worked and employment levels are growing
(Change in percent and net balance) at a slower rate at the same time that an increase in
25 50 the labor supply is keeping unemployment from
Industrial production
20 Retail sales 40 falling. In February unemployment was 7.5%
15 Manuf acturing - conf idence 30 (seasonally adjusted). We expect it to continue to
Household conf idence
10 20 rise throughout 2012, but not reach the same levels
5 10 as in 2009. There is a risk, however, that the
0 0 structural problems in the labor market will worsen
-5 -10 as those who have been outside the market will
-10 -20 again have a hard time getting back in. This is
-15 -30 especially true of young and foreign-born workers,
-20 -40
whose share of unemployment rose from 29%
-25 -50
during the fourth quarter of 2009 to 35% in the
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 same period of 2011.
Sources: SCB and NIER.
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3. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department, continued
No. 2 • 29 March 2012
Labor market developments, 2006 –2011 Productivity and hours worked, 2008 –2011
(Change in percent and percent of labor force) (Productivity level and change in percent )
4,8 5
10,0
Hours worked (rs) 4
4,7
8,0 Hours worked rev. (rs) 3
Productivity
4,6 2
6,0 Productivity rev.
1
4,5
4,0
0
2,0 4,4
-1
4,3 -2
0,0
-3
-2,0 Employment 4,2
-4
Hours worked
-4,0 4,1 -5
Unemployment rate (sa) 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3
-6,0
Sources: SCB and Swedbank.
2006 2007 2008 2009 2010 2011
Source: SCB
The household savings ratio was also revised in
Economic conditions in Sweden appear to have connection with the presentation of the latest
stabilized after a substantial weakening in late national accounts. In this case it was largely
2011. We do not expect a rapid recovery, however. because Statistics Sweden, in a reassessment,
There are still major uncertainties that could quickly revised its distribution of production between the
lead to an economic decline, including the global corporate sector and the household sector. The
situation and possibility of an escalation of the debt new data implies a significant downward revision in
crisis in Spain, for example, which would cause the household saving ratio in recent years, and from
financial stress and weaker external demand. an historical perspective household savings are
lower than previous statistics indicated. This affects
Revised data change the economic picture the outlook for private consumption, and thus for
in Sweden growth.
Although changes in short-term indicators are Household savings ratio, 2003 –2010
receiving a lot of attention, Statistics Sweden’s (Percent of disposable income)
latest revisions underscore the risk of letting them 14,0
factor too much into economic analysis. When the
12,0
fourth quarter GDP data were published, growth
was revised several years back in time. GDP 10,0
growth for 2010 was revised upward from 5.7% to 8,0
6.1%, while the growth path for the first three
quarters of 2011 was revised downward. This 6,0
Savings ratio
means that the recovery after the financial crisis 4,0 Savings ratio, rev.
was stronger, but that the Swedish economy
2,0
entered a weaker phase already in 2011.
0,0
One of the more important changes was the upward 2003 2004 2005 2006 2007 2008 2009 2010
revision in the number of hours worked for 2010 Source: SCB
and the first three quarters of 2011. This means,
despite a higher growth rate, that productivity in the The major revisions in economic data create
Swedish economy was weaker than previously problems not only for forecasters but also affect
shown, which could impact economic policy, those who conduct economic policy. The fact that
especially monetary policy. Weaker productivity the number of hours worked is higher means that
growth means lower potential GDP and that resource utilization is also higher, which should
resource utilization is higher, which could lead to a restrain Riksbank’s monetary policy.
higher inflation pressure. By itself, this would
suggest a higher benchmark rate and tighter
monetary policy. At the same time other factors
such as rising unemployment indicate that resource
utilization remains weak in the Swedish economy,
which also affects monetary policy.
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4. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department, continued
No. 2 • 29 March 2012
Lower household savings could mean that private In addition, this means that households are more
consumption will not contribute as much to growth vulnerable to variations in income and asset prices.
going forward, which should be factored into any
analysis of economic policy options.
Magnus Alvesson
Swedbank Economic Research
Department Swedbank’s monthly The Swedish Economy newsletter is published as a service to
SE-105 34 Stockholm, Sweden our customers. We believe that we have used reliable sources and methods in the
Phone +46-8-5859 7740 preparation of the analyses reported in this publication. However, we cannot guarantee
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Magnus Alvesson, +46-8-5859 3341 any errors or omissions in Swedbank’s monthly The Swedish Economy newsletter.
Jörgen Kennemar, +46-8-5859 7730
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