The Swedish economy is showing signs of slowing growth as exports weaken and domestic demand declines. Export demand is at risk due to uncertainty in Sweden's key export markets like the US and China. Domestic demand that was strong in the first quarter appears to be falling back as confidence indicators drop and unemployment rises. The debt crisis in Europe and slowing growth abroad may negatively impact the Swedish economy in the coming months.

1. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department
by Magnus Alvesson No. 4 • June 26, 2012
Export demand is shaky – and concerns among
households and businesses are growing as summer
begins
 Demand for Swedish exports is at risk of weakening as practically all of
Sweden’s key export markets face growing uncertainty. After zero growth in the
first quarter, we are likely to see continued sluggish exports over the summer.
 Domestic demand also appears to fall back after a strong first quarter. Declining
confidence indicators, rising unemployment and falling stock values are
affecting household spending, and global concerns make it less likely that the
strong corporate investment growth from the first quarter will be repeated.
 Our short-term economic outlook for Sweden therefore calls for lower growth
prospects, and also increased risks. The debt crisis in Europe as well as weak
development in the US and China could produce chilly summer showers for the
Swedish economy.
Key export markets are weakening Contribution to growth in export goods, volume, 2006 - Q1
2012
Swedish exports show signs of stagnating after a (Contribution in percentage points and annual growth in %)
rapid recovery since 2009. During the first quarter 20 Machinery and
volume was slightly positive at 0.3% compared with 15
transport equip.
Manufactured
the same quarter in 2011, while the value of exports goods
10
fell. The biggest decline was in pharmaceuticals, Chemical products
which were down by about one fourth, although 5
engineering goods also shrunk. In this product Energy products
0
group, motor vehicles as well as electronic and ‐5 Minerals
telecom products declined. Commodity exports,
‐10 Food products
especially metals besides iron and steel, provided
the biggest contribution to export growth. This is a ‐15
Other
segment especially prone to fluctuations in the ‐20
global market, and underlying demand for Swedish 2006 2007 2008 2009 2010 2011 2012 Export
exports is therefore likely to trend lower in the short Q1
term. Source: Statistics Sweden
Increasingly sluggish exports are mainly due to Sales to neighboring Nordic markets are strong,
weaker demand in key markets. During the first however, a trend that continued in early 2012.
quarter Swedish exports dropped to the US and Norway in particular is becoming more important,
China, which accounted for the biggest gains after although Denmark and Finland, which have posted
the financial crisis. weaker economic development, are also growing in
importance for Swedish exports. France, the
Netherlands and Belgium are important and stable
export markets for Swedish companies and during
the last decade have accounted for around a fifth of
the exports to the ten largest recipients, which
exceeds Germany at 15 %. Weaker development in
Economic Research Department, Swedbank AB (publ), SE-105 34 Stockholm, tel +46-8-5859 7740
E-mail: ek.sekr@swedbank.se Internet: www.swedbank.com Responsible publisher: Cecilia Hermansson, +46-8-
5859 7720, Magnus Alvesson, +46-8-5859 3341, Jörgen Kennemar, +46-8-5859 7730, ISSN 1103-4897

2. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department, continued
No. 4 • June 26, 2012
the US and China in coming months as well as Institute of Economic Research indicates that
growing uncertainty in Europe are likely to mean household confidence in the Swedish economy fell,
continued sluggishness for Swedish export. while their opinion of their own finances was stable
despite slightly higher unemployment expectations.
Destination of goods exports, 2000 - Q1 2012 Among companies, confidence declined mainly in
(% of total of the ten largest recipients, and annual change in %)
manufacturing and construction, while service
2000 ‐ 2011 (share)
100 China 12
Q1 2012/Q1 2011
companies helped to soften the downturn.
Belgium 10
90 (% change)
France 8 Confidence indicators, businesses and households, Jan
80
Netherlands 6 2005 – May 2012
70 USA 4
(Index)
2
60 Finland 0 60
50 ‐2 Services
Denmark 50
‐4
40 Household
Great Britain ‐6 40
30 Confidence
‐8
30 index
20 Norway ‐10
20
10
Germany 10
0
0
Source: Statistics Sweden
‐10
‐20 Manufacturing
The demand picture for Swedish companies has
been mixed in recent months. Export demand for ‐30
manufacturers strengthened slightly in April and ‐40
May, but the export orders component in the ‐50
purchasing managers index is still hovering around 2005 2006 2007 2008 2009 2010 2011 2012
50, which indicates no change. On the other hand, Source: National Institute of Economic Research
purchasing managers in the manufacturing sector
report shrinking domestic demand. Moreover, The labor market is sending mixed signals.
service companies are seeing a significant Seasonally adjusted unemployment rose from 7.4%
weakening compared with the relatively strong first in April to 7.8% in May. This comes after
quarter. This means that economic conditions are unemployment had been surprisingly low during the
fairly weak as the summer begins. spring. On the positive side, a large part of the
increase is due to a growing labor supply, i.e., many
Purchasing managers index, demand components, Jan 2007 people continue to look for jobs, which is a sign of
– May 2012 persistent confidence in opportunities to find work.
(Diffusion index, a reading of 50 indicates unchanged conditions)
This is confirmed by the fact that employment and
80 the number of hours worked continue to rise. Even
though the labor market is performing better than
70
Manufacturing‐
expected, we anticipate that unemployment will
60 domestic near 8% this year.
Manufacturing‐
50 export Unemployment and employment levels, Jan 2007 – May
2012
Services‐total (’000 and % of the labor force, seasonally adjusted)
40
4750 9,5
30 4700 9
20 4650 8,5
Jan‐07 Mar‐08 May‐09 Jul‐10 Sep‐11 4600 8
4550 7,5
Sources: Swedbank and SILF Employment
4500 7
Unemployment
4450 6,5
Concerns could affect consumption and
4400 6
investments
4350 5,5
After the first quarter’s strong growth in
4300 5
consumption and investment, cautiousness among Jan‐07 Oct‐07 Jul‐08 Apr‐09 Jan‐10 Oct‐10 Jul‐11 Apr‐12
households and businesses has increased in recent Source: Statistics Sweden
months. In its most recent survey, the National
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3. The Swedish Economy
Monthly letter from Swedbank’s Economic Research Department, continued
No. 4 • June 26, 2012
In addition to employment and the labor market, Household wealth and stock market performance, Q2 2006
– Q2 2012
private consumption is also affected by household
(SEK billion and index)
wealth and savings habits. Household savings rose
7000 450
during the first three months of the year at the same Cash, bank depo's
time that loan growth leveled off. This reflects 6000 400
positive real economic development, although 350 Other financial
5000
precautionary savings also grew. The increase in 300 assets
bank savings in particular is an indication of the 4000 250 Equities, funds
latter. In recent months stock values have again 3000 200
declined, and in combination with increased 150 Collective pension
2000 savings
concerns about unemployment and growing global 100
risks this could reduce the willingness to consume 1000 Condominiums
50
going forward. 0 0
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
Stock market level
06 06 07 07 08 08 09 09 10 10 11 11 12 (index, rhs)
Source: Statistics Sweden
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
ek.sekr@swedbank.se the accuracy or completeness of the report and cannot be held responsible for any
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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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