Economy in Brief

Sweden's GDP, fell at a 2% annual rate in Q4 2022 with private consumption falling at a 1.5% annual rate and public consumption rising by nearly a percentage point at an annual rate. Capital formation has become suddenly very weak, falling at a 3.8% annual rate. Exports are expanding at a 1.8% annual rate; imports are falling at a 3.6% annual rate, undoubtedly reflection of the weak private sector demand and the decline in capital formation. Domestic demand in Sweden falls at a 9.8% annual rate in the fourth quarter adding to a 2.3% annual rate decline in the third quarter. Both of these followed a super-sized 12.5% annual rate gain in Q2 2022.

Sweden’s year-over-year trends show that the robust gains in domestic demand that held through the second quarter of 2022 have come under pressure and given way to a year-over-year decline by the fourth quarter. This is also reflected in a weakening of imports that were running double-digit growth rates until the fourth quarter when the pace slowed to 4.2%. Reflecting conditions abroad, Sweden's exports also have slowed, but not as dramatically as imports. They have backed off from growth rates of 8.5% to 6.5% to a 5.3% annual rate in the fourth quarter. Capital formation growth rates are about half of what they were and in preceding quarters on a year-over-year basis. Public consumption has been slowing. It had been relatively strong through the fourth quarter of 2021 but in 2022 it slowed quite dramatically and it's growing only 0.3% year-over-year in the fourth quarter. At the same time private consumption has slowed sharply from growth rates of 5% to 9% to year-over-year growth of just 0.2% in the third quarter and -2% in the fourth quarter. All of these swings in GDP components translate into a GDP number overall that is faltering. It had seen growth since the third quarter of 2021 fluctuate between growth rates of 4% to 6%; then it suddenly slipped in the third quarter to a 2.5% growth rate and in the fourth quarter to a decline of 0.1%. Clearly Sweden is struggling in terms of GDP growth although the recent monthly tally is looking better.

Sweden's monthly GDP estimate shows a gain of 2% monthly in January reversing what was a 0.7% fall in December. Exports and household consumption added to the positive momentum from government production. The January gain brought the year-over-year gain to 3.6% following what was a 1.5% drop in the previous month on the same basis.

The monthly gaining GDP was boosted by a rise in industrial production; it showed a 4.4% gain in January over its year-ago level, much stronger than the 0.3% rise seen in December. In January manufacturing output rose by 2.2% month-to-month led by investment output which rose 8% followed by intermediate output that rose by 4%. Consumer nondurables output, however, fell very sharply by 13.1% on the month.

Industrial production in Germany rose by 3.5% month-over-month, but it continued to decline year-over-year as it remains lower than its January 2022 level by 1.2%. However, over six months IP is growing at a 2.5% pace and over three months it is advancing at a 5.4% pace. German industrial output is accelerating and climbing out of a year-over-year hole.

Despite the clear, strong, acceleration in overall industrial output and in manufacturing alone, the three sectors consumer goods, capital goods and intermediate goods fail to produce one sector with output that is sequentially accelerating, like the headline.

Month-to-month, while overall industrial output was up sharply, output fell for consumer goods and capital goods; however, intermediate goods output grew by a sharp 6.9% month-to-month.

Construction sector output also rose strongly in January after a nearly equally strong drop in November. Sequential growth rates for construction are mixed.

Real sales rose by 0.2% in January and came close to showing sequential acceleration. Certainly demand is showing a strong recovery in progress.

The current ZEW assessment of Germany’s industrial sector has a deep negative value. However, ranking each of the industrial gauges produces rank standing below the 30th percentile for the ZEW current index, the IFO manufacturing gauge and IFO manufacturing expectations. The EU Commission index has a stronger standing at its 71.8 percentile.

Elsewhere the year-on-year growth rates show only the capital goods sector with a standing above its 50% percentile on data back 2000. The construction sector has sub-50-percentile standing as do real sales. Standings below the 50% mark are standings below their respective medians. In contrast, German real manufacturing order growth is strong.

For reference, two other early reporting European countries Portugal (an EMU member) and Norway, experienced very different recent trends and percentile standings.

The financial column shows changes in the various metrics either their index levels for IP gauges or index levels for surveys in January 2023 to performance in January 2020. Output is broadly lower than it was in January 2020, putting the industrial performance of the last three years in perspective.