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Feb 28, 2023, 08:44 (Updated Mar 6, 2023, 07:28 )

Swedish Q4 GDP: A sour end to 2022, but coming from a stronger place

Marketing communication

Sweden Macro

Swedish GDP was revised up for both 2021 and 2022, while GDP growth for Q4 2022 was revised down to -0.9% q/q. This comment has been updated to match Statistics Sweden's updated release of Q4 2022 GDP, which contained new figures for foreign trade.

This comment has been updated after Statistics Sweden's update of new figures for foreign trade. All figures below are adjusted to the updated release of the national accounts, as of 6 March 2022. The upward revision of Q4 GDP does not change the picture that the Swedish economy is slowing down. Our main concern of diminishing domestic demand remains.

GDP growth for Q4 stood at -0.5% q/q and -0.2% y/y, revised up from the preliminary -0.6% q/q and -0.6% y/y. The outcome was in line with our forecast at -0.5% q/q and stronger than the Riksbank’s forecast -1.4% q/q. The figures are somewhat more uncertain than usual due to seasonal factors.

The report contained upward revisions of all four quarters in 2021, bringing the full-year figure to 5.2% from previously 4.9%. The upward revision of 2021 subsequently contributed to pushing down the y/y figure for 2022, even though the first and third quarters of 2022 were revised up.

Hence, coming from a stronger 2021 than anticipated coupled with a weak ending of 2022, GDP growth for FY 2022 came in at 2.6%, which was lower than both our call and the Riksbank’s at 2.9% and 2.7% respectively. Notably, when looking at the GDP level after the revisions, current GDP development is right in between our and the Riksbank’s forecasts (see chart below).

Looking at details for the Q4 figure:

  • Inventories fell and subtracted a full 0.8% point to Q4 GDP on the quarter, mainly due to a large inventory reduction in the private services sector.
  • Fixed investment fell by 1.0% q/q, as lower activity in the property sector reduced construction investment.
  • Government consumption rose by 0.2% q/q.
  • Exports rose by 0.5% q/q while imports decreased by 0.9% q/q, respectively. Net exports provided a positive contribution of 0.6 percentage points to quarterley growth.
  • Household consumption decreased by 0.4% q/q. Due to a substantial downward revision in Q3 from -0.2% q/q to -1.8% q/q, the full-year figure came in at a mere 2.2% (our forecast: 2.9%).
  • Output in goods-producing industries fell by 0.7% q/q. Manufacturing production decreased by 1.2% while service sector production declined by 0.5%.

Elsewhere, figures from the Swedish Mediation Office showed that wage growth increased to 3.1 percent y/y in December, a tad higher than forecast. High inflation erodes real wages, which dropped by 7.1 percent compared to the same month last year. Furthermore, producer prices fell by 5.2% m/m (+11.8% y/y), thanks to lower electricity prices.

All in all, the Swedish economy is facing a broad slowdown. A large inventory reduction deepened the fall in Q4, but there are plenty of signs of diminishing domestic demand. The large downward revision to private consumption is particularly concerning, and indicates that households’ resilience has likely been overestimated (read more about our view on the household sector here). This will in turn reduce the demand for labour and lower inflation more markedly. We expect the Riksbank to hike the policy rate by 50bp in April and by another 25bp in June, before staying on hold during the remainder of 2023.

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Sweden Macro

Comments on Swedish economic events with high market impact.
Straight after data release

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This report has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Nordea Markets may have positions in the mentioned financial instruments. Some of the views and opinions expressed in this article are solely those of the author(s) and do not necessarily reflect the views of Nordea.

Rates Strategy

Article by Christian Peter Kjær and Anders Skytte Aalund

Comments on main events in the Swedish covered bond market. PDF containing data and charts on SEK covered bond market activity and pricing.

Summarizing the first half of the year we conclude that it has been a fairly busy one. Coming in to this year the bar was set high with a full year estimate of ~SEK 460bn. Now halfway through we have the YTD aggregate at ~SEK 270bn - roughly 58% of the full year estimate - so issuance is still well in line.

Loan growth has slowly started to pick up but that trend will likely need to continue pick up speed in order for the full year estimate to materialize.

June issuance totaled SEK 28.5bn - the lowest monthly figure this year, but consistent with historical seasonal patterns.

Notable prints in June were SEB 604 (SEK 6.2bn) and SWED 201 (SEK 4bn). Buybacks reached SEK 16bn, primarily N5535 (SEK 5.4bn) and SHYP1590 (SEK 4.6bn).

Covered bonds performed well during June, and issuance levels tightened ~6bps during the month in the 5y segment.

The 2s5s ASW curve remains flat at ~19bps, flattening slightly during the month. At EOM, we had a generic 5y covered at +35 ASW and at +66.5 vs 5y SGBs.

In the report (link) you will find data on issuance, buybacks, comparisons to other Scandi and EUR peers and as well as generic charts on yields, asset swap and much more.
Swedish_Quant_pack.pdf
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Rates Strategy

An overview of our main views on European interest rates, current market drivers and ideas.
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