Swedish economic sentiment falls in May, implies subdued domestic demand and higher inflation

The Swedish economic sentiment indicator continues to be at elevated levels in the month of May; however, the details imply subdued domestic demand and higher inflation going forward, noted Nordea Bank in a research report.

The overall sentiment in the Economy (ESI) dropped to 108.8 in May from 110.4, mainly because of softer confidence among consumers and declining sentiment in the construction sector.  Consumer confidence index dropped further to 09.5 from 100.3. Manufacturing industry’s sentiment index remained lofty, coming in at 118.6, as compared with the prior figure of 120.3, although production expectations dropped.

Sentiment for the construction industry took a hit, coming in at 104.3. Order book expectations continued to decline and are now below the 20-year average. Firms’ employment plans in the business sector continued to be largely unchanged, and are still at high levels compared to the average. But, the employment plans dropped in both the construction and manufacturing sector.

Households’ inflation expectations continued to be unchanged at 3.1 percent. According to the old method, expectations rebounded to 2.3 percent, the highest reading since mid-2012. Retailers’ price plans also rose markedly, probably because of a weak krona.

Overall, the ESI indicator indicates a deceleration of growth. Households are less positive compared to a year ago, as well as the construction sector. In spite the ESI indicator being a poor indicator for overall growth the past year, the ESI indicator underpins the view of a weaker domestic demand going forward, stated Nordea Bank.

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