Swedish economic sentiment indicator falls further in August, GDP likely to drop in coming quarter

The Swedish economic sentiment indicator (ESI) dropped further in the month of August. The index fell to 94.9, much below its historical average. The indicator has dropped for four straight months. The consumer sentiment dropped to 94 and has been hovering between 90 and 97 since December last year, reflecting uncertainty regarding the outlook and the deteriorating labor market.

The sentiment indicators for manufacturing as well as for the private services dropped and are well below its historical average. Construction firms are more confidence than other sectors, which is slightly surprising. Employment plans declined. Not least is manufacturing industry cutting staff, which is of significance ahead of the company pay-talks.

Meanwhile, retailers’ price plans remained unchanged at decent levels, albeit lower than earlier this year. Households’ inflation expectations dropped.

“All in all, the survey was a bit weaker than expected as households remain gloomy. The survey indicates a risk for GDP falling in the coming quarter and underlines that the Riksbank has to reconsider the economic situation. A rate hike is a long way off, and the probability for a rate cut is increasing day by day”, said Nordea Bank.