"Staggered by Sweden
Here are some key statistical points regarding Sweden’s record GDP contraction of 6.5 per cent on the year in the first quarter, as handily compiled by Reuters:
- The contraction was the worst since the statistics office began publishing seasonally adjusted quarterly data in 1993, eclipsing the previous record fall set in the fourth quarter.
- The quarterly decline in GDP in the final three months of last year was revised to a fall of 5.0 percent from a 2.4 percent decline.
- Household consumption expenditures decreased by 3.0 percent, while general government consumption expenditures increased by 2.3 percent.
- Changes in inventories amounted to a negative GDP change of 1.2 percentage points.
- Gross fixed capital formation decreased by 14.3 percent.
- Exports decreased by 16.2 percent and imports by 14.8 percent.
- Industrial production decreased by 9.0 percent.
- Total employment, measured as the number of hours worked, decreased by 1.5 percent while the number of the employed decreased by 1.2 percent.
Those keen to interpret the results more positively might be inclined to direct one’s attention to the quarter on quarter contraction of 0.9 per cent, which according to Barcap came in better than consensus.
However, the analysts say what’s really worth highlighting are the “staggering” revisions to the Swedish GDP back data. Fourth quarter 2008 GDP was revised down from -2.4 per cent q/q to -5.0 per cent q/q. That is indeed quite a staggering amendment, which not only negatively impacts Friday’s Q1 reading, but implies potentially substantial amendments to follow to the Q1 data too. As Barcap explain:
As a result, we calculate that despite the upside news on the Q1 reading, the level of GDP is now around 0.7% lower than implied by the Riksbank’s forecasts, i.e. on balance, this report is net downside news for the Riksbank’s consideration of resource utilisation/output gap (something which is gaining increasing focus in the Riksbank). Nonetheless, the sheer magnitude of the revisions to the back data in this report aptly illustrates the degree of caution with which the first cut of Swedish GDP data need to be treated, and so we do not rule out subsequent substantial revisions to the Q1 readings.
One of the key areas to be revised in Q4, meanwhile, appears to be that of the investment. As BarCap note:
Detail: There are several underlying causes of the revisions to the Q4 GDP headline reading. While the consumption data (both private and government) were only modestly revised, there are large revisions to the estimates of investment (-3.0% q/q, versus a previously reported -0.2% q/q), exports (-6.2% q/q, versus a previously reported -3.8% q/q) and imports (-5.4% q/q, versus a previously reported -2.9% q/q).
They conclude (our emphasis):
Overall, therefore, while the more moderate pace of decline in Q1 (assuming the latest data to be reliable) is clearly a welcome development, we view this report as supportive of the need for a prolonged period of loose monetary policy from the Riksbank. The Riksbank’s newly-developed resource utilisation indicator will almost necessarily be pulled lower by these figures, which will therefore push the Executive Board ever closer to QE.