No sign of let-up in Nordic retail recovery - Capital Economics
Nordic & Swiss Economics

No sign of let-up in Nordic retail recovery

Nordic & Swiss Economics Weekly
Written by David Oxley
The lack of a see-saw pattern in Nordic retail sales data since February stands in stark contrast to the situation in Switzerland and supports our view that the Nordic economies have fared comparatively well during the crisis. Next week, the main data release of interest is Q2 GDP from Sweden on Wednesday; while the risks to our forecast of a 4% q/q drop in output are on the downside, we think that the economy held up much better than in the euro-zone, helped by the light-touch lockdown and the comparatively large public sector.

Mixed messages from the retail data

Retail sales data from Switzerland for June, released this morning, show that consumer spending lost a bit of steam at the end of Q2 following the initial sugar-rush as restrictions were eased. Having surged by almost one-third in May, sales volumes excluding fuel dropped by 4.4% in month-on-month terms.

That said, sales volumes were still above their pre-virus level (see Chart 1) and nearly 3% higher than in June 2019. Sales of household and DIY equipment were up about 20% in year-on-year terms, which suggests that many Swiss have yet to finish projects started during lockdown, while sales of computer equipment and online shopping were both well ahead of year ago levels too.

Chart 1: Retail Sales (SA, Excl. Fuel, Feb. 2020 = 100)

Source: Refinitiv

It is striking that the see-saw pattern in Swiss retail sales since February is entirely absent from the corresponding data from Sweden and Norway. In fact, sales volumes in Norway rose again in June, by almost 6% m/m, which left them 14% above their February level. (Again, see Chart 1.)

We are wary of reading too much into the monthly paths of spending, particularly because statisticians have sounded health warnings over the efficacy of seasonally adjustment processes in these volatile times. (Note that Norway’s labour agency opted not to release seasonally adjusted data for July this morning because of distortions in the wake of Covid.) Nonetheless, the retail data support our view that the Nordic economies have fared comparatively well during the crisis, perhaps because consumers there have been able to substitute between services to goods to a greater extent than in Switzerland.

Virus cases edging higher in Switzerland

The increase in virus cases in Spain has filled many column inches this week, although it is notable that new virus infections per capita in Spain have only recently overtaken those in Sweden. (See Chart 2.) Confirmed cases in Sweden have followed a different path than elsewhere, partly due to its contrary lockdown approach but also its slow start to testing.

Meanwhile, the number of confirmed cases in Switzerland has continued to creep up, albeit much more slowly than in Spain. The main responsibility for dealing with new spikes in cases lies with cantonal authorities, and in our view targeted measures such a closing individual schools if needed are more likely than wider lockdowns. The greater risk to the economy would be if the surge in cases elsewhere in Europe weighs on regionwide growth.

Chart 2: New Virus Infections Per 100,000 Persons (14-Day Rolling Average)

Source: ECDC

The week ahead

The main data release of interest next week is that of Q2 GDP from Sweden on Wednesday; we forecast a smaller drop in output than most, although the risks to our view are on the downside. Otherwise, Swiss inflation will have stayed rooted below zero in July, while the set of manufacturing PMIs from July are likely to show that economic conditions continued to improve at the start of Q3 (both out on Monday).


Data Previews

Switzerland Consumer Prices (July) Mon. 3rd Aug.

Forecasts

Time (BST)

Previous

Median

Capital Economics

CPI m/m(y/y)

07.30

-0.1%(-1.3%)

-0.4%(-1.2%)

Deflation here to stay

Swiss inflation probably rose a touch in July but will have stayed deep in negative territory.

The headline rate was unchanged in June, at -1.3%, by far the lowest inflation rate of any developed economy. While higher energy prices boosted the figure, the core rate fell from -0.6% in May to a 54-month low of -0.8%.

There will have been a number of competing influences on inflation in July; the prices of airfares and accommodation were probably cut to encourage travel, but other shops may have tried to improve margins. On balance, we suspect that core inflation reversed June’s fall. Meanwhile, the increase in oil prices in franc terms this month, and the fading disinflationary impact of the franc, will have boosted price pressures. All told, we have pencilled in a rise in headline inflation to -1.2%.

Looking ahead, surveys pointed to inflation remaining in negative territory over the coming months, even before Covid-19 shock. (See Chart 3.) We expect the headline rate to remain below zero into next year.

Chart 3: Headline Inflation & PMI Input Prices

Sources: Refinitiv, Capital Economics

Sweden GDP Indicator (Q2) Wed. 5th Aug.

Forecasts

Time (BST)

Previous

Consensus

Capital Economics

GDP q/q (y/y)

08.30

+0.1%(+0.4%)

-4.0%(-3.7%)

Benefiting from contrary stance

The Swedish economy has not been unscathed, despite its light-touch lockdown, but we think that the quarterly drop in GDP in Q2 is likely to have been about one-third of that seen in the euro-zone.

Much ink has been spilled about Sweden’s contrary lockdown stance, and the economy has still faced a deep crunch by normal standards. Nonetheless, our forecast of a 4% q/q drop in GDP is about half as big as that of the Riksbank and other forecasters.

Admittedly, private sector production (PSP) is on track to have fallen by about 7.5% q/q in Q2, which suggests that the risks to our forecast are on the downside. That said, this series excludes public sector activity, which accounts for about 20% of the economy and which, we suspect, will have held up much better. Based on past form, the PSP series is consistent with a 4% q/q drop in GDP in Q2, which is broadly in line with expected fall in consumption and broadly consistent with the picture from the PMIs too. (See Chart 4.)

In any case, the fact that the Swedish economy grew in Q1, and appears to have gathered pace at the start of Q3, supports our view that the economy will experience a comparatively modest drop in output in 2020 as a whole.

Chart 4: Composite PMI & GDP

Sources: Refinitiv, Capital Economics


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time CET

Time (BST)

Previous*

Median*

CE Forecasts*

Mon 3rd

Swe

Manufacturing PMI (Jul)

08.30

(07.30)

47.3

55.0

Swi

CPI (Jul, EU Harm)

08.30

(07.30)

-0.1%(-1.3%)

-0.4%(-1.2%)

Swi

Manufacturing PMI (Jul)

09.30

(08.30)

41.9

52

55.0

Nor

Manufacturing PMI (Jul)

10.00

(09.00)

48.9

55.0

Den

Manufacturing PMI (Jul)

11.00

(10.00)

52.2

Tue 4th

Den

Change in Currency Reserves (Jul, DKK)

17.00

(16.00)

0.0bn

Wed 5th

Swe

Services PMI (Jul)

08.30

(07.30)

49.2

55.0

Swe

Private Sector Production (Jun)

08.30

(07.30)

-0.4%(-10.0%)

Swe

GDP Indicator (Q2, q/q(y/y)

09.30

(08.30)

-0.3%(+0.5%)

-4.0%(-3.7%)

Fri 7th

Nor

Industrial Production (Jun)

08.00

(07.00)

-1.0%(+3.0%)

Den

Industrial Production (Jun)

08.00

(07.00)

-3.0%

Selected future data releases and events

Mon 10th

Swi

Unemployment Rate (Jul)

07.45

(06.45)

3.3%

Nor

CPI (Jul)

08.00

(07.00)

+0.2%(+1.4%)

Nor

CPI-ATE (Jul)

08.00

(07.00)

+0.4%(+3.1%)

Den

CPI (Jul, EU Harm)

08.00

(07.00)

+0.1%(+0.2%)

Wed 12th

Swe

CPI (Jul)

09.30

(08.30)

+0.6%(+0.7%)

Swe

CPIF (Jul)

09.30

(08.30)

+0.6%(+0.7%)

Swe

CPIF Ex. Energy (Jul)

09.30

(08.30)

+0.4%(+1.3%)

Fri 14th

Den

GDP Indicator (Q2, q/q(y/y)

08.00

(07.00)

-1.9%(-0.2%)

Swi

Producer & Import Prices (Q2)

08.30

(07.30)

+0.5%(-3.5%)

*m/m(y/y) unless otherwise stated. p=provisional.

Sources: Bloomberg, Capital Economics

Main Economic Forecasts

Share of

World GDP

GDP

Consumer Prices (HICP)

2019

2020

2021

2022

2019

2020

2021

2022

Switzerland

0.42

0.9

-5.0

3.0

2.0

0.4

-0.9

0.4

0.6

Sweden

0.41

1.3

-1.5

2.0

1.7

1.7

0.5

1.5

1.5

Norway

0.31

2.4

-3.0

2.5

1.8

2.3

1.0

2.0

2.0

Denmark

0.23

2.3

-3.0

3.0

2.0

0.7

0.2

1.0

1.5

Sources: Refinitiv, Capital Economics

Key Market Forecasts

Forecasts

Forecasts

Latest

End 2020

End 2021

End 2022

Latest

End 2020

End 2021

End 2022

Swiss policy rate

-0.75

-0.75

-0.75

-0.75

Swiss fr/euro

1.08

1.10

1.10

1.12

Swe. repo rate

0.00

-0.25

-0.25

-0.25

Swed. Kr/euro

10.29

10.25

10.00

10.00

Nor. depo rate

0.00

0.00

0.00

0.00

Nor. Kr/euro

10.74

10.25

10.00

9.75

Den. depo rate

-0.60

-0.75

-0.75

-0.75

Dan. Kr/euro

7.44

7.45

7.46

7.46

ECB depo rate

-0.50

-0.50

-0.50

-0.50

US$/euro

1.19

1.20

1.20

1.20

Sources: Refinitiv, Capital Economics


David Oxley, Senior Europe Economist, david.oxley@capitaleconomics.com