There are many countries that would chew their arm off for the sort of economic growth numbers that have been produced by Sweden at the end of 2014 so today’s update from Sweden Statistics is good news. Let us get straight to it.
Sweden’s GDP increased 1.3 percent in the fourth quarter of 2015, seasonally adjusted and compared to the third quarter of 2015.
That is quite a blast forwards and comes on a day where the GDP growth for Portugal is expected to be of that magnitude for a whole year. So high is it that we should perhaps remind ourselves that the numbers are not annualised in the way that America produces its GDP data. Actually it could have maybe been even faster!
Changes in inventories decreased the GDP growth by 0.3 percentage points.
Although of course the counterpoint to that is to consider that maybe such a growth rate could only be achieved by running down inventories. There was good news also from investment and overseas trade.
Gross fixed capital formation increased by 2.0 percent. Exports increased by 2.9 percent and imports increased by 2.0 percent.
At this point we have the economic growth of most economists fantasies and let me add some more details which further put us in fantasy land.
Employment measured as the total number of hours worked increased by 0.2 percent seasonally adjusted and the number of persons employed increased by 0.7 percent.
Thus we see that the such was driven by higher employment and that if we use the hours worked measure there was quite an implied surge in productivity. We can add to this some strong annual growth figures too.
GDP increased 4.5 percent, working-day adjusted and compared to the fourth quarter of 2014.
If you think that this is towards the outer limits of what can be achieved then let us consider this from Erica Blomgren of SEB from last week.
Swe manufacturing sentiment at all time high not supported by oth indicators, implies GDP growth 6-8%
At this point we are all singing along with Frank Sinatra.
Fly me to the moon
Let me play among the stars
Let me see what spring is like on
Jupiter and Mars
Swedish Monetary Policy
After looking at the economic growth figure above this from the Riksbank of Sweden on the 11th of this month reminds us of today’s outer limits theme.
To provide support for inflation so that it rises and stabilises around 2 per cent in 2017, the Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.15 percentage points to −0.50 per cent.
So the economy is running fast and we will push it faster? Okay so they must be playing the famous introduction to the Outer Limits television series.
There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We can reduce the focus to a soft blur, or sharpen it to crystal clarity. We will control the horizontal. We will control the vertical. For the next hour, sit quietly and we will control all that you see and hear. You are about to experience the awe and mystery which reaches from the inner mind to… The Outer Limits.
Unfortunately for them and their yogic master Paul Krugman already things are not going as the centrally planned forecast told us as economic growth was supposed to be 0.9%. So outperformance require even more interest-rate cuts? If you want you can make something of a case for interest-rates being the icy-est of all in Sweden as the Riksbank has a deposit rate of -1.25%.
Also let us not forget that the Riksbank has been going “More…..More” in the style of Agent Smith in other directions too. One effort is via Open Mouth Operations.
The Executive Board therefore still has a high level of preparedness to make monetary policy even more expansionary, even between the ordinary monetary policy meetings.
There is also QE via sovereign bond purchases.
Purchases of government bonds will continue for the first six months of this year, in accordance with the plan adopted in October. The Executive Board has also decided to reinvest maturities and coupons from the government bond portfolio until further notice.
You may be thinking they have missed out foreign exchange intervention. Don’t be silly!
On 4 January, the Executive Board took a delegation decision enabling immediate intervention on the foreign exchange market as a complementary monetary policy measure.
At this point the ordinary person might be thinking that the Riksbank has got things right as we see economic growth surging and employment rising. But there are catches with “miracle” economic cures and they mostly come from the leads and lags of monetary policy. Things invariably look great until the do not! At which point it is way to late. Hence the reason why this monetary policy quip from William McChesney Martin became famous.
“to take away the punch bowl just as the party gets going,”
In the modern era we usually get the first sign from asset prices. Obviously bond prices are a signal in Sweden as they follow not only international trends but have the Riksbank chomping away on them like Pac-men. But let us move on to the classic signal which is the housing market.
The Riksbank is desperately trying to get its retaliation in first,
The Riksbank has highlighted the risks associated with the low interest rate level on many occasions.
Yes it is so worried about the consequences it keeps doing it! If all else fails one can use a very long word to describe it.
Or perhaps tell everyone that (verbally at least) you had been on the case all along.
Such a development could ultimately be very costly for the national economy.
Well as I pointed out earlier this month it is already very costly for first time buyers in Sweden.
Real estate prices for one- or two-dwelling buildings increased by 3 percent during the last three-month period November 2015 – January 2016, compared to the previous period August – October 2015. Prices increased by 12 percent on an annual basis during the last three-month period November – January 2016, compared to the same period last year.
Another way of looking at this is to investigate the monetary numbers released late last week.
The growth rate for the broad monetary aggregate M3 increased from 7.6 percent (revised) in December to 9.9 percent in January.
So well above even adding economic growth to the low inflation numbers we have quite an excess. What is driving it?
Most of the increase can be explained by housing loans, which increased by SEK 209 billion and amounted to 2 708 billion in January. Housing loans had an annual growth rate of 8.4 percent in January,
Oh and it is not just individuals.
Most of the loans to non-financial corporations comprised loans with multidwelling buildings as collateral.
If we return to the booming investment numbers in the latest GDP numbers we are left wondering if that is housing punting, excuse me investment is what is really being recorded. What could go wrong?
If we step back we see that the policy of the Riksbank has gone from Alice’s Wonderland to The HitchHikers Guide to the Galaxy on its way to The Outer Limits. The fear for the Swedes is that it will end up taking Frank Sinatra off the loudspeakers and replacing it will Ella Fitzgerald.
These foolish things
Remind me of you
Meanwhile other central bankers will be noting this and markets are already responding.
#Germany 9year yields turn negative. Hits fresh life-time low at -0.012% ( H/T @Schuldensuehner)
In other words they are expecting even more from Mario Draghi and the ECB next month and this has been reinforced by the Reserve Ratio reduction from the People’s Bank of China this morning. For the UK we know that Mark Carney is a dedicated follower of fashion and will Forward Guidance Mark 15 involve negative interest-rates too? If so there may well be a posse forming up of those who remortgage on the back of his previous versions of Forward Guidance.
What has he been smoking?
There are many candidates for such an award but this from Ambrose Evans- Pitchard may need yet another long walk ( weeks ) in the Andes of Chile.
This is huge. Nobody has more credibility than Mervyn King. If Otmar Issing joins him, walls will come crashing down