The market has scaled back expectations of rate cuts of late, both for the February meeting, where currently 16bp is priced in, and for the year, some 60bp compared with about 85bp at the peak few weeks ago.
Today’s report underlines that demand - especially in manufacturing - declined late last year and that it is expected to deteriorate further over the next six months. Construction -normally a cyclically late sector - expects a decline in housing production going forward, while retailers are a bit more optimistic. Some important comments to weigh in:
- The weaker European demand together with the stronger krona has had a significant impact on export companies. At present there is no clear drivingforce on the other export markets that can compensate for the fall in demand in Europe.
- Some companies feel that things are looking a little brighter in the US, while activity in Asia and in other parts of the world appears to have levelled out at a high level.
- Stocks are too large, because companies have not really adapted to the fall in demand.
- Order books must increase, otherwise we will be somewhat over-dimensioned.
- For the first time in two years, the companies say that the workforce is too large in relation to production and sales. It thus appears that the continuous increase in the number of employees during the past two years has come to an end.
- The decline in economic activity and the concerns about the future have had a significant impact on the companies’ pricing plans.
This is part of the input on which the Riksbank will base its new macro forecast and rate projection (due next week). It is hard to believe that the message in this survey will be dismissed as irrelevant and to us it is clear that companies are experiencing a cyclical slowdown that is more pronounced than assumed in the Riksbank’s December forecast regarding exports, investment activity and pricing plans. Also worth noting is that companies mention that access to external funding has become increasingly expensive as banks are more reluctant to grant loans.
Conclusion: we view this report as significant and do not see why the Riksbank would dismiss it. It provides arguments for the Riksbank to lower the repo rate already in February and open up for further easing going forward.