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Swedish Services Improve Less Than Estimated in Recovery Blow

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May 6 (Bloomberg) -- The Swedish services industry performed worse than predicted in March and April, adding to signs the largest Nordic economy will struggle to fight off a drop in export demand from the recession in the euro area.

A Swedbank AB index based on responses from purchasing managers indicated a second month of contraction in the services industry with a seasonally adjusted reading of 48.6 in April, compared with analyst predictions of 49. A reading below 50 signals a contraction. A report from the statistics office showed services production fell 0.9 percent in March, triple the estimated decline in a Bloomberg survey of analysts.

“The PMI readings for March and April suggest that we are in for a slowdown,” said Andreas Jonsson, an analyst at Nordea Bank AB in Stockholm, in a note. “A slowing services production, coupled with a struggling manufacturing sector, clearly points to sluggish overall economic activity.”

Sweden’s central bank last month pushed back plans to increase its main lending rate as a strengthening currency and weak demand from abroad has reduced inflation. The Riksbank predicts it won’t increase its 1 percent repo rate until late next year. Sales abroad account for about half of the Nordic country’s output, of which about 70 percent go to Europe.

The services business volumes sub-index rose to 49.5 from 47.9, the order index increased to 49.2 from 46.5 and the employment index rose to 46.8 from 46.2.

Increasing Pessimism

“The index levels are still below 50 which suggests that the services sector economy remained weak,” Swedbank said in a statement. “Services companies’ business plans in the next half a year were made more modest and were below 50 for the first time since 2009,” which “suggests that the pessimism is increasing among services companies,” it said.

Services production fell a monthly 0.9 percent in March after rising a revised 0.8 percent the previous month. It was seen falling 0.3 percent in a Bloomberg survey of four analysts.

Swedish economic growth will only pick up to 1.4 percent this year from 0.8 percent last year as export companies suffer from weak demand from Europe where countries are reducing spending to cut debt, the Riksbank predicted last month.

Unemployment rose more than estimated to 8.4 percent in March as Swedish manufacturing activity slumped last month, according to a separate Swedbank survey last week.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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