Employment shrinks, but brighter economy ahead
Commerce is lifting the economic situation in the Gothenburg region up a notch, despite a slowdown in manufacturing. The outlook is improving slightly in both the services and construction sectors. But the labour market is lagging behind, and employment shrank for the first time since the pandemic. This is shown in this year's third Economic Outlook report from Business Region Göteborg.
The economic tendency indicator for the Gothenburg region improved marginally to 95.1 in the second quarter of 2024, suggesting firms are experiencing a normal-weak economy. The best situation is now observed in the commerce sector, where firms are experiencing normal economic tendency, while production volumes fell slightly among manufacturers.
Commerce sales volumes have increased and are expected to rise even more in the third quarter. However, competition, inflation and expensive imports have squeezed profitability. The number of employees is basically unchanged, and employment is not expected to increase during the autumn.
The second quarter was worse than expected for manufacturing companies. Most expected volumes to increase, but instead both volumes and order intake weakened, and companies viewed the economic situation as normal weak. The outlook for the third quarter, however, is cautiously positive.
“Household purchasing power is increasing as inflation falls. This, combined with expectations of lower interest rates, is increasing optimism in the commerce sector. But internationally, it has been tough in many markets. Six out of ten industrial companies reported weak demand in the second quarter,” says Henrik Einarsson, director of establishment and investment services at Business Region Göteborg.
This is one reason why the services sector has not yet picked up. Here, the tendency indicator, which landed on 94.3, suggests a normal-weak economy. Weak demand also affected one in two services companies during the quarter. But the outlook is positive with more services companies expecting demand to improve and to recruit more staff.
Economy is picking up as inflation falls
The region’s construction sector remains in a recessionary state (88.8). Demand, the order backlog, construction volumes and employees all fell in the second quarter. The majority of construction companies, however, feel that the bottom has now been reached, and that volumes will increase during the autumn. Looking one year ahead, the outlook is very bright.
Swedish inflation is now below the Riksbank's target, which signals continued interest rate cuts ahead. The government presents an offensive budget. Forecasters expect Sweden's GDP to grow by 0.7% this year, and 2.2% next year. It is clearly higher than the expected average for Eurozone.
The export-weighted GDP growth for the Gothenburg region's ten largest markets is expected to be 1.7% this year, and increase to 1.9% in 2025.
Labour market lagging behind
Unemployment in the Gothenburg region is increasing on an annual basis, but is still below the national average. The August figure of 6.2% was 0.8 percentage points higher than at the same time last year. The unemployment rate in the Stockholm and Malmö regions for August was 7% and 9.3% respectively.
Employment in the Gothenburg region shrank in the second quarter, for the first time since the dip during the pandemic. Year-year on year, the number of people employed in the region fell by 1,000 to 573,000. This decrease was mainly due to the slowdown in the construction sector.
During the period May-July, the number of advertised jobs also decreased by 43 per cent on an annual basis. At the same time redundancies and bankruptcies increased somewhat.
“The labour market is lagging behind the economic cycle, and the timing of the upturn depends on when households broaden their spending and companies have more incentive to invest. We should be closer to a normal situation sometime during the first half of 2025,” says Peter Warda, senior analyst at Business Region Göteborg.
Access the report: Economic Outlook #3 2024
Access the PowerPoint slides: Economic Outlook #3 2024
