To Gauge If Global Growth Is Running Out of Gas, Watch Sweden

(Bloomberg) -- While a jump in China prices shines a positive light on the strength of the global economy, some 4,000 miles away there are signs of slowing growth in Sweden that may be a signal for caution.

Swedish manufacturing PMI tumbled to the lowest in a year in August, well below analyst expectations, with mainly production and new-order data contributing to the decline. Scandinavia’s biggest economy is driven by an export industry including global manufacturers such as Atlas Copco AB, Volvo AB and Electrolux AB, and its performance is considered to be a leading indicator for global economic trends.

“Sweden is a small, open economy that is sensitive to changes in the global momentum,” Mikael Sarwe, Nordea Bank AB’s head of strategy, said in emailed comments. “Thereby Swedish indicators tend to lead the way for the larger countries.”

To Gauge If Global Growth Is Running Out of Gas, Watch Sweden

Growth in global gross domestic product is projected to accelerate to 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. This would represent a clear acceleration from last year’s 3.2 percent advance, with the recent uptick in China’s producer-price inflation suggesting the global economic outlook has solid foundations.

Still, the effects of central-bank stimulus are ebbing around the world, according to Sarwe. He expects broader PMI indicators and similar surveys from the Institute for Supply Management and OECD to decline during the fall, and says this may impact markets.

“I believe that we are not entering a recession,” Sarwe said. “But markets tend to follow leading manufacturing indicators and could still be in for some roadblocks ahead.”