Economy slows but labour market remains strong

Economic activity has weakened with high inflation and rising interest rates, among other things, dampening companies’ growth expectations and profitability. The labour market, however, is still going strong with job growth remaining solid and unemployment decreasing slightly. These are some of the findings of Business Region Göteborg’s first Economic Outlook report of 2023.

14 February 2023

The report shows that the situation for firms in the region has weakened. Many simultaneous ongoing factors, including rising interest rates, Russia’s war in Ukraine and disturbances in global supply chains, continue to hamper economic activity in Sweden and in Gothenburg's key export markets.

The overall economic tendency indicator for the Gothenburg region fell by 2.5 points on the previous quarter to 89, which indicates a “recession” situation. The decrease is driven largely by low activity within commerce, construction and services.

Manufacturing companies had the highest economic tendency posting 98.8, indicating a “normal, weak” situation, although this is down from the very high levels seen up until the summer of 2022. Companies in this sector continue to have hiring plans, but profitability has weakened.

“Manufacturing companies are more and more applying the brakes. Demand has weakened in both the domestic and export markets. While the production volume was up during the fourth quarter, we expect it will shrink somewhat going forward,” says Peter Warda, senior analyst at Business Region Göteborg and author of the report.

Businesses in the services sector are still experiencing a weak economic situation, posting an economic tendency of 89.2 (-2.2 points compared with the previous quarter). At the same time, services companies are also reporting skills shortages. Within the region’s construction sector, the outlook has also weakened with construction volumes and employment expected to decrease. The economic tendency indicator for construction was 91.8 (-7.1 points compared with the previous quarter). The commerce sector has recovered somewhat but remains in a weak state with an economic tendency of 85.1 (+2.3 points compared with the previous quarter).

Gothenburg’s labour market remains strong

The number of advertised jobs remained at a high level with an average of 10,000 permanent positions advertised per month during the fourth quarter of 2022. Job growth in the Gothenburg region was also solid during 2022, increasing 5.5% on an annual basis. This was clearly stronger than job growth in the Stockholm region (+0.4%), Malmö region (0.6%) and Sweden as a whole (2.2%). The biggest increases in employment in the Gothenburg region were seen within hospitality, information and communication, transport, knowledge-intensive services and manufacturing.

The Gothenburg region’s unemployment rate in January 2023 was 5.6% (-0.6%-points year-on-year). This is lower than for Sweden as a whole (6.6%), as well as for the Stockholm and Malmö regions (6.2% and 8.8%, respectively).

“2022 was a good year for job seekers in the Gothenburg region. The weakening economy, however, may result in unemployment increasing somewhat during 2023,” says Peter Warda.

Weak growth expected in key export markets

Sweden’s economy is expected to shrink by 1.4% during 2023 and grow by a low 1.0% during 2024, according to the National Institute of Economic Research’s latest forecast.

Meanwhile, the OECD, EU and the major Swedish banks remain pessimistic about GDP growth in Gothenburg’s key export markets. In 2023, a slight decrease or slight increase is expected in all markets except China.

The United States, the Gothenburg region's largest export market, is expected to grow by a low 0.6% in 2023, which is expected to slightly increase to 1.1% in 2024. China, the region’s third largest export market, had the strongest growth expectations (5.3% in 2023 and 4.6% in 2024) among the 10 key export markets.

Access the report and Powerpoint slides