Lower expectations for the tech industry economy

Just before Christmas, Almega's economic report, the services indicator, was presented, showing that the downturn in the services sector is less than feared but that demand for labour is falling and redundancies are increasing. According to Almega's chief economist Patrick Joyce, demand for business services is being sustained by large investments in industry and stable services exports.

In the Information and communication sub-sector, growth has been negative in 2023. In the third quarter of 2023, output in the sector was 1.7% lower than in the same quarter of 2022 (see chart above). Throughout 2022, growth was high. However, the decline must be seen in the light of the fact that the sector has enjoyed almost ten years of uninterrupted growth and at a level that has been significantly higher than for the business sector as a whole.  

Exports of information and communication services continue to develop well. In the third quarter of 2023, exports, at current prices, were 15.3% higher than in the same quarter of 2022.  

The labour market in the sector is generally strong, but employment growth started to slow down in mid-2022. As a result of competition for key skills, temporarily falling real wages due to high inflation and the experience of the pandemic, there are strong elements of labour hoarding. This means that many companies are expected to hold on to their employees despite falling demand, in the hope that the recession will be short-lived. For example, economic activity for computer consultancies was good well into 2023 but slowed down from the second quarter onwards.  

Expectations for the future are more subdued compared to a year ago. This is shown in the Confederation of Swedish Enterprise's Entrepreneurial Panel from the end of November 2023, which has been broken down into the tech industry. The survey shows that a majority of companies in the tech industry believe that sales volumes will continue to increase in the coming year. However, the net figures for the tech industry are significantly lower with a 52 percentage point preponderance of optimistic companies expecting an increase compared to 63 percentage points a year ago.  

32% of the tech industry sees an increase in investment volume in the coming year, while 14% see a decrease and a majority no change.  

When it comes to the number of employees, expectations are more downbeat.A majority of 16 percentage points of firms say that they will increase the number of employees over the next twelve months, which is a decrease in the majority from 51 percentage points in relation to the survey a year ago. On the other hand, a larger share of 43 percentage points believe that they will keep the number of employees unchanged.  

- For the Swedish economy, we see that inflation is starting to fall, which is positive, but the economic situation is weakening and the Swedish economy is expected to be in a recession that will last until 2025. We also see a weaker demand for labor and increased unemployment throughout the labor market in 2024. Now the focus needs to shift to boosting growth," says Christina Ramm-Ericson, Chief Economist at TechSverige.

With the risk of the current downturn developing into a longer and deeper recession, there is every reason to create good conditions for innovation, tech entrepreneurship and growth.

- "The economic recovery must not be delayed if Sweden is to keep up with the rapid development taking place in other countries and remain a technology nation to be reckoned with in the future," says Christina Ramm-Ericson.

About the services indicator 

The services indicator has been produced by Almega since 2001 to give an indication of where economic activity in the private services sector is heading in the short term. The indicator provides information for early prediction of turning points in the business cycle, both in the service sector and in the Swedish economy as a whole, as the private service sector accounts for more than half of Sweden's total production, GDP. 

The full report can be found here, Winter in the service sector (almega.se) 

About the Entrepreneurs Panel  

Four times a year, around 5,000 members of the Confederation of Swedish Enterprise's Entrepreneurial Panel answer questions about employment, sales and investments as well as some current business issues. The answers to these questions are broken down into the tech industry where about 300 member companies can answer questions.