(Adds details, analysts)
* Swedish manufacturing PMI at 3-1/2 year low
* Companies seeing declining demand due euro zone crisis
* Raises pressure for central bank rate cut
By Niklas Pollard and Helena Soderpalm
STOCKHOLM, Nov 1 Activity at Swedish factories
fell it its fastest rate in more than 3 years in October, a
survey showed, boosting the chances of a rate cut to defend the
previously robust economy from sinking euro zone demand.
The Nordic country's seasonally adjusted purchasing
managers' index fell to 43.1 points for the manufacturing
sector, data compilers Silf and Swedbank said on Thursday, with
50 points marking the divide between expansion and contraction.
Sweden withstood the euro zone debt crisis well in the first
half of 2012, but growth has faded along with demand for the
exports that account for half of the country's economic output -
and 50 percent of which go to Europe.
"Activity within the industrial sector is still higher than
the record low of 2008-2009, but some of the indicators are
nearing those low levels," the data compilers said.
The index was the lowest since April 2009 and undershot the
median forecast in a Reuters poll for a slight rise to 45.0
points from 44.7 points in September.
"Above all, export orders are down to 37.9 (points) and,
with the exception of 2008/2009, these are the lowest export
orders since the index was first started," Swedbank analyst Knut
Hallberg said. "So this is a really weak PMI."
The Swedish crown weakened and benchmark
debt yields slipped.
Manufacturers, such as telecom equipment maker Ericsson
and truck maker Volvo, have reported
weakening demand in Europe due to the euro zone debt crisis,
after a first half of the year that was relatively buoyant.
The purchasing managers survey bore this out, showing that
the sub-index for order intake in the sector slumped to 40.1
points last month from 42.1 in September as export orders hit
their lowest level since February 2009.
RIKSBANK UNDER PRESSURE
Every bit of grim news coming out of the industrial sector,
of key importance to the export-dependent country, raises
pressure on the central bank to cut its key repo rate from the
current 1.25 percent.
"As I see it, the Riksbank came very close to cutting at its
latest meeting and the more figures we get like these, which
underline the picture of a weakening economy, the greater the
probability for more rate cuts," SBAB economist Tor Borg said.
The Riksbank left rates unchanged at its October meeting,
but held out the prospect of a cut at its next meeting, in
The main factor seen having stayed the Riksbank's hand last
month was worries about rekindling credit growth among
households, which over the past decade have racked up large
debts amid a boom in house prices.
"It seems credit growth must fall even more before the
Riksbank acts. Even with today's figures, it's not sure they
will cut the repo rate in December," RBS analyst Par Magnusson
said. "A normal central bank would have cut the rate already."
For Reuters stories on PMI data, click on
(Additional reporting by Daniel Dickson, Johan Sennero, Sandra
Jansson; Editing by Toby Chopra)