Indications of stronger Norwegian growth ahead

Norges Bank’s quarterly tendency survey indicates that the activity in the Norwegian economy will pi

(09.06.2011) Norges Bank’s quarterly tendency survey indicates that the activity in the Norwegian economy will pick up going forwards. The most important international event today is likely to be the interest rate meeting in the European central bank. Hardly nobody expect a new hike today, but Governor Trichet is likely to signal that the key interest rates will be raised at the next meeting, which is in July.

By Anders Grøn Kjelsrud, Analyst at DNB Markets

Norges Bank’s Regional network came in broadly as expected, and will probably not surprise the policy makers in the central bank either. The main impression is that activity is on the rise, after a rather slow start of the year. This is especially the case for retail trade and the service sector, which has been weighed by declining household demand due to high electricity bills this winter. The enterprises are optimistic regarding the time ahead, however, and expect growth to pick up (retail trade is expecting a solid rebound). Construction enterprises have the highest expectations for growth, but also the oil suppliers and the service sector is expecting strong growth going forwards. Employment growth has increased during the past three months, and is expected to continue, but in a somewhat slower pace. Furthermore, expected wage growth in 2011 increased compared to the last survey, to 4 per cent. This is in line with an alternative expectations survey, also issued by Norges Bank.
 
Even though overall growth is expected to pick up, there are no signs of any kind of overheating or capacity problems. On contrary, fewer enterprises than before report that they have problems accommodating increased demand. And at the same time, fewer enterprises than before report that they have problems finding enough labour. A separate report from the Statistics Norway, showed that Norwegian manufacturing output fell by 1.1 per cent in the month to April, versus expected +0.5 per cent (Reuters). Later to today we will get some insight in how the economist at the Statistics Norway regards the outlook for the Norwegian economy, when they published this year’s third version of the Economic survey.
 
Oil prices jumped yesterday, as the OPEC failed to reach an agreement to increase output, and prices on Brent oil rose by more than two US dollars over a short period. The value of the Norwegian currency, often seen as sensitive to changes in the oil prices, did not seemed to be much affected, however. NOK gained somewhat versus the euro during the afternoon, but weakened over the trading day as a whole. EURNOK is currently traded around 7.87-7.88. Elsewhere in FX, the euro fell versus the US dollar, amid continued uncertainty regarding the Greek debt crisis.
 
International stock prices fell for the sixth straight day, while US Treasury prices rose. The most important international event today, is likely to be the interest rate meeting in the European central bank (ECB). The ECB has already hiked once so far this year (in April), as the first of the major central banks, but hardly anybody expect any changes in policy today. In fact, all the 74 respondents in the Reuter’s survey expect unchanged interest rates today. However, the majority seems to expect a new hike at the next meeting, which is in July. We share this majority’s opinion. We therefore expect the Governor Trichet to make use of the much discussed “strong vigilance” phrase at the press conference, which would be a clear hint of a July hike. At the press conference, Trichet is also likely to be attacked with question regarding the Greek debt crisis. The ECB’s position has for long been to oppose solutions which includes any kind of write downs in the Greece’s public debt.
 
The Bank of England will also announce their latest policy decision later today. As for the ECB, it is not expected any changes in policy at this meeting. Hence, the event could turn out to hardly be an event, as the BoE does not publish any new information of importance when the policy is kept on hold.