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The economic situation in Norway - June 2013

The economic situation in Norway - June 2013

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The economic situation in Norway The economic situation in Norway Document Transcript

  • The economic situation in Norway June 2013
  • High activity in the petroleum sector still provides a strong impulse to the mainland economy, where capacity utilization is estimated to be somewhat above the normal level. However, 3.5 percent GDP growth, y/y, in 2012 was somewhat below the central bank forecast and market consensus, mainly due to moderate growth in the fourth quarter. First quarter growth in 2013 was 0.7 percent q/q, marginally lower than expected. In addition there are signs of slower growth going forward. The contacts in the central bank’s regional enterprise network reported on weaker output growth over the last three months in May 2013, and expected only moderate growth over the next six months. The labor market is less tight than a year ago. From September 2012 to April 2013 employment growth was close to zero. The current unemployment rate of 3.5 percent in April 2013 is 0.5 percentage points higher than in April 2012. Wage growth is expected to be 3.5 percent in 2013, somewhat below the consensus forecast from earlier this year. Private ­consumption is growing at a moderate pace, and household saving is at a high level. House price growth has slowed down through the second quarter of 2013. GDP Growth, Mainland Norway Quarter-on-quarter growth, s.a. Labour market Norway is a small and open economy with a significant ­proportion of exports and imports. Due to slower growth amongst Norway’s main trading partners, traditional ­exports fell through the second half of 2012, followed by only ­moderate growth in the first quarter of 2013. This is due to low ­international demand and higher wage growth in Norway than in ­competing countries. However, the economy is markedly divided and in other industries prospects are brighter, ­especially amongst suppliers to the petroleum industry and other ­related industries. Petroleum investments grew strongly, by 14.5 percent in 2012, partly due to new petroleum discoveries and persistently high oil prices. Even though petroleum investments are projected to grow at a slower pace in the years to come, petroleum activity will provide a substantial growth impulse to the mainland economy. Capital Formation Gross capital formation, Mainland Norway excl. Government, change last 12 months (LTM) Moderate growth in private consumption, increased household saving With low inflation, low electricity prices and solid nominal wage growth, households’ real disposable income showed a solid increase in 2012. However, household consumption growth was modest through 2012 with 2.9 percent growth y/y, and particularly weak in Q4 2012. Private consumption rebounded through the first quarter of 2013 although at a moderate pace only. In addition consumer confidence (CCI) fell in June, reaching its lowest level in 18 months. Furthermore, the households’ saving rate has increased in recent years, and the 2012 average rate of 8.7 percent represents one of the highest saving rates recorded. Private consumption Household consumption, quarter-on-quarter change, s.a. 4 3 2 1 0 -1 -2 Percent Source: Statistics Norway 2006-01 2006-02 2006-03 2006-04 2007-01 2007-02 2007-03 2007-04 2008-01 2008-02 2008-03 2008-04 2009-01 2009-02 2009-03 2009-04 2010-01 2010-02 2010-03 2010-04 2011-01 2011-02 2011-03 2011-04 2012-01 2012-02 2012-03 2012-04 2013-01 3,0 2,5 2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5 -2,0 Percent Source: Reuters EcoWin 2006-01 2006-02 2006-03 2006-04 2007-01 2007-02 2007-03 2007-04 2008-01 2008-02 2008-03 2008-04 2009-01 2009-02 2009-03 2009-04 2010-01 2010-02 2010-03 2010-04 2011-01 2011-02 2011-03 2011-04 2012-01 2012-02 2012-03 2012-04 2013-01 20 15 10 5 0 -5 -10 -15 -20 -25 Source: Reuters EcoWin Percent 2000-01 2000-04 2001-03 2002-02 2003-01 2003-04 2004-03 2005-02 2006-01 2006-04 2007-03 2008-02 2009-01 2009-04 2010-03 2011-02 2012-01 2012-04 Source: Reuters EcoWin 3,0 2,9 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2,0 5,00 4,75 4,25 4,00 3,75 3,50 3,25 3,00 2,75 2,50 2,00 Percent Unemployment rate (right scale) Total employment (left scale) 2000-05 2000-10 2001-03 2001-08 2002-01 2002-06 2002-11 2003-04 2003-09 2004-02 2004-07 2004-12 2005-05 2005-10 2006-03 2006-08 2007-01 2007-06 2007-11 2008-40 2008-09 2009-02 2009-07 2009-12 2010-05 2010-10 2011-03 2011-08 2012-01 2012-06 2012-11 2013-04 Person(millions)
  • Large current account surpluses Norway has experienced large surpluses on the current account for many years, thanks to the sizeable export of petroleum products. The current account surplus was 12.8 percent of GDP in 2011, and 14.2 percent in 2012. However, Statistics Norway projects reduced surpluses from 2013 to 2016 due to weaker terms of trade. Current account, balance in % of GDP Fiscal policy In 2012 the fiscal policy, measured as the change in the structural non-oil budget deficit as a share of trend GDP for mainland Norway, provided an expansionary impulse of 0.4 percent. The revised 2013-budget predicts an expansionary impulse of 0.6 percent this year. Large petroleum revenues give the Norwegian government substantial economic freedom, and the financial crisis was met by strong fiscal stimulus in 2009. Since then, the structural non-oil deficit has remained at a high level, and is sub- stantially higher today than in 2009 measured in fixed prices. Fiscal policy – budget impulse Per cent of GDP in mainland Norway House price growth cooling down, still solid Real house prices are high by historical standards. However, income levels have also increased considerably over the last decades, and deflated by income levels house prices are more moderate. House prices grew by 7.7 percent y/y on average through 2012. The strong trend continued into the first months of 2013. However, the pace has slowed down since March, and average y/y growth has been 6.9 percent from January to June 2013, with 5.7 percent growth in June 2013 being the lowest growth rate since august 2009. In the short run, moderate wage settlements during the spring of 2013 and a small increase in lending margins may explain the slowdown. Home building activity picked up sharply in 2011, after falling markedly in the wake of the financial crisis. This trend continued into 2012 with total housing starts reaching approximately 30 000 compared to almost 28 000 in 2011. From January to May 2013 total housing starts amounted to approximately 12 300 compared to 11 300 during the same period last year. Downside risk in the housing market should be viewed in light of the terms of trade, which is an important fundamental factor behind income growth. A substantial slide in oil prices or increasing import prices may lead to falling income growth and housing demand at home. On the other hand, increasing construction costs in the long run, due to weak productivity growth in the construction sector and shortage of land, due to increased centralization, may limit the downside risk in the real house price level. Housing Market Real and nominal house prices. Indices. 1985 = 100. Annual figures. 1985 – 2012 Norges Bank delays first rate hike yet again After the 25 basis points cut in march 2012, the central bank has left the key policy rate unchanged at 1,5 percent ever since. At its most recent meeting in June 2013 growth forecasts at home and among Norway’s trading partners were revised down resulting in a subsequent lowering of the forward guidance on the key rate. In addition, the labor market development was weaker than the central bank had forecasted and lower wage and cost growth projections also contributed to a lowering of the policy rate path. Thus the first hike was delayed yet again, now signaled to occur sometime during Q4 in 2014, while at the March and May meetings in 2013, the first hike was expected sometime during the spring of 2014. The new policy rate path implies a 50 percent probability of a cut in September 2013. Unrest in the inter­ national financial markets decreased through the second half of 2012, possibly due to extraordinary monetary policy measures, in order to bring down long term interest rates, such as the OMT- program in the euro zone and additional rounds of ­quantitative easing in the US. Over the last year spreads in both bond and money markets decreased and banks and non-­financials ­experienced increased access to long-term market funding. Source: NEF, EFF, Finn.no, Pöyry and Statistics Norway 700 600 500 400 300 200 100 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2012 Nominal index Deflated by disposable income Deflated by CPI 2,5 2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Positive numbers indicate that the budget is expansionary Source: Ministry of Finance PercentofmainlandGDP 18,00 16,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* Percent *Statistics Norway forecast Source: Statistics Norway
  • Monetary policy rates The operational target of monetary policy is low and stable ­inflation, with annual consumer price growth of 2.5 per cent over time. Inflation, measured by the CPI-ATE (CPI adjusted for tax changes and excluding energy products) was low through most of 2012, and lower than central bank forecasts with ­CPI-ATE at 1,1 percent in December 2012. This trend continued into the first part of 2013, but inflation has picked up since March, with CPI-ATE at 1, 4 percent in May. According to the June Monetary Policy Report however, the central bank is uncertain as to whether the increase in price growth is of a permanent character or not. Consumer prices, per cent change y/y Credit market Aggregate credit growth was fairly stable at around 7 percent y/y in 2012, until falling in December, mainly due to a marked drop in corporate credit growth, from 6.5 percent y/y in November 2012 to 3.9 percent in March 2013 y/y. Corporate credit growth has been fairly stable since then, and is currently 4.2 percent y/y. Household debt has shown a more stable ­development, with a growth rate between 7 and 7.5 percent y/y each month over the last two years. The most important source of corporate credit is bank loans and lower growth in corporate debt may be explained by stricter banking regulation. In general corporate loans require more capital than mortgages, and banks may be inclined to cut back on credit to businesses in order to adjust the risk weighted balance sheet to meet the new, increased capital requirements. Household credit growth is still higher than the wage growth. Thus the households’ debt burden continues to rise, although at a modest pace. The aggregate debt burden of the households is currently just below 200 percent, equal to an aggregate household debt two times the size of the aggregate household disposable income. Authorities have expressed concern with the high level of household debt. However, a breakdown of the credit growth and debt burden in households shows that the majority of household credit growth since the early 2000s stems from households in age groups above 45 years. Furthermore, vulnerable groups, households with low income and a high debt burden, make up less than 4 percent of total households. Growth in house prices over a long period of time have put Norwegian households in a significant net wealth position. DNB Markets estimates from August 2012 showed that house- hold financial and real assets exceeded NOK 7 000 bn. At the same time aggregate household debt constituted approximately NOK 2 500 bn. Domestic credit, change y/y The Norwegian krone still strong The NOK strengthened through 2012, but weakened some- what through the first quarter of 2013. By mid June the NOK, ­measured by the import weighted exchange rate (I-44), weakened further and has been approximately 1.3 percent weaker than the second quarter projection of Norges Bank. Developments in the NOK are heavily affected by shifting focus in the FX market. Even though there are signs of somewhat slower growth in the Norwegian economy, the macroeconomic picture is still robust and interest rate differentials are still at a high level. This ­indicates a relatively strong NOK also going forward. NOK – Exchange rate Import weighted index I-44 (inverted) 25 20 15 10 5 0 -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Non-financials Total Households Source: Reuters EcoWin Percent Source: Reuters EcoWin 80 85 90 95 100 105 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Index 7 6 5 4 3 2 1 0 2006 2007 2008 2009 2010 2011 2012 2013 FED BoE Sweden Norway ECB Percent Source: Reuters EcoWin 6 5 4 3 2 1 0 Percent CPI CPI ATE Inflation target Source: Statistics Norway Jan08 May08 Sep08 Jan09 May09 Sep09 Jan10 May10 Sep10 Jan11 May11 Sep11 Jan12 May12 Sep12 Jan13 May13