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The Norges Bank is expected to keep policy rates on hold for an extended period, thereby signalling the intermediate rate meeting on October 24 to be clearly be uneventful, according to the latest research report from Danske Bank.
Growth in the domestic economy is holding up, but global risk persists and the overall message should be unchanged since September. Until recently, our expectations have been strongly supported by both hard data and surveys.
However, in the last couple of weeks both the PMI and actual production data have sent some disturbing signals, that could indicate that the oil boom is already peaking. We are now awaiting the Business Tendency survey from Statistics Norway on 21 November to decide whether the oil boom already is peaking.
The PMI dropped to 50.4 in September, and even through monthly volatility the level is approaching recession levels. Adding to the concern was the fact that the sharp slowdown over the summer was driven by new orders and production, as seen in charts 4 and 5.
The most puzzling part was that the drop in new orders, explaining 2/3 of the drop in the main index, came from the domestic markets which mainly should be oil-related industries. In addition, manufacturing production dropped 1.1 percent m/m in August, admittedly after a 1.0 percent rise in July. Anyway, the most surprising part was a 2.4 percent m/m drop in the oil-related manufacturing sectors, the report added.
Hence, both PMI and actual production data suddenly reveal some weakness in the oil industries. A closer look at the forecast for oil investments, the main driver for these sectors, clearly confirms the impression that the oil boom is close to the peak.
"That said, the forecast still points to close to double-digit growth at least until mid-20, i.e. for another year. So, we clearly expect the Business tendency survey to confirm a slowdown in the manufacturing sector, but nothing close to the recession signals from the latest PMI-figures," Danske Bank further commented in the report.
