Norwegian macro: More cuts to come

Norges Bank surprised at the June meeting. Not by cutting rates to 1%, but by stating that another cut in September was likely. According to the rate path a cut at the September meeting has a 2/3 chance. A rate cut was expected late this year but moved the cut forward to September due to Norges Bank's signals.

Norges Bank repeated its usual optimistic view that growth will pick up in the longer term and that capacity utilization and inflation will be close to targets at the end of the forecast horizon, says Nordea bank. But its short term forecast is note especially optimistic. It forecast Mainland GDP growth at only 0.1%q/q in Q2 down from 0.5% in Q1, notes Nordea Bank.

Weakness in oil related industries and the fact that inventories pulled up the Q1 figure argues for weak growth. On the other hand consumption of goods increased strongly in April. Even with a sharp correction down in May/June consumption growth will most likely be strong in Q2, therefore, Nordea Bank finds the GDP forecast realistic, but there is room for upside surprises.

Norges Bank view on the short term development in the labour market is also not overly optimistic. Norges Bank favorite measure for labour market tightness, registered unemployment, should increase by 1000-1500 persons a month the coming months. That is a clear break with the trend which is an increase by about 500 persons. But the sharp rise in LFS unemployment and the current weakness in the economy argues that registered unemployment will rise faster, adds Nordea Bank.