On Tuesday morning, Norges Bank’s new Regional Networks Report was released, the third and penultimate this year.
A picture is painted of a clear brake on the Norwegian economy.
– Firms in the regional network registered high price growth, and price growth increased throughout the summer. At the same time, activity growth has slowed, Norges Bank wrote in a press release.
The regional network is a survey conducted by Norges Bank, in which several hundred companies and institutions across the country are asked about their economic development and future prospects. Already when the previous report was published in June, slower growth and higher prices were expected.
The background to Tuesday’s report is high inflation and the energy crisis in Europe, not least the sharp and rapid rise in interest rates.
The report also came just one week before Norges Bank’s next rate announcement, on September 22, when another 0.5 percentage point increase is expected.
Expect 4 percent growth this year
The companies believe that price and cost growth, as well as higher interest rates, will contribute to a slight decline in activity over the next six months.
There are still many companies restricted due to capacity issues, but the percentage is lower than it was in May. Approximately half of the companies seem to be struggling to find employment.
Companies are also forecasting four percent annual wage growth this year, slightly above estimates in May.
– Companies expect activity to decline during the fall and winter. They believe that strong prices, cost growth and higher interest rates will dampen future demand, particularly from households and customers in the construction industry, Norges Bank wrote.
At the same time, companies report that growth in retail prices has picked up sharply recently, and that growth is now at the highest level measured since the launch of the regional network in 2002.
Just forget about the triple rate hike
Chief Economist Marius Gunsholt Hof at Handelsbanken thinks signals coming from companies in the regional network should “avoid speculating on more airy interest rates”.
He believes that a threefold rate hike, 0.75 percentage point, is simply in limbo.
The chief economist notes that although the labor market “continued to perform well”, the actual GDP numbers were weaker than expected from the Norges Bank. At the same time, describe The latest inflation numbers that weren’t quite as scary as the market expectedAnd that the distance to the central bank’s expectations of core inflation has narrowed significantly.
It is clear that growth, and thus capacity pressure in the Norwegian economy, is declining faster than the Bank of Norway assumes. Despite the strong house price numbers recently, this should refute speculation about a possible 75-point increase from Norges Bank next week, says Gunsholt Hof.
Thus Handelsbanken maintains its forecast for a half percentage point rate jump at the next meeting, and is currently forecasting a policy rate of 2.75 percent at the end of the year.
Chief Economist Kjersti Haugland at DNB Markets also believes the central bank will end there after its last interest rate meeting of the year in December.
– This report is important for the Bank of Norway, because it has obtained clear indications that calm is underway. That’s what the central bank wants to achieve, and it reinforces our belief that the key rate will stop at 2.75 percent in December, says Hoagland.
It also believes in two rate hikes at next week’s meeting, and also expects the rate trajectory, namely the Norges Bank’s forecast for the future key rate level, to rise by a quarter of a percentage point for 2023.
BNP fall in July
Even before the regional network report, there may have been early signs that the Norwegian economy was about to cool off.
July GDP figures showed an unexpected 0.3% drop For the Norwegian mainland economy, after a 0.3 percent increase in June. In advance, GDP growth was forecast at 0.2 percent.
In particular, it was consumption that contributed to the decline, and DNB Markets Chief Economist Kjersti Haugland believed that the decline could be an early indication that high inflation and rapid rises in interest rates are starting to devour household consumption.
Statistics Norway also believes that the July numbers may be the beginning of a cooldown in the economy.
– The consumption of goods decreased in Norway in July, without a corresponding increase in the consumption of services, or consumption abroad. This could mean that recent price hikes and interest rate increases have begun to dampen household demand, Director of the National Accounts Division, Pål Sletten, said in a press release.
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