Economic Outlook 1/217 7 February 217 Analyst Jeanette Strøm Fjære
Global growth edging higher, but risks increasing 1 GDP Percent change y/y and grow th contribution 12 BRIC: GDP Percent change from year before 8 6 4 2-2 -4 1985 199 1995 2 25 21 215 22 Adv. EMEs Adv. EMEs Source: IMF WEO/Thomson Datastream/DNB Markets 9 6 3-3 -6 Q4 21 Q4 212 Q4 214 Q4 216 China India Russia Brazil Source: Thomson Datastream/DNB Markets. BRICs account for 53% av EMEs, 3% of world DNB Markets Economic Outlook 1/17, 7 February 217, page 2
Unemployment lower and deflation risk gone 14 Unemployment Percent of labour force 4 Core inflation Per cent change y/y 12 1 3 8 6 2 4 2 1 Dec-6 Dec-11 Dec-16 USA EMU Japan UK Source: Thomson Datastream/DNB Markets Dec-6 Dec-11 Dec-16 USA Euro area UK Sweden Source: Thomson Datastream/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 3
Oil market back in balance 16 14 12 1 8 6 4 2 Brent, spot USD per barrel 1997 22 27 212 217 222 Historical Term price DNB Forecast Source: Thomson Datastream/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 4
Still low (short and long) interest rates 6 5 4 3 2 1 Signal rates Actual/forecast 28-Oct-216-1 Jan-6 Jan-9 Jan-12 Jan-15 Jan-18 USA Japan EMU UK Sweden Norway Source: Thomson Datastream/DNB Markets 5 4 3 2 1 Ten year swap yields Actual/forecast 18-Jan-217-1 Jan-1 Jan-12 Jan-14 Jan-16 Jan-18 Jan-2 USA Japan EZ UK Sweden Switzerland Source: Thomson Datastream/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 5
Political risk on the rise 1. Rate hikes in the US: Overheating forces Fed to increase rates faster 2. Protectionism (Trump) Globalization already on its way back. Slower growth and higher inflation 3. Political uncertainty in Europe Uncertainty and worst case: End of EU Policy Uncertainty 3m moving average 9 8 7 6 5 4 3 2 1 Dec-1 Dec-4 Dec-7 Dec-1 Dec-13 Dec-16 Europe USA UK Source: Economic Policy Uncertainty/Thomson Datastream/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 6
Norway: Is housing the new oil?
Growth increasing very slowly 6 5 4 3 2 1-1 Norway: Key indicators Per cent -2 199 1995 2 25 21 215 22 Mainl.-GDP y/y CPI, y/y Unemploym. Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 8
Oil sector still negative drag to growth 25 2 15 1 5 Norway: Petroleum investments Per cent change from preceding year 1 8 6 4 2 199 1995 2 25 21 215 22 Bn 213-NOK Share of Mainland GDP (rha) Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 9
Public demand prevent GDP from falling 35 3 25 2 15 1 5 Structural oil-adjusted deficit NOK bn, 217-prices 21 24 27 21 213 216 Actual Source: Ministry of Finance, NB217/DNB Markets 4%-rule 15 14 13 12 11 1 99 98 Norway: Gross product Index: 214 = 1, sa. 97 Q1 214 Q1 215 Q1 216 Mainland Public sector Mainland business Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 1
Construction and tourism stimulated by low rates Norway: Gross product Index: 214 = 1, sa. 116 114 112 11 18 16 14 12 1 98 Q1 214 Q1 215 Q1 216 Construction Source: Statistics Norway/DNB Markets Hotel and restaurants 11 15 1 95 9 85 8 75 Norway: Gross product Index: 214 = 1, sa. 7 Q1 214 Q1 215 Q1 216 Petro. direct services Manuf., petroexposed Manuf., other Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 11
Weak NOK increases profits but not production 15 14 13 12 11 1 9 8 7 6 Q1 212 Norway: Exports of fish and agri. NOK bn. per quarter Q3 212 Q1 213 Q3 213 Q1 214 Current prices, nsa Source: Statistics Norway/DNB Markets Q3 214 Q1 215 Q3 215 Q1 216 Q3 216 Fixed 214-prices, sa. Norway: Export manufacturing x ref. oilpr. NOK bn. per quarter 76 74 72 7 68 66 64 62 6 58 56 Q1 212 Q1 213 Q1 214 Q1 215 Q1 216 Current prices, nsa Source: Statistics Norway/DNB Markets Fixed 214-prices, sa DNB Markets Economic Outlook 1/17, 7 February 217, page 12
Unemployment is stabilizing, regional differences 2 18 16 14 12 1 8 6 4 Norway: Unemployed 1, seasonally adjusted 2 Dec-89 Dec-94 Dec-99 Dec-4 Dec-9 Dec-14 Reg.+measures Reg. LFS Source: Thomson Datastream/DNB Markets 5. 4.5 4. 3.5 3. 2.5 2. Registered Unemployment By region, % of labour force 1.5 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Non-West East-7 Inland-2 West-5 North-3 Rogaland Source: NAV/Thomson Datastream/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 13
Lower inflation lifts consumption Norway: Annual wage growth Per cent annual change 7 6 5 4 3 2 1-1 -2 2 25 21 215 22 Real Source: Statistics Norway/DNB Markets CPI 12 1 8 6 4 2-2 -4 Norway: Households Per cent -6 199 1995 2 25 21 215 22 3. 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2. Consumption Disp. income Savings rate Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 14
Less room for fiscal and monetary policy 15 12 9 6 3 Structural oil-adjusted balance Per cent of trend-gdp for Mainland-Norw ay 2 21 22 23 24 25 26 Actual Ref* 3% spending Pensions *) 3% real return for 15 years, 4% thereafter. 4% spending rule Source: Ministry of Finance, NB217/DNB Markets 8 7 6 5 4 3 2 1 Q2 28 Q2 29 Norway: Interest rates Per cent Q2 21 Q2 211 Q2 212 Housing mortages Source: Norges Bank/DNB Markets Q2 213 Q2 214 Q2 215 3m Norway Q2 216 DNB Markets Economic Outlook 1/17, 7 February 217, page 15
Housing market lifts GDP, but also a risk factor 3 25 2 15 1 5-5 -1 Norway: Home prices Pct. change y/y -15 Dec-6 Dec-8 Dec-1 Dec-12 Dec-14 Dec-16 Norway Oslo Stavanger Source: Eiendom Norge/ FINN/Eiendomsverdi/DNB Markets 2 18 16 14 12 1 8 6 Norway: Housing investment Bn 214-NOK 4 1995 2 25 21 215 22 Source: Statistisk sentralbyrå/dnb Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 16
and has stopped Norges Bank s easing cycle.5 Norges Bank: Change in Rate Path MPR 4/16-MPR 3/16, pct. points 1.5 Norway: Key policy rate Percent.25 1.25. 1. -.25 -.5 Mar-17 Mar-18 Mar-19 Financial imbalances and uncertainty Money market premiums Exchange rate Prices and wages Foreign interest rates Demand Source: Norges Bank/DNB Markets.75.5.25. 215 216 217 218 219 Actual MPR 4/16 DNB Markets Source: Thomson Datastream/Norges Bank/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 17
But what if housing prices drop by 2 per cent? 15. Norway: Housing prices Per cent 1. 5.. -5. -1. -15. -2. 217 218 219 22 Diff Main scenario Low scenario Source: DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 18
Private consumption markedly lower 3. Norway: Private consumption Per cent 2. 1.. -1. -2. -3. 217 218 219 22 Source: DNB Markets Diff Main scenario Low scenario DNB Markets Economic Outlook 1/17, 7 February 217, page 19
Housing investments down by 25 per cent 4. 2.. -2. -4. -6. -8. -1. -12. Norway: Housing investments Per cent 217 218 219 22 Source: DNB Markets Diff Main scenario Low scenario DNB Markets Economic Outlook 1/17, 7 February 217, page 2
Lower growth and higher unemployment 3. 2.5 2. 1.5 Norway: Mainland-GDP Per cent 6. 5. 4. Norway: Unemployment (LFS) Per cent of labour force 1..5. -.5 3. 2. 1. -1. 217 218 219 22 Diff Main scenario Low scenario. 217 218 219 22 Diff Main scenario Low scenario Source: DNB Markets Source: DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 21
Some help from lower rates and fiscal stimulus Norway: EURNOK Norway: 3m NIBOR 9.4 1.6 1.2 9.2 1.4 1. 9. 1.2.8 8.8 1..6 8.6.8.4 8.4.6.2 8.2.4. 8..2 -.2 7.8 217 218 219 22. -.4 217 218 219 22 Diff, rha Main scenario Low scenario Diff, rha Main scenario Low scenario Source: Statistics Norway/DNB Markets Source: Statistics Norway/DNB Markets DNB Markets Economic Outlook 1/17, 7 February 217, page 22
Thank you for your attention! Questions?
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