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SEB report: Norway is still not quite like others

SEB report: Norway is still not quite like others

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Published by SEB Group
The broad contours of SEB’s economists’ expectations for the Norwegian economy remain intact. Growth in overall GDP should accelerate to 2.1 per cent in 2012 helped by a very strong investment cycle in the oil sector. However, relative to their outlook in November last year, they have sliced their forecast for growth in mainland GDP – excluding oil/gas and shipping – to 2.4 per cent in 2012, marginally slower than in 2011, but leave the 2013 forecast at 2.9 per cent.
The broad contours of SEB’s economists’ expectations for the Norwegian economy remain intact. Growth in overall GDP should accelerate to 2.1 per cent in 2012 helped by a very strong investment cycle in the oil sector. However, relative to their outlook in November last year, they have sliced their forecast for growth in mainland GDP – excluding oil/gas and shipping – to 2.4 per cent in 2012, marginally slower than in 2011, but leave the 2013 forecast at 2.9 per cent.

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Published by: SEB Group on Jan 18, 2012
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01/19/2012

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Norway: Still not quite like others
WEDNESDAY
18 JANUARY 2012
 
The broad contours of our expectations for the Norwegian economy remain intact:
growth in overall GDP should accelerate to 2.1% in 2012
helped by a very stronginvestment cycle in the oil sector. However, relative to the latest Nordic Outlook, we havesliced our forecast for
growth in mainland GDP
– excluding oil/gas and shipping –
to2.4% in 2012
, marginally slower than in 2011, but
leave the 2013-forecast at 2.9%
.
 
While non-oil exports of goods slipped in late 2011, headwinds from abroad have beenmost visible in “soft” indicators. The manufacturing PMI has thus dropped markedly andconsumer confidence has declined to a below-trend level which on the face of it suggeststhat private consumption will continue to lag well behind very solid income growth.
 
Surging oil sector investment provides the Norwegian economy with
an “extra” demandimpulse
others are lacking. This should show up in a split in manufacturing with activityamong suppliers to the oil sector holding up well while producers of intermediate goodswill be hit by weakness at main export markets. The decline in non-petroleum exports inthe second half of 2011 is expected to carry over to early 2012.
 
Norges Bank made a surprisingly deep 50bps cut in its key deposit rate to 1.75% inDecember. SEB’s forecast is that the ECB will leave policy rates unchanged going forward.If so, Norges Bank should stay put as well, but should the ECB opt for cutting rates, a25bps rate cut at the mid-March monetary policy meeting cannot be ruled out.
 
Norway is in a
unique fiscal position
. The
central 
government surplus of NOK 373bn in2011 (some 13.5% of GDP) was NOK 106bn more than expected: higher income from theoil sector (higher prices) contributed a lot, but the non-oil budget deficit was 51bn lowerthan assumed on e.g. higher tax income. The 2012 budget puts the
general 
governmentsurplus at 11.5% of GDP, leaving the government ample room to stimulate if needed.
Stein Bruun, +47 2108 8534, and Erica Blomgren, +47 2282 7277, SEB Norway
GrowthInflationLabour-market
Key data
Percentage change
2010 2011 2012 2013
GDP 0.7 1.4 2.1 2.4Mainland GDP 1.9 2.5 2.4 2.9Unemployment
*
3.6 3.3 3.4 3.3Inflation 2.5 1.2 1.4 2.1Core inflation 1.4 0.9 1.5 2.0Government balance** 10.8 13.6 11.5
* Per cent of labour force, ** General government, per cent of GDP,forecast 2012 MoF (Oct. 2011)Source: SEB
Year-on-year percentage change
Growth should hold up rather well
Norwegian real GDP GDP mainland Norway
Source: Statistics Norway, SEB
03 04 05 06 07 08 09 10 11 12 13-3-2-10123456789-3-2-10123456789SEB forecast
 
 
 
Economic Insights
DEMAND AND PRODUCTION
 
Momentum in retail sales has been muted recently in part as unusual warm weather put a lid on sale of seasonalgoods. In general, private consumption is surprisingly soft considering that households’ real disposable incomesurged 5.2% year-on-year on average in the first three quarters of 2011, twice the rate of consumption. However,developments abroad have hit consumer sentiment with the quarterly index below its long-term average suggestingsub-par spending growth and a monthly indicator ending 2011 at the weakest since the financial crisis of 2008.
 
The acceleration in manufacturing production (i.e. excluding energy) last autumn - the September-November levelwas up a solid 1.9% from the previous three-month period - should prove short-lived. The manufacturing PMI hasdropped markedly to a more than two-year low of 46.6 in December with the orders component particularly weak.
 
Exports of traditional goods (excl. energy, ships and oil platforms) declined 0.9% in volume terms on the quarter inQ4, slightly more than in the previous one, to be up 3.4% year-on-year. As imports gained, net trade of traditionalgoods dented mainland GDP last Q4 with a larger blow to overall GDP as energy exports dropped sharply. Regardingthe effect on GDP, it should be noted that while overall exports make up slightly more than 40% of GDP, non-oilexports of goods accounts for a rather limited 15-16% of mainland GDP.
Retail sales have been soft lately
3-month average
-8-404812160102030405060708091011-2-101234Real retail sales excl. autos, % change year-on-year (LHS)3 mth. average from 3 mth. earlier (RHS)
Source: Statistics Norway
Softersentiment suggest sub-par consumption
 
-2.50.02.55.07.510.09899000102030405060708091011-1001020304050Private consumption, % change year-on-year (LHS)Consumer confidence (RHS)
Source; Ecowin, Statistics Norway
 
Stronger momentum in manufacturing…
3-month average
-16-80816240102030405060708091011-4-3-2-10123456Manufacturing production, % change year-on-year (LHS)From 3 months earlier (RHS)
Source: Statistics Norway
about to turn as indicators have deteriorated
Net balance (sentiment) and index (PMI)
-30.0-22.5-15.0-7.50.07.515.022.530.037.5010203040506070809101130354045505560657075Manufacturing sentiment (LHS)PMI manufacturing (RHS)PMI new orders (RHS)
Source: Ecowin, Statistics Norway
 
Exports has weakened
Percentage change
-7.5-5.0-2.50.02.55.07.510.012.50102030405060708091011-30-20-1001020304050Real exports traditional goods, from previous quarter (LHS)Change year-on-year (RHS)
Source: Statistics Norway
Relative prices a bit less favourable
Terms of trade. Index 2001=100
80100120140160180200010203040506070809101180100120140160180200Overall exports and imports of goodsTraditional goods (excl. oil and gas)
Source: Statistics Norway, SEB
 
2
 
 
 
Economic Insights
LABOUR MARKET AND INFLATION
 
Employment growth is likely to moderate compared with the solid 2.1% year-on-year rate on average in September-November. Although the trend in vacancies has yet to show a turn to the worse, softer growth should put a lid onemployment, and as the labour force is set to continue rising (with an extra lift from migration), the LFSunemployment rate is like to rise from 3.3% at present, although only marginally.
 
Overall CPI inflation dropped a full percentage point to 0.2% in December on an extremely strong base effect forelectricity prices (surging in December 2010 on colder-than-usual weather while declining this time around).Meanwhile, core CPI – excl. taxes and energy (CPI-ATE) – was steady at 1.0% in to year to December. The choppypattern in core inflation over the past year is likely to persist but the general trend should be slightly upwards.
 
Tight supply/demand conditions have fuelled existing home prices which were up 9.0% in 2011 and ended the year33% above the trough in November 2008. Home prices seem way too high relative to CPI and rents, but not whenmeasured against household income or housing starts which are lagging what demographics suggest. Despitetighter equity requirements for mortgages, persisting supply-demand imbalances should put a floor under prices.
Employment growing at a solid pace
3-month average
-2-10123456010203040506070809101101234567Employment, % change year-on-year (LHS)Unemployment rate, % of labour force (RHS)
Source: Statistics Norway
Vacancies are still holding up
No in 1.000
051015202530354045030405060708091011051015202530354045Stock of vacant jobs, 3 mth. averageNew vacancies, 3 mth. average
Source: Statistics Norway
 
Core inflation is moving sideways
Year-on-year percentage change
-2-101234560102030405060708091011-2-10123456Consumer pricesCPI excl. taxes and energy
Source: Statistics Norway
Softer domestic inflation at end-2011
Year-on-year percentage change
-4.5-3.0-1.50.01.53.04.56.00102030405060708091011-4.5-3.0-1.50.01.53.04.56.0Core CPI domestic goods and servicesCore CPI imported consumer goods
Source: Statistics Norway, SEB
 
Existing home prices continue to rise
 
-10-505101520250102030405060708091011101520253035Existing home prices, % change year-on-year (LHS)Existing home prices per sqm in NOK 1.000 (RHS)
Source: Norw. Ass. of Real Estate Agents
Housing starts are trailing demographics
 
-45-30-15015304560750102030405060708091011152025303540Housing starts 3 mth. average, % change year-on-year (LHS)Housing starts in 1.000, 12 mth. aggregate (RHS)
Source: Statistics Norway
 
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