New information since the March Monetary Policy Report (1/11)
- Manufacturing output growth has slowed in recent months, but expectations indicators remain high among most of Norway’s trading partners. In April, the IMF forecast global economic growth at 4.4 per cent in 2011 and 4.5 per cent in 2012, in line with the January projections.
- Growth is still stronger in emerging economies than in advanced economies, although the pace of growth has slowed somewhat. Among the advanced economies, growth is particularly vigorous in Germany and Sweden.
- Seasonally adjusted GDP growth in the US was 0.4 per cent between the fourth quarter of 2010 and the first quarter of 2011. This is somewhat lower than projected in the March Report.
- In April, Portugal requested financial support from the EU and the IMF. Representatives from the EU, IMF and Portugal have now agreed on a financing program. The program is expected to be adopted by all three parties in mid-May.
- Unemployment remains high in most advanced economies. In the euro area, unemployment has remained stable at around 10 per cent for more than a year. In the US, unemployment has moved down over the past year, but has hovered around 9 per cent in recent months.
- Sharply rising energy and food prices have pushed up consumer prices among Norway’s trading partners. Underlying consumer price inflation has also risen, but is still low in most advanced economies.
- Long-term inflation expectations have increased in the euro area, but are stable in the UK and the US. Expected inflation one year ahead has risen in many countries.
Financial markets (1)
Equities and commodities
- Oil prices are approximately unchanged since the publication of the March Report.
- The Economist commodity price index has fallen by 6 per cent in XDR (2) terms. Prices for non-food agriculturals have declined in particular.
- Most international stock indices have fallen somewhat recently, but are still higher than at the time of publication of the March Report. Japanese stock indices have picked up since March, but index levels are still lower than before the earthquake on 11 March.
- Market expectations concerning key rates among Norway’s trading partners are approximately unchanged compared with the March Report.
- The European Central Bank (ECB) raised its key rate in April and market participants expect three further increases in the year ahead. The Bank of England is expected to raise its key rate in autumn 2011. The first key rate increase in the US is expected in spring 2012.
- The interest rate differential between Norway and trading partners, as measured by the three-month money market rate, is now 1.3 percentage points. The interest rate differential has narrowed somewhat since the March Report.
- In Norway, the spread between three-month money market rates and the expected key policy rate (the premium) is approximately 0.4 percentage point. So far in the second quarter of 2011, the premium is somewhat lower than assumed in the March Report.
- According to figures from Norsk Familieøkonomi, the weighted average interest rate on new residential mortgages is 3.54 per cent (3). This lending rate has remained broadly unchanged since November 2010.
- Long US and German government bond yields are approximately unchanged since the March Report. Yields on 10-year government bonds are 3.20 and 3.15 per cent respectively in the US and Germany.
- The spread over German 10-year government bond yields has widened for several southern European countries and Ireland since the March Report. Greek ten-year government bond yields are 12.3 percentage points higher than German yields, while Irish and Portuguese yields are respectively 7.5 and 6.6 percentage points higher.
- The risk premium on Portuguese covered bonds has risen since March and is now 4.9 percentage points. The risk premium on Spanish, Italian and Irish covered bonds has edged down in the same period and is now 2.0, 1.1 and 3.4 percentage points respectively.
- CDS prices for European financial institutions, as measured by the iTraxx index (4), have fallen by about 0.2 percentage point since the March Report.
- Since the March Report, the US dollar (USD) has depreciated in effective terms by about 2 per cent, while the euro (EUR) has appreciated by more than 1 per cent. Most commodity currencies have appreciated. The Japanese yen (JPY) is about 2 per cent weaker than at the time of publication of the March Report.
- The import-weighted krone exchange rate (I-44) has appreciated somewhat since the March Report. So far in the second quarter of 2011, the krone has been about 1 per cent stronger than projected in the March Report.
- The consumer price index rose by 1.3 per cent in the year to April 2011, up from 1.0 per cent in March. This is 0.4 percentage point higher than projected in the March Report.
- Adjusted for tax changes and excluding temporary changes in energy prices (CPIXE), consumer prices rose by 1.6 per cent in April, up from 1.2 per cent in March. This is 0.5 percentage point higher than projected in the March Report. Other indicators of underlying inflation ranged between 0.9 and 2.1 per cent.
Output and demand
- Seasonally adjusted household spending on goods fell by 1.0 per cent between February and March, after rising by 1.2 per cent the previous month. Owing to a late Easter in 2011, seasonally adjusted figures for March are more uncertain than usual.
- Different confidence indicators measuring consumers’ view of their own financial situation and Norway’s economy have picked up to a relatively high level.
- A survey of a sample of enterprises in Norges Bank’s regional network indicates that output growth is relatively strong, but somewhat weaker than expected by the enterprises in January. Overall market prospects appear to have improved somewhat. Developments in employment have been approximately as expected and capacity utilisation appears to be virtually unchanged.
- According to building statistics, the number of housing starts rose by a seasonally adjusted 21 per cent in the first quarter of 2011 compared with the fourth quarter of 2010. Other building starts, measured in square meters, rose by 15 per cent in the same period.
- Manufacturing output adjusted for seasonal variations increased by 0.9 per cent between February and March, after falling by 0.2 per cent the previous month. Output rose by 0.5 per cent between the fourth quarter of 2010 and the first quarter of 2011. Working-day adjusted output increased by 3.0 per cent in the year to March 2011.
- According to the Norwegian PMI (Purchasing Managers’ Index), manufacturing activity moved down somewhat in April. The Norwegian PMI fell from 57.4 in March to 55.6 in April.
- The value of traditional merchandise exports rose by 5.4 per cent between the fourth quarter of 2010 and the first quarter of 2011. The value of imports rose by 7.2 per cent in the same period. The strong rise is partly the result of the import of a frigate. Excluding this, the value of imports would have risen by 4.0 per cent.
Labour market and wages
- Registered unemployment was a seasonally adjusted 2.7 per cent of the labour force in April, unchanged on March. Registered unemployment was somewhat lower than projected in the March Report.
- According to Statistics Norway’s labour force survey (LFS), seasonally adjusted unemployment was 3.1 per cent of the labour force in the period between January and March, down from 3.3 per cent in the previous three-month period. Employment increased by 7000 and the labour force by 4000 in the same period.
- In the final report from the Technical Reporting Committee on Income Settlements, overall wage growth between 2009 and 2010 is estimated at 3.75 per cent. The Committee estimates the wage carry-over into 2011 at 1.9 per cent.
Domestic credit and house prices
- Gross domestic debt in the private and municipal sector (C2) rose by 6.2 per cent in the year to March 2011. Household debt growth was 6.9 per cent. Debt growth for non-financial corporations was 3.7 per cent.
- According to house price statistics from the real estate industry, house prices rose by 8.0 per cent in the year to April 2011, down from 9.7 per cent in March. Real house prices for April, deflated by the CPI, were a seasonally adjusted 1.5 per cent higher than the previous peak in June 2007.
- Norges Bank’s survey of bank lending for the first quarter of 2011 showed an increase in household credit demand. Banks’ credit standards for households and enterprises were approximately unchanged. Banks expect household credit demand to remain broadly unchanged and corporate credit demand to increase somewhat ahead.
1) All market data as of 10 May 2011
2) Special drawing rights, IMF. As of 10 May XDR 1 = NOK 8.68
3) New variable-rate residential mortgages of NOK 1 million, within 60 per cent of the purchase price
4) The iTraxx financial index contains the CDS spreads of 25 major European financial institutions
Press telephone: +47 21 49 09 30