New information since the October Monetary Policy Report (3/10)
- Growth in the world economy was somewhat stronger than expected in the latter half of 2010. Growth in industrial output has picked up in recent months and different expectations indicators have risen.
- Unemployment remains high in most advanced economies. In the US, unemployment has decreased somewhat since the October 2010 Monetary Policy Report and is now 8.9 per cent.
- Consumer price inflation picked up among Norway’s trading partners towards the end of 2010 and into 2011, as a result of a sharp rise in energy and food prices. Underlying consumer price inflation is still low in most advanced economies.
- Long-term inflation expectations are stable in most advanced economies, but expected inflation one year ahead has risen in many countries.
Financial markets (1)
Equities and commodities
- Oil prices have risen sharply recently as a result of the unrest in the Middle East and North Africa. The spot price of Brent Blend oil, in USD terms, is now 39 per cent higher than at the time of publication of the October Report. Oil prices have risen by 19 per cent since the monetary policy meeting on 26 January 2011.
- The Economist commodity price index has increased by 22 per cent in XDR (2) terms since the October Report and by 2 per cent since the previous monetary policy meeting. Prices for non-food agriculturals in particular have risen sharply in recent weeks.
- Most international stock indices have fallen back somewhat recently, but are higher than at the time of publication of the October Report. Following the earthquake on 11 March, Japanese stock indices have fallen markedly and are now at lower levels than at the time of publication of the October Report.
- Market expectations concerning key rates among our trading partners have increased compared with the October Report. Key rates in the euro area are expected to rise in the course of spring. The Bank of England is expected to raise its key rate in the course of summer. The first key rate increase in the US is expected around the turn of the year.
- The interest rate differential between Norway and trading partners, as measured by the three-month money market rate, is now 1.4 percentage points. The interest rate differential has narrowed since the October Report.
- In Norway, the spread between three-month money market rates and the expected key policy rate (the premium) is approximately 0.5 percentage point. So far in the first quarter of 2011, the premium is higher than assumed in the October Report.
- According to figures from Norsk Familieøkonomi, the weighted average interest rate on new residential mortgages is 3.54 per cent. (3) The overall lending rate has edged down since the October Report, but has remained approximately unchanged since December 2010.
- According to Statistics Norway, banks’ interest margin fell by 0.07 percentage point to 2.39 per cent in the fourth quarter of 2010.
- Long-term interest rates have picked up since the October Report, but have recently fallen back somewhat. Ten-year government bond yields have risen by 0.5 percentage point in the US to 3.25 per cent since the October Report. German yields have risen by 0.6 percentage point to 3.2 per cent.
- The spread over German 10-year government bond yields has widened for several southern European countries and Ireland since the October Report. Greek ten-year government bond yields are 9.2 percentage points higher than German yields, while Irish and Portuguese yields are respectively 6.3 and 4.2 percentage points higher.
- The risk premium on Spanish, Portuguese and Italian covered bonds has risen since the October Report to 2.1, 3.9 and 1.4 percentage points respectively.
- CDS prices for European financial institutions, as measured by the iTraxx index (4), have shown an overall rise since the October Report.
- Since the October Report, the euro (EUR), US dollar (USD) and Japanese yen (JPY) have depreciated, while the Swiss franc (CHF), Swedish krona (SEK) and most commodity currencies have appreciated, as measured by effective exchange rates.
- The import-weighted exchange rate (I-44) has appreciated by 3 per cent since the October Report and by close to 1 per cent since the January 2010 monetary policy meeting. So far in the first quarter of 2011, the krone has been 2 per cent stronger than projected in the October Report.
- The consumer price index (CPI) rose by 1.2 per cent in the year to February 2011, down from 2.0 per cent in January. This is 0.5 percentage point higher than projected in the October Report.
- Adjusted for tax changes and excluding temporary changes in energy prices (CPIXE), consumer prices rose by 1.1 per cent in February, up from 1.0 per cent in January. This is 0.1 percentage point lower than projected in the October Report. Other indicators of underlying inflation ranged between 0.8 and 1.6 per cent.
- According to Perduco’s expectations survey, most groups revised up their long-term inflation expectations somewhat in the first quarter of 2011.
Output and demand
- According to preliminary figures from the quarterly national accounts, mainland GDP rose by 2.2 per cent between 2009 and 2010. This is 0.5 percentage point higher than projected in the October Report.
- In January, the enterprises in Norges Bank’s regional network reported marked growth in output over the previous three months. Output prospects for the half-year ahead have improved since November.
- Seasonally adjusted household spending on goods rose sharply in October and November 2010, but fell in December and was unchanged in January.
- Different confidence indicators measuring consumers’ view of their own financial situation and Norway’s economy have picked up to a relatively high level.
- According to building statistics, the number of housing starts rose by a seasonally adjusted 20 per cent in the period between November and January compared with the previous three-month period. The number of other building starts rose by 4 per cent in the same period.
- Manufacturing output adjusted for seasonal variations increased by 0.6 per cent from December to January after falling by 1 per cent the previous month. Output was 0.4 per cent higher in the period between November and January than in the previous three-month period.
- According to the Norwegian PMI (Purchasing Managers’ Index), manufacturing activity continued to grow in February. The Norwegian PMI rose from 56 in January to 58.7 in February, which is the highest index value reported since October 2007.
- According to Statistics Norway’s investment statistics for the first quarter, the value of expected investment in manufacturing, mining and quarrying and electricity supply in 2011 is estimated at NOK 39.1 billion. This is 14 per cent higher than the investment value recorded in 2010.
- The value of expected investment in petroleum activities in 2011 is estimated at NOK 141 billion. This is 13 per cent higher than the investment value recorded in 2010.
Labour market and wages
- Registered unemployment was a seasonally adjusted 2.8 per cent of the labour force in February, unchanged on January and approximately as projected in the October Report.
- According to Statistics Norway’s labour force survey (LFS), seasonally adjusted unemployment was 3.4 per cent of the labour force in the period between November and January, down from 3.6 per cent in the previous three-month period. According to the LFS, employment increased by
17 000 in this period.
- Enterprises in Norges Bank’s regional network expect employment growth to pick up over the next three months.
- In the preliminary report from the Technical Reporting Committee on Income Settlements, wage growth for employees in organised enterprises and in public administration including health enterprises is estimated at 3.75 per cent between 2009 and 2010. The Committee estimated the wage carry-over into 2011 for employees in the above groups at 1.75 per cent.
Domestic credit and house prices
- Gross domestic debt in the private and municipal sector (C2) rose by 6.1 per cent in the year to January 2011. Household debt growth was 6.5 per cent. Debt growth for non-financial corporations was 3.8 per cent.
- According to house price statistics from the real estate industry, house prices rose by 9.2 per cent in the year to February 2011. In real terms, seasonally adjusted house prices for February, deflated by the CPI, were 2 per cent higher than at the peak in June 2007.
- Finanstilsynet’s (Financial Supervisory Authority of Norway) residential mortgage loan survey conducted in autumn 2010 showed that mortgages with a high loan-to-value ratio had decreased and that the use of additional collateral had increased somewhat. However, the share of mortgages with high loan-to-value ratios remains elevated.
- Norges Bank’s lending survey for the fourth quarter of 2010 showed an increase in credit demand for both households and enterprises. Banks’ credit standards for households and enterprises were approximately unchanged. Banks expect corporate credit demand to increase ahead.
1) All market data are as of 14 March 2011
2) Special drawing rights, IMF. As of 14 March, XDR 1 = NOK 8.85
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
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