Norges Bank

New information since the June Monetary Policy Report (2/11)

International economy

  • The outlook for the world economy has weakened and turbulence in financial markets has heightened. Confidence indicators for households and enterprises have dropped sharply.
  • In the second quarter, growth in the global economy slowed more than projected in the June 2011 Monetary Policy Report. Seasonally adjusted GDP growth in the euro area and the US was 0.2 and 0.3 per cent, respectively, between the first and second quarter of 2011. In the UK, seasonally adjusted GDP grew by 0.1 per cent in the second quarter.
  • Growth also slowed in emerging market economies through the first half of 2011. The emerging market economies in the G20 grew by 1.5 per cent between the first and second quarter, down from 1.75 per cent in the first quarter.
  • Inflation remains high among many of Norway's trading partners. Core inflation in the US has continued to rise and is now approximately 2 per cent.
  • Among most of Norway's trading partners, both short-term and long-term inflation expectations have fallen.
  • Long-term sovereign debt credit ratings have been lowered for several countries, including the US, Italy, Spain, Portugal, Greece and Ireland.
  • In the US, Congress agreed to raise the federal debt ceiling. At the same time, a plan for a substantial reduction in the fiscal deficit over a ten-year period was approved.
  • In July, the euro area countries presented a new debt financing package for Greece, with longer maturities and lower interest rates. Portugal and Ireland will be given similar terms. The agreement was approved by all member countries in October.
  • In August, the ECB resumed purchases of euro area government securities. At the same time, the ECB reintroduced loans with a maturity of six months. At its October meeting, the ECB introduced loans with a maturity of 12 months and extended the full allotment period in all its operations. At the same time, the ECB decided to resume purchases of covered bonds.
  • The euro area countries have announced that they will present a comprehensive plan by the end of October that will include details on recapitalising the banking sector and measures to address the sovereign debt problems in Greece.
  • The central banks in the euro area, US, UK, Switzerland and Japan have announced coordinated measures to supply US dollars to banks.

Financial markets [1]


Equities and commodities

  • The price of oil is now USD 113 per barrel.
  • The Economist weekly commodity-price index has decreased by 12 per cent in XDR [2] terms.
  • Gold prices have fallen recently, after rising sharply through summer and early autumn. Gold prices are now 9 per cent higher than when the June Report was published.
  • Most international stock indices fell through summer, but have subsequently rebounded somewhat. Stock market prices have shown considerable volatility.

Interest rates

  • The ECB raised its key rate to 1.5 per cent in July, but has since kept it unchanged. However, liquidity supplied by the ECB has pushed down the short-term money market rate (EONIA).
  • Market expectations concerning key rates among Norway’s trading partners have fallen sharply. In the euro area, the EONIA is expected to continue to fall. This may reflect the ECB’s liquidity provision operations, but may also be related to lower key rate expectations. In the US and UK, the first key rate increase is expected around mid-2013.
  • The interest rate differential against trading partners has widened somewhat since June and is now 1.6 percentage points, as measured by the three-month money market rate.
  • In Norway, the spread between three-month money market rates and the expected key policy rate (the premium) is approximately 0.9 percentage point. In the third quarter, the premium was markedly higher than projected in June.
  • Higher money market premiums and increased credit premiums on bank bonds and covered bonds have led to higher funding costs for Norwegian banks and mortgage companies.
  • According to figures from Norsk Familieøkonomi, the weighted average interest rate on new residential mortgages [3] is 3.87 per cent, an increase of 0.11 percentage point since the June Report.
  • Long-term US and German government bond yields have risen in recent weeks, but have fallen sharply since the June Report. Ten-year government bond yields in the US and Germany are now 2.2 and 2.1 per cent, respectively. Norwegian long-term government bond yields have also fallen since the June Report.
  • The spread against German ten-year government bond yields has increased markedly for Greece, and is now 22 percentage points. The spread has also widened for Italy, Spain, Portugal and Belgium and is now 3.7, 3.2, 9.7 and 2.4 percentage points, respectively. The spread for Irish government bond yields has narrowed to 6.1 percentage points.
  • Risk premiums on Portuguese, Irish, Spanish and Italian covered bonds have risen considerably and are 8.4, 4.5, 2.9 and 2.9 percentage points, respectively. Risk premiums on Portuguese and Italian covered bonds have shown the largest change, increasing by 3.1 and 1.6 percentage points, respectively.
  • CDS prices for European financial institutions, as measured by the iTraxx index [4], have risen by about 80 basis points.

Exchange rates

  • Since the June Report, the US dollar (USD) effective exchange rate has appreciated by 1.8 per cent, while the euro (EUR) effective exchange rate has depreciated by 3 per cent. The Japanese yen (JPY) has appreciated by 6.6 per cent. Commodity currencies, such as the Canadian dollar (CAD), New Zealand dollar (NZD) and Australian dollar (AUD), have depreciated.
  • The Swiss National Bank introduced a minimum exchange rate for the Swiss franc (CHF) against the euro on 6 September. This contributed to an immediate depreciation of the Swiss franc.
  • The krone exchange rate has fluctuated considerably and, as measured by the I-44, has averaged 87.4 in the third quarter, approximately as projected in June.

Norwegian economy



  • In the year to September 2011, the consumer price index (CPI) rose by 1.6 per cent, 0.5 percentage point lower than projected in the June Report.
  • Adjusted for tax changes and excluding temporary changes in energy prices (CPIXE), consumer prices rose by 1.3 per cent in September, up from 0.9 per cent in August. This is 0.2 percentage point lower than projected in June. Inflation adjusted for tax changes and excluding energy products (CPI-ATE) was 1.2 per cent in September, 0.1 percentage point lower than projected. Other indicators of underlying inflation ranged between 1.2 and 1.8 per cent in September.
  • In September, the enterprises in Norges Bank’s regional network reported a moderate rise in prices over the past 12 months.

Output and demand

  • According to preliminary seasonally adjusted figures from the quarterly national accounts, mainland GDP grew by 1.0 per cent from the first to the second quarter. This was somewhat weaker than projected in the June Report.
  • Private consumption has been weaker than projected. Seasonally adjusted household spending on goods rose by 2.0 per cent between July and August, after falling for two months. Car sales were high in both August and September.
  • The market research agency Opinion’s Consumer Confidence Index fell between August and September. Consumer spending plans are slightly lower so far in 2011 compared with the same period in 2010. TNS Gallup’s trend indicator, which measures households' assessments and expectations concerning their financial situation and the Norwegian economy, fell in the third quarter.
  • According to building statistics, seasonally adjusted housing starts, measured in square metres, in the period between June and August were 9 per cent lower than in the period between March and May, but housing starts were nonetheless 12 per cent higher in the period between June and August 2011 than in the same period in 2010. Other building starts, measured in square metres, fell by 14 per cent in the period between June and August compared with the period between March and May.
  • Seasonally adjusted manufacturing output was 1.7 per cent lower in the period between June and August than in the previous three-month period. Working-day adjusted manufacturing output rose by 1.9 per cent between August 2010 and August 2011.
  • Adjusted for seasonal patterns, the Norwegian PMI (Purchasing Managers Index) fell from 55.4 in August to 54.8 in September. The majority of purchasing managers reported a pickup in output and new orders between August and September.
  • The volume of traditional merchandise exports fell by a seasonally adjusted 0.3 per cent between the second and third quarter of 2011. Traditional merchandise imports fell by 0.5 per cent in the same period.
  • In the National Budget for 2012, the structural non-oil deficit for 2012 is estimated at NOK 122.2 billion. At constant 2012-prices, the deficit will increase by NOK 9.9 billion on 2011. Nominal growth in underlying central government expenditure is estimated at 5.4 per cent. The volume change in underlying expenditure is estimated at 2.1 per cent.
  • The enterprises in Norges Bank’s regional network reported in September that output growth has remained robust in recent months, but that they expect somewhat lower growth ahead.

Labour market and wages

  • Registered unemployment was a seasonally adjusted 2.6 per cent of the labour force in September, unchanged on June. Registered unemployment was slightly higher than projected in the June Report.
  • According to Statistics Norway’s labour force survey (LFS), seasonally adjusted unemployment calculated as a three-month moving average was 3.2 per cent of the labour force in July, down from 3.3 per cent in June. Employment and the labour force increased in the same period by 9 000 and 5 000, respectively.
  • According to the enterprises in Norges Bank’s regional network, employment growth has slowed somewhat in recent months. In September, enterprises expected continued moderate employment growth ahead. Annual wage growth in 2011 was estimated at 4 per cent, unchanged on May.

Domestic credit and house prices

  • Gross domestic debt in the private and municipal sector (C2) rose by 6.5 per cent in the year to August 2011, up from twelve-month growth of 6.3 per cent in July. Household debt increased by 7.2 per cent in August, up from 7.1 per cent in July. Debt growth for non-financial corporations increased by 4.1 per cent in the year to August 2011.
  • According to house price statistics from the real estate industry, house prices rose by 9.7 per cent in the year to September 2011, up from 9.6 per cent in August. Seasonally adjusted real house prices, deflated by the CPI, were 5.9 per cent higher in September than their previous peak in June 2007.
  • Norges Bank’s third-quarter bank lending survey for 2011 showed somewhat higher household credit demand. Banks expect approximately unchanged household credit demand and somewhat reduced corporate credit demand in the period ahead. According to the survey, banks kept credit standards for households unchanged in the third quarter of 2011 and tightened credit standards for enterprises to some extent. Banks expect tighter credit standards for households and enterprises in the fourth quarter of 2011.


1) All figures are changes since 22 June 2011 unless otherwise specified. All market data are as at 17 October 2011

2) Special drawing rights, IMF. As at 17 October, XDR 1 = NOK 8.84

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

Published 19 October 2011 14:00