New information since the March Monetary Policy Report (1/11)
Meeting 22 June
- Growth in the world economy was stronger than expected towards the end of 2010 and in the first quarter of 2011. In the euro area, GDP grew by 2.5 per cent from the first quarter of 2010 to the first quarter of 2011. In the US, GDP grew by 2.3 per cent in the same period. In emerging market economies, the pace of growth has slowed from very high levels.
- The IMF has revised its global growth forecasts. For 2011, the forecast was lowered by 0.1 percentage point to 4.3 per cent, while the forecast for 2012 was unchanged at 4.5 per cent. According to the IMF, there is now a greater risk of weaker developments in the global economy.
- Growth in manufacturing output among Norway's main trading partners has lost momentum in recent months. Different expectations indicators suggest that growth will continue, albeit at a somewhat slower pace.
- A high rate of increase in energy and food prices is still pushing up consumer prices among Norway's trading partners. Underlying consumer price inflation has also risen further.
- Among most of Norway's trading partners, short-term inflation expectations have diminished somewhat since the March Report. Long-term inflation expectations are approximately unchanged in most countries but have declined somewhat in the US.
- Turbulence linked to the sovereign debt problems facing Greece has heightened in recent weeks.
- CDS prices for European financial institutions, as measured by the iTraxx (2) index have risen somewhat since the March Report.
Financial markets (1)
Equities and commodities
- Oil prices are approximately unchanged since the March Report.
- The Economist commodity-price index has fallen by 8 per cent in XDR (3) terms, but is still at a high level. Prices for non-food agriculturals have fallen most, but food and metals prices have also shown some decline.
- Most international stock indices fell sharply following the earthquake in Japan on 11 March, but picked up during the following weeks. In recent months, these indices have fallen again. Global stock indices are now close to levels prevailing immediately after the earthquake in March.
- Market expectations concerning key rates among our trading partners have decreased compared with the March Report.
- The European Central Bank (ECB) raised its key rate in April. Market participants expect another hike in July, but no increases beyond this in the course of the current year. The Bank of England is expected to raise its key rate in spring 2012. The first key rate increase in the US is expected in autumn 2012.
- 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 widened 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 0.5 percentage point. So far in the second quarter of 2011, the premium has been somewhat lower than assumed in the March Report.
- According to figures from Norsk Familieøkonomi, the weighted average interest rate on new residential mortgages is 3.74 (4) per cent , an increase of 0.2 percentage point since the May monetary policy meeting.
- Long-term US and German government bond yields have fallen since the March Report. Ten-year government bond yields are just under 3 per cent in both the US and Germany.
- Since the March Report, the spread over German 10-year government bond yields has widened for several southern European countries and Ireland. Greek 10-year government bond yields are around 14 percentage points higher than German yields, while Irish and Portuguese yields are respectively 8.5 and 8.2 percentage points higher.
- The risk premium on Portuguese and Spanish covered bonds has risen since the March Report to 5.2 and 2.6 percentage points, respectively. The risk premium on Irish and Italian covered bonds has fallen in the same period, to 3.6 and 1.3 percentage points, respectively.
- Since the March Report, the US dollar (USD) has depreciated by 1.5 per cent, while the euro (EUR) has appreciated by 1.1 per cent, as measured by effective exchange rates. The Swiss franc (CHF) has appreciated by more than 6 per cent since the March Report, while the Japanese yen (JPY) has depreciated by 1.4 per cent. Most commodity currencies have appreciated.
- The import-weighted exchange rate (I-44) has depreciated by 0.2 per cent since the March Report. So far in the second quarter of 2011, the krone has been 0.7 per cent stronger than projected in the March Report.
- In the year to May 2011, the consumer price index (CPI) rose by 1.6 per cent, up from 1.3 per cent in April. 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 1.2 per cent in the year to May 2011, down from 1.6 per cent in April. This is 0.1 percentage point higher than projected in the March Report. Inflation adjusted for tax changes and excluding energy products (CPI-ATE) was 1.0 per cent in May. Other indicators of underlying inflation ranged between 1.3 and 2.1 per cent.
- In May, the enterprises in Norges Bank’s regional network reported that the rise in prices had moved up since January, especially in industries supplying goods and services to the business sector. Manufacturing, construction and corporate services all reported higher price increases than in the previous round.
Output and demand
- According to preliminary seasonally adjusted figures from the quarterly national accounts, mainland GDP grew by 0.6 per cent from the fourth quarter of 2010 to the first quarter of 2011. Excluding electricity output, mainland GDP grew by 0.9 per cent in the first quarter.
- Seasonally adjusted household spending on goods rose by 0.3 per cent from March to April, after falling by 0.7 per cent the previous month. Spending on goods was 0.3 per cent lower in the period between February and April compared with the previous three-month period. The timing of Easter makes seasonally adjusted figures for March and April more uncertain than normal.
- Different confidence indicators measuring consumers’ view of their own financial situation and Norway’s economy are at a relatively high level.
- According to building statistics, the number of housing starts was a seasonally adjusted 22 per cent higher in the period between February and April than in the period between November and January. Other building starts, measured in square meters, increased by 19 per cent in the same period.
- Manufacturing output adjusted for seasonal variations fell by 1.1 per cent from March to April after rising by 0.8 per cent in the previous month. Output was approximately at the same level in the period between February and April as in the previous three-month period. Adjusted for working days, output rose by 0.6 per cent in the year to April 2011.
- According to the Norwegian PMI (Purchasing Managers’ Index), manufacturing activity grew somewhat in May.
- Norges Bank's regional network indicated in May that output growth had been solid in the past three months, but somewhat lower than expected in January. Contacts also expected that growth would pick up somewhat in the period ahead.
Labour market and wages
- Registered unemployment was a seasonally adjusted 2.7 per cent of the labour force in May, unchanged on April, and somewhat lower than projected in the March Report.
- According to Statistics Norway’s labour force survey (LFS), seasonally adjusted unemployment was 3.3 per cent of the labour force in the period between February and April, down from 3.4 per cent in the previous three-month period. Employment and the labour force increased in the same period by 17 000 and 15 000, respectively.
- According to enterprises in Norges Bank’s regional network, employment has risen somewhat more than expected. A somewhat slower rise is expected ahead. Annual wage growth is projected at 4 per cent in 2011, 0.5 percentage point higher than projected in January.
Domestic credit and house prices
- Gross domestic debt in the private and municipal sector (C2) rose by 6.4 per cent in the year to April 2011. Household debt growth was 6.8 per cent. Debt growth for non-financial corporations was 4.2 per cent.
- According to house price statistics from the real estate industry, house prices rose by 9.2 per cent in the year to May 2011, up from 8.3 per cent in April. In real terms, seasonally adjusted house prices for May, deflated by the CPI, were 3.1 per cent higher than at the 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 figures are from 16 March 2011 unless otherwise specified. All market data are as at 20 June 2011
2) he iTraxx financial index contains the CDS spreads of 25 major European financial institutions
3) Special drawing rights, IMF. As at 20 June, XDR 1 = NOK 8.87
4) New variable-rate residential mortgages of NOK 1 million, within 60 per cent of the purchase price
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