? Mainland GDP will probably rebound in Q1 ? in line with Norges Bank?s view ? Norges Bank would have to change its view significantly in case of another weak figure It is often argued that the risk of financial imbalances is the main argument for not slashing key rates in Norway to zero with inflation far below the target. But if we are to believe Norges Bank, an output gap (potential mainland GDP minus actual) somewhat higher than zero and increasing is also an important factor. Key figures that indicate lower growth and lower capacity utilization could very well trigger a rate cut in June. And there is a clear downside risk to Norges Bank?s rather strong growth forecast. Growth slowed significantly in Q4. The labour market is not showing a clear picture, but there are at least some signs that this could have translated into a weaker labour market. However, we believe Q4 was a temporarily weak spot and see strong reasons to believe in a rebound in Q1 mainland GDP which will be published on 16 May at 10.00. Retail sales have picked up strongly, pointing to a rebound in consumer-oriented sectors after a weak Q4. The few production indices we have (such as manufacturing) point in the same direction. We forecast a 0.7% q/q growth only marginally below Norges Bank and the consensus at 0.8%. In Q4 growth was 0.3%. There is no reason to change view on Norges Bank if we are right, but if growth ends up say below 0.5% we will start thinking about a June cut again. There is no mechanic link between growth and the output gap and in the case of a weak figure we have to look into the details. Still, the picture of the economy is a bit blurred at the moment, so a weak figure could not only change the view on the current state of the economy but also on the outlook.
↧