The Outlook for the Norwegian Economy

Outlook for the Norwegian economy

Governor Svein Gjedrem, Norges Bank, 25 September 2009

Indicator for world trade

12-month change. Per cent.

January 2000 – July 2009

30 40 30

40 5 5

Manufacturing production

Growth in past 3 months. Per cent.

January 2000 – July 2009

-20 -10 0 10 20 30

-20 -10 0 10 20 30

-5 -2.5 0 2.5

-5 -2.5 0 2.5

US Euro area Norway

-50 -40 -30

-50 -40 -30

2000 2002 2004 2006 2008

-10 -7.5 -10

-7.5

2000 2002 2004 2006 2008 Norway

2 Sources: Thomson Reuters and Norges Bank

Credit default risk for selected banks

Measured by CDS spreads. Basis points 1 January 2007 – 21 September 2009

700 700

Citigroup

4 4

Norway

Money market premiums ¹⁾

5-day moving average Percentage points

4 January 2007 – 18 September 2009

200 300 400 500 600

200 300 400 500

600

2 3

2 3

US Euro area

0 100 200

0 100 200

2007 2008 2009

3 Sources: Bloomberg, Thomson Reuters and Norges Bank

0 1

0 1

2007 2008 2009

1) Expected key rates are derived from Overnight Indexed Swap (OIS) rates

International equity markets

1 January 2007 – 21 September 2009 Equity prices

Index. 1 January 2007 = 100

120 120

Implied volatility

Standard deviation in basis points 5-day moving average

100 100

40 60 80 100

40 60 80 100

Euro area

40

60 80

40 60 80

Euro area

US

0 20 40

0 20 40

2007 2008 2009

US

4

0 20

0 20

2007 2008 2009

Source: Thomson Reuters

140 160 140

160

23 09 2009

550 550

Food

Oil price (Brent Blend)

USD per barrel. Daily figures January 2002 – April 2012

Commodity prices

In USD. Index, week 1 2002 = 100 Week 1 2002 – week 38 2009

60 80 100 120 140

60 80 100 120

140

250 350 450

250 350

450

Aluminium Metals

0 20 40

0 20 40

2000 2004 2008 2012

50 150

50 150

2000 2004 2008

5 Sources: Thomson Reuters and Norges Bank

7 8

Spare capacity

OPEC spare

production capacity

Million barrels per day. Monthly figures. Jan. 2000 – Dec. 2010

Inventories of crude oil and refined products in US

Billion barrels. Jan. 2003 – Sept. 2009

1.10 1.15 1.10

1.15

3 4 5

6

0.90 0.95 1.00 1.05 1.10

0.90 0.95 1.00 1.05 1.10

6

0

1 2

2000 2002 2004 2006 2008 2010

0.80 0.85 0.90

0.80 0.85 0.90

Jan Apr Jul Oct

2008

Average 2003-2008

Source: EIA

Effective exchange rates ¹⁾

Indexed 2000 = 100. Weekly figures. Week 1 2000 – Week 38 2009 160 160

Australia New Zealand

100 120 140

100 120

140 Canada

Norway

80 80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

7 Sources: Reuters EcoWin and Norges Bank 1) A rising curve denotes a stronger exchange rate.

Real exchange rates

Deviation from mean1970 – 2008. Per cent. 1970 – 2009

15 20 25

15 20 25

Relative consumer prices Relative wages

-10 -5 0 5 10 15

-10 -5 0 5 10

15

-20 -15 -20

-15

1970 1975 1980 1985 1990 1995 2000 2005

8 1) Data for 2009 based on observation in period to 19 September. Squares show

average for this period. A rising curve indicates weaker competitiveness.

Sources: Statistics Norway, Technical Reporting Committee on Income Settlements, Ministry of Finance and Norges Bank

Actual and expected key rates ¹⁾

Per cent. January 2007 – December 2012

6 7 6

7

US Euro area Norway UK

2 3 4 5 6

2 3 4 5 6

0 1 0

1

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

9 Sources: Thomson Reuters, Bloomberg and Norges Bank 1)As of 23 September 2009

Inflation

Twelve-month change. Per cent

6 7 6

7

US Euro area

Trading partners Norway

0 1 2 3 4 5

0 1 2 3 4

5

-3 -2 -1

-3 -2 -1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

10 Sources: Thomson Reuters and Norges Ban

Inflation

10-year moving average

and variation

in CPI

. Per cent. 1980 – 2009

12 14 12

14

Variation CPI

2 4 6 8 10

2 4 6 8

10 Inflation target

0 0

1980 1985 1990 1995 2000 2005

Sources: Statistics Norway and Norges Bank 1) The moving average is calculated 7 years back and 2 years ahead.

2) The band around the CPI is the variation in the CPI adjusted for tax changes and excluding energy products in the average period, measured by +/- one standard deviation.

3) Estimate based on projection for 2009 – 2011 from MPR 2/09.

11

Inflation

Actual and projections from MPR 2/09 (broken line). 12-month change Per cent. January 2004 – September 2009

5 6 5

6

0 1 2 3 4 5

0 1 2 3 4 5

CPI CPIXE

-2 -1 0

-2 -1 0

2004 2005 2006 2007 2008 2009

12 Sources: Statistics Norway and Norges Bank

Countercyclical policy with unconventional measures

• Expansive fiscal policy

L k t

• Low key rate

• Extraordinary monetary policy meassures

• Swap arrangement

• Liquidity supply

• Other extraordinary measures

• Norwegian State Finance Fund

• Norwegian State Bond Fund

• Export finance

13

9 10 11 9

10 11

Costs for money market funding and long-term funding

Per cent. Weekly figures. Week 24 2007 – week 39 2009

Difference between 3-month money market rate and key

Premium on long-term funding (5-year bank bond)²⁾

2 3 4 5 6 7 8 9

2 3 4 5 6 7 8

9

policy rate Price in

swap arrangement¹⁾

Key policy rate

14 Sources: DnB NOR Markets and Norges Bank

0 1 2 0

1 2

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09

1) Maturity-adjusted price

2) 5-year bank bonds issued by banks with total assets of NOK 5-15 billion and a BBB+ rating

Banking sector liquidity

Billions of NOK

110 150 110

150

Norges Bank's liquidity supply Structural liquidity

Projections

-50 -10 30 70

-50 -10 30

70

-130 -90 -130

-90

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09

Source: Norges Bank

Government net assets as share of GDP

Per cent. 1970 - 2010

150 150

-50 0 50 100

-50 0 50 100

US Japan Sweden

-150 -100 -150

-100

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Norway Finland

16 Source: OECD

Export

Seasonally adjusted quarterly figures, external trade in goods.

Quarterly growth. Volume. Per cent. 2007 Q1 – 2009 Q2

5 4

-5 0

-6 -4 -2 0 2

-10 -10

-8

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09

Source: Statistics Norway 17

Index of commodity consumption

Volume. Seasonally adjusted index January 2004 – July 2009

Spending on services and hotel occupancy rate

4-quarter change. Per cent 2004 Q1 – 2009 Q2

16 8

Spending on services (left-hand scale)

170 170

0 4 8 12

0 2 4

6

140 150 160

140 150 160

Sources: Statistics Norway 18

-8 -4 -4

-2

2006 2007 2008 2009

130 0

130 0

2006 2007 2008 2009

Petroleum investment

Annual volume growth. Per cent. 2008 – 2012

7 8 7

8

2 3 4 5 6

2 3 4 5 6

0 1 2

0 1 2

2008 2009 2010 2011 2012

Sources: Statistics Norway and Norges Bank 19 1) Projections for 2009 - 2012

Norges Banks Regional Network

•Established in 2002.

I t t t f d i i

REGION CENTRAL NORWAY Centre for Economic Research at the Norwegian University of Science and Technology REGION NORTH Kunnskapsparken Bodø Bodø

REGION NORTH-WEST Møreforsking Molde Molde

•Important part of decision- making basis for Norges Bank’s Executive Board in conduct of monetary policy.

•Accurate projections possible long before official statistics are available.

20 REGION INLAND

Østlandsforskning Lillehammer REGION EAST Norges Bank REGION SOUTH Agderforskning Kristiansand

•Next report available 14 October.

Source: Norges Bank REGION SOUTH-WEST

International Research Institute of Stavanger Stavanger

Registered unemployment

Per cent. Seasonally adjusted. Januar y1999 – August 2009

5 6 5

6

Norway Oslo

1 2 3 4

1 2 3 4

Akershus

0 1 0

1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Sources: Statistics Norway, Norwegian Labour and Welfare Administration (NAV) and Norges Bank 21

Work permits – UDI

In thousands. Unadjusted.

1 January 2003 – 1 August 2009 120

Population growth and net immigration

In thousands. 1970-2009

60 70

40 60 80 100

All permits

10 20 30 40 50 60

Population growth

0 20

2003 2005 2007 2009

Only new EEA countries

-10 0 10

1970 1980 1990 2000

22 Sources: Norwegian Directorate of Immigration (UDI), Statistics Norway

and Norges Bank 1) First half of 2009 population growth: 26 297

and net immigration: 16 579

Regional house prices

12-month change. Per cent. January 2006 - august 2009

20 25 20

25

Oslo

5 0 5 10 15 20

5 0 5 10 15 20

Norway Akershus

2006 2007 2008 2009

-15 -10 -5

-15 -10 -5

23 Sources: Statistics Norway, Norwegian association of Real Estate Agents, Association of Real

Estate Agency Firms, ECON Pöyry, Finn.no, and Norges Bank

Bank credit standards for businesses and households

2007 Q4 – 2009 Q3. Change in credit standards since previous period

60 90 60

90

H h ld

-60 -30 0 30

-60 -30 0 30

Businesses Households

Easing

Tightening

24 Source: Norges Bank

-90 07

Q4 08 Q1

08 Q2

08 Q3

08 Q4

09 Q1

09 Q2

09 Q3

07 Q4

08 Q1

08 Q2

08 Q3

08 Q4

09 Q1

09 Q2

09 Q3 -90

1) Red diamonds indicate expected developments, and blue bars indicate actual developments

Indicative credit spreads between corporate and government bonds

5-year bonds. Compared with swap rates.

Percentage points. Weekly figures.

Week 1 2007 – week 36 2009

3 0 3 0

Interest margin and lending rates to firms

Percentage points. Quarterly figures.

December 2004 – July 2009

1.0 1.5 2.0 2.5 3.0

1.0 1.5 2.0 2.5 3.0

3 4 5 6 7 8

3 4 5 6 7 8

0.0 0.5 0.0

0.5

2007 2008 2009

0 1 2

0 1 2

2007 2008 2009

Interest margin firms Lending rates to firms

Sources: Statistics Norway and DnB NOR Markets

6 7 6

7

Key policy rate

Actual developments and projection. Per cent. 2005 – 2012

2 3 4 5 6

2 3 4 5

6

higher demand, MPR 2/09

0 1 0

1

2005 2006 2007 2008 2009 2010 2011 2012

26 Source: Norges Bank MPR 2/09

Outlook for the Norwegian economy

Governor Svein Gjedrem, Norges Bank,

25 September 2009