– Given the economic development is our best guess that it comes a clean cut in May. Furthermore, we expect that Norges Bank will have to cut interest rates again this year.
Senior Economist Kari Due-Andresen adds Thursday morning until Handelsbanken new economic forecasts to 2018. She predicts that Norges Bank’s key rate is cut from 1.25 percent to 0.75 percent during the year.
There are new record lows for interest rates in a row. Due-Andresen expect key rate will remain at its low level out throughout 2018.
– It is more likely that it will be seen even more down than it being set up, she said.
Bad times
Lower oil prices, high cost and large need for restructuring in the Norwegian economy are important subjects in the forecasts. When demand from oil companies fall, the business sector on the mainland to find something else to do.
Handelsbanken predicts that the soaring Norwegian cost becomes a major issue in the competition with other countries. The problem can be suppressed in two ways:
- large Norwegian wage cuts
- weaker dollar makes Norwegian goods and services cheaper abroad
Weaker exchange rate helps
– Cuts in wages appears to be unrealistic. At best we can hope for a wage sinking towards wage abroad, says Due-Andresen.
Thus remains weaker exchange rate as the most realistic.
– To achieve this, interest rates are lowered and it must be low long, she said.
Other measures against high debt
Lower Norwegian interest rates make it less attractive to hold Norwegian kroner, compared with other currencies. Demand decreases and the rate (price) of NOK follow.
– Would not this increase the risk of even higher debt growth makes households vulnerable to leaner times?
– To take this into account when setting interest rates provides a very imprecise effect on debt growth. It is better to make use of available opportunities to require banks to hold more money in their own pocket for every dollar they lend, she said.
Maybe print money
The outlook for the Norwegian economy is so grim that Handelsbanken “see it as entirely possible” that Norges Bank may have to print money, as many other central banks are doing and have done.
This may then happen by Norges Bank buys Norwegian government bonds from banks and others. Thus they inject more money into the economy and lowers market.
– But the Norwegian market for government bonds is small, so the effect would probably have been limited, says Due-Andresen.
Intervene market
Thus, the next and perhaps last virkemiddlet to intervene directly into the currency market. By binding words and the purchase and sale of dollars, Norges Bank could undertake to keep the krone in a quantified area.
– This is risky and may invite speculation, but may be the only instrument for influencing the krone to strengthen the private sector in restructuring, says Due-Andresen.
20,000 more unemployed
In the forecasts for 2018 predict Handelsbanken:
- registered unemployment rises from 2.8 percent last year to 3.6 percent. This corresponds roughly 20,000 more unemployed
- growth real wages was 1 per cent last year, but is consistently halved from next year
- growth private consumption decreases, but not more than 2.1 percent from last year and this year to just over 1.5 percent over the next three years
- growth total output Mainland Norway drops to below 1 per cent next year, before picking up again in 2018
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