Economic data from the first two months of 2009 released on Monday showed the Norwegian economy is holding up better than feared, easing pressure on the central bank to announce a large rate cut this month, economists said.
Despite stronger-than-expected January retail sales and credit growth along with rising real estate prices in February, a 25 basis point rate cut to 2.25 percent is still on the cards for March 25 when the central bank meets, they said. The Norwegian economy long fared better than many others, but has increasingly been hurt by the effects of the global economic crisis, with a recession looming in 2009.
Norges Bank has slashed rates by a total of 325 basis points to 2.5 percent since October to counteract the worst effects of the crisis and said it sees rates bottoming out at around 2.0 percent later this year. Seasonally adjusted retail sales, excluding motor vehicles, rose 0.6 percent in January from December, according to a new method of industry classification, Statistics Norway said. Sales of winter sport equipment helped to lift sales.
Economists had expected January retail sales to fall. Credit growth slowed to 9.7 percent in the year to January from a year-on-year rate of 9.9 percent in December, holding above a 9.2 percent median forecast by economists. The crown firmed on the data, trading at 9.0250 against the euro by 1323 GMT from 9.0607 before the data.
Norway's mainland economy, the measure of GDP without the big offshore oil and gas sector and ocean-going shipping, shrank less than expected in the fourth quarter from the third, and unemployment - although rising - is still low by international standards at around 3.0 percent. Despite the stronger data, Prime Minister Jens Stoltenberg said on Monday that the government is preparing to raise its unemployment forecast to correspond to a weaker economy.
"We are warning today that we may have to prepare for higher unemployment forecasts," Stoltenberg said. The government's current forecast is for unemployment to rise to an average of 3.5 percent this year and towards 4.0 by year-end. Stoltenberg also said the government, which faces a September election, would consider raising spending further in its revised 2009 budget in May, but no decision had been taken.
The central bank is widely expected to cut rates by at least another 25 basis points this month, but economists said the new data weakened arguments for a bigger cut. "Our forecast is for a 50 basis point cut (on March 25). This may increase the likelihood that (Norges Bank) will cut (rates) by only 25 basis points," Nordea Markets macroeconomic analyst Katrine Boye said.
"I do not see it as very likely that this will affect Norges Bank, but it does not provide any new arguments for aggressive rate cuts," Handelsbanken chief economist Knut Anton Mork said. Statistics Norway revised its reporting method in January, making it difficult for economists to interpret the numbers.
REAL ESTATE REBOUND Norwegian house prices rose for a second consecutive month in February with seasonally adjusted prices up 1.9 percent from January, real estate industry associations reported. Real estate prices rose significantly during a five-year boom in the Norwegian economy which lasted until mid-2008. Prices fell after peaking in 2007 on the back of 15 years of growth but have rebounded in early 2009.
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