the economic outlook for norway – it’s stormy …...fiscal policy is expansionary 6. immigration...
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The economic outlook for Norway – it’s stormy outside, but the refuge is comfortable Rīga, 13 October 2015 Pēteris Strautiņš, DNB Banka
Overview: Slowdown, not downturn
• Global backdrop: Modest growth, higher oil price in 1-2 years • Norway: Oil-induced slowdown • Buffers…
1. Not all regions affected equally 2. NOK has weakened and improved competitiveness 3. Rates may be cut further 4. Wage growth has almost halved 5. Fiscal policy is expansionary 6. Immigration is responding to slowdown
Global background
Modest growth, low interest rate environment
-4
-2
0
2
4
6
8
10
1984 1989 1994 1999 2004 2009 2014
GDPPercent change y/y and grow th contribution
Adv. EMEs Adv. EMEsSource: IMF WEO/Thomson Datastream/DNB Markets
-1
0
1
2
3
4
5
6
Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 Sep-18
Signal rates
US Japan EZUK Sweden Norway
Source: Thomson Datastream/ DNB MarketsSource: Thomson Datastream/ DNB Markets
Actual/forecast 19-Aug-2015
Higher oil prices over the medium term $50 is unsustainable – it kills investment. Aim at $70 in 2017-20
0
20
40
60
80
100
120
140
160
0
100
200
300
400
Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 Jan-20
China's oil imports & oil price
Imports, 12mcs (rha) BB A-12 A-15Source: Thomson Datastream/DNB Markets
2,5002,5502,6002,6502,7002,7502,8002,8502,900
Jan Mar May Jul Sep Nov
Commercial oil inventories in OECDMillion barrels
5-year range 5-year average2014 2015
Source: IEA/DNB Matrkets
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
Jan Mar May Jul Sep Nov
IEA's supply/demand balanceImplied stock buiilding/reduction. Mill. brls a day
5-year range 5-year average2014 2015
Source: IEA/DNB
Norway: Golden age to slowdown
Norway: From «golden age»… Productivity growth has not matched real wage growth
50
75
100
125
150
175
200
1900 1925 1950 1975 2000
Norway: terms of Trade2000=100
Source: Revidert nasjonalbudsjett 2014/DNB Markets
100
150
200
250
300
1970 1980 1990 2000 2010
Mainland Norway1970=100
Real wages ProductivitySource: Revidert nasjonalbudsjett 2014/DNB Markets
…to oil-induced slowdown Cyclical as well as structural
0
2
4
6
8
10
12
14
1970 1980 1990 2000 2010 2020 2030 2040
Oil Sector's use of resourcesPercent of Mainland GDP
Inputs Wages GFCF RNB15Source: Statistisk sentralbyrå/IFIN, RNB15/DNB Markets
75
100
125
150
175
200
225
1995 2000 2005 2010 2015
Terms of Trade and RULC1995=100
Export-/import prices RULCSource: OECD EC. Outlook/IMF/Thomson Datastream/DNB Markets
Q3 survey confirm slowdown NOK 193bn in 2015, 181bn in 2016 (but exploration investments too high)
0
40
80
120
160
200
240
1985 1990 1995 2000 2005 2010 2015
Norway: Oil investmentsNOK billion. Estimated and actual
Actual Aug t-1 Aug tSource: Statistics Norway/DNB Markets
Substantial uncertainty Norges Bank sees 21% decline (vs. our 31%)
0
50
100
150
200
250
2003 2007 2011 2015
Norway: Petroleum investmentsBn 2015-NOK. 2015-2018: Norges Bank's
estimates
Fields on stream Field devlp. Explor.Shutd./rem. Pipes/onshore
Source: Norges Bank/DNB Markets
Also, exports will be hit Trad.exp. +76’’’ (2.4%/yr) since 1999, half oil-related (5.3%/yr). Brazil 10%/yr
0102030405060708090
1980 1990 2000 2010
Norway: Goods ExportsBn 2005-NOK
Engineering Metals ChemicalPrimary Pulp/paper
Source: Statistisk sentralbyrå/DNB Markets
The slowdown is here already
45
55
65
75
85
95
105
-30
-20
-10
0
10
20
30
40
Aug-05 Aug-10 Aug-15
Employed and unemployed1000 persons
Employed, change 3m/3m Gross unempl. (rha)Source: NAV/SSB/Thomson Datastream / DNB Markets
Q2: Weak investments pull down GDP
-4.5
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0
7.5
-3
-2
-1
0
1
2
3
4
5
Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015
Norway: Mainland-GDP
%, q/q, sa. %, y/y, sa.
Source: Statistics Norway/Thomson Datastream/DNB Markets
Norway Quarterly National Accounts
Q1 2015 Q2 2015 Q2 2015Private consumption 1.0 0.5 2.5Public consumption 0.1 0.5 2.0Gross fixed capital formation -0.6 -1.3 -4.8
Mainland Norway -1.3 -0.3 -2.0Mainland companies -6.4 -1.0 -2.5Accrued oil investment 0.9 -3.0 -11.9
Exports -3.4 -0.1 3.2Traditional goods 3.2 -0.2 5.2Oil and natural gas -6.1 -0.8 1.6
Imports 2.7 -1.3 4.1Traditional goods 2.5 -0.1 3.1
GDP 0.1 -0.1 1.2GDP excl. oil and shipping 0.3 0.2 0.9Net trad. exports, contr. GDP -0.1 0.0Stocks contribution to GDP 1.9 -0.5Sources: Statistics Norway and DNB Markets.
Per cent, q/q y/y
Buffers
The shock is assymetric 330’ jobs (1 in 8), with Rogaland most exposed
Employment still quite stable in most regions
-20
-10
0
10
20
30
40
Aug-11 Aug-12 Aug-13 Aug-14 Aug-15
Norway: Registered unemploymentPercentage y/y change, 3-m. moving average
Norway East (7) Inland (2)West (5) Mid (2) North (3)
Source: NAV/Thomson Datastream/DNB Markets
Monetary policy is ‘first line of defence’ Cut, as expected, in June. Another in December
0.00
0.50
1.00
1.50
2.00
2.50
2014 2015 2016 2017 2018 2019
Norway: Key Policy RatePer cent
Actual MPR2/15 DNB MarketsSource: Thomson Datastream/Norges Bank/DNB Markets
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Jan-15 Mar-15 May-15 Jul-15
Norway: 3m FRAs
SEP15 DEC15 MAR16 JUN16Source: Thomson Datastream/DNB Markets
External devaluation TWI weakened 20%. NB sees appreciating NOK
85
90
95
100
105
110
115
120
125
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Sep-07 Sep-09 Sep-11 Sep-13 Sep-15
Norwegian krone
EURNOK TWI (rha)Source: Thomson Datastream/DNB Markets
92949698
100102104106108
Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17
Norway: Import-weighted NOK (I-44)
I44 Norges Bank MPR 2/15Norges Bank MPR 1/15
Source: Thomson Datastream/Norges Bank/DNB Markets
Traditional exports boom Trad. exports +7% y/y in 2015H1, hotel nights +5% y/y (12m sum)
-12-9-6-30369
1215
Q2 2005 Q2 2010 Q2 2015
Norway: Traditional goods exportsGoods excl. oil, gas, ships & oil platforms
q/q, sa, %a y/y, sa, %Source::Statistics Norway/Thomson Datastream/DNB Markets
47
49
51
53
55
57
-6
-4
-2
0
2
4
6
8
Jan-00 Jan-05 Jan-10 Jan-15
Hotel nights & capacity utilizationPercent. 12m mav
Hotel nights y/y Capacity utilization (rha)Source: Statistisk sentralbyrå/DNB Markets
However, NOK likely to rise. Euro 8.30 in 12m
7.88.08.28.48.68.89.09.29.49.6
7.88.08.28.48.68.89.09.29.49.6
11-Sep-14 11-Sep-15 11-Sep-16
EURNOK
Fwd CF Sep 15 PPP DNB
Source: Thomson Reuters/Consensus Economics/DNB Markets
5.5
6.0
6.5
7.0
7.5
8.0
8.5
5.5
6.0
6.5
7.0
7.5
8.0
8.5
11-Sep-14 11-Sep-15 11-Sep-16
USDNOK
fwd DNB CF Sep 15 PPP
Source: Thomson Reuters/Consensus Economics/DNB Markets
Lower wage growth From 2.6% real wage growth to below 1%
0
1
2
3
4
5
6
7
2000 2004 2008 2012 2016
Norway: Wages and unemploymentAnnual change and level in percent
Real wage CPI UnemploymentSource: Statistisk sentralbyrå/DNB Markets
0
1
2
3
4
5
6
7
Q3 2005 Q3 2007 Q3 2009 Q3 2011 Q3 2013 Q3 2015
Expected wage growthEmployers and employees
This year Next year In 5 yearsSource: NBs Expectations Survey/Thomson Datastream//DNB Markets
However, increasing traditional exports will not be easy High wage level and overall small differences
020406080
100120140160
Nor.
Ble.
Den.
Ger
m.
Swe.
Aus.
Finl
.Fr
a.Ne
th.
Irel. It. UK
Spai
nCz
e.Po
l.
Manufacturing wage costs, in common currency, 2014
Norw ay's EU 18 trading partners = 100
Source: Teknisk beregningsutvalg/DNB Markets
Use of oil money continues to increase NOK 150bn (+0,6%) in 2014, 169bn (+0.5%) in 2015. 2.6% of GPFG
-100
-50
0
50
100
150
200
250
300
1985 1990 1995 2000 2005 2010 2015
Public Net AssetsPercent of GDP
Norway GPFG EMU OECDSource: Ministry of Finance, RNB2015/DNB Markets
0
1500
3000
4500
6000
7500
9000
0
50
100
150
200
250
300
350
2001 2004 2007 2010 2013 2016 2019
Structural oil-adjusted balanceNOK Bn, 2015-prices. GPFG in current prices
Actual 4% GPFG (rha)Source: Ministry of Finance, RNB2015/DNB Markets
Housing market is expected to cool
-10-505
1015202530
1985 1990 1995 2000 2005 2010 2015
Norway: Home pricesPer cent change from previous years
Actual/estimate DNB's modelSource: Eiendom Norge//Finn.no/Eiendomsverdi/DNB Markets
High home prices rel. to CPI, but not income
50
100
150
200
250
300
1985 1990 1995 2000 2005 2010
Norway: Real Home PricesIndex. 1985=100. Selected deflators
CPI Building costsAnnual wages Disposable income
Source: EFF/finn.no/Eiendomsverdi/Statistisk sentralbyrå/DNB Markets
Price/income 17% above 28-year average Share of income spent on necessities (food, clothes etc) lower than before
60708090
100110120130140
1985 1990 1995 2000 2005 2010
Home prices1985=100
Price/Income Price/Income ex necessitiesSource: Statistics Norway/DNB Markets
Limited building boom in Norway Note: In 1990 Ireland had 3.5m inhabitants, Norway had 4.2m
-50
0
50
100
150
1990 1995 2000 2005 2010
Norway: Population and HousingAnnual change in 1000
Pop. Net immigration Home completionsSource: Thomson Datastream/DNB Markets
-50
0
50
100
150
1990 1995 2000 2005 2010
Ireland: Population and HousingAnnual change in 1000
Pop. Net immigration Home completionsSource: Thomson Datastream/DNB Markets
Indebted households source of concern Ranks high in international comparisons
0
50
100
150
200
250
0
4
8
12
16
20
1980 1985 1990 1995 2000 2005 2010 2015
Norway: HouseholdsPer cent of disposable income
Interest expences Debt (rha)Source: Statistics Norway/DNB Markets
Signs that migration responds to weaker growth
-100
1020304050607080
Q2 1985 Q2 1995 Q2 2005 Q2 2015
Thousands
Norway: Migration 1000, 4 quarter sum
Immigration Emigration NetSource: Statistics Norway/Thomson Datastream/DNB Markets
0
5
10
15
1997 2000 2003 2006 2009 2012
Norway: ImmigrationSelected nations of origin
Sweden Other Nordics GermanyUSA Baltics PolandPIIGS Pakistan Iran/Iraq/Afg.Horn of Africa
Source: Statistics Norway/Thomson Datastream/DNB Markets
Summing up: Temporary slow-down • Multi-speed recovery globally, higher oil prices medium-term
• Oil-induced slowdown in Norway - Temporary growth pause. But oil sector will remain a drag on activity - Several buffers will dampen the overall effects
• Plenty of uncertainties (as always) - Oil price (both ways) - Savings/consumption - Home prices - Migration
Latvia – the direction is up, but from much lower place
GDP growth acceleration is likely to be sustained
Source: Statistics Latvia
Seasonally adjusted GDP growth on quarterly and annual basis
It would be very surprising if consumption growth doesn’t pick up
Source: Statistics Latvia
GDP from expenditure side, annual change, since Q1, 2013, %
-4
-2
0
2
4
6
8
10
GDP
Private consumption
Government consumption
Investment (GFCF)
Exports
Imports
Imports of capital goods signal that investment should improve
Annual change of capital goods imports and gross fixed capital formation, %,
These data more or less tell you what’s going on ...
Source: Statistics Latvia, Bank of Latvia
Annual change, %
Deflation is possible in autumn Annual inflation for main aggregates and some important product groups in Latvia, %
Source: Statistics Latvia
-20
-15
-10
-5
0
5
10
15
20
-4
-3
-2
-1
0
1
2
3
4
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15
TOTAL (LA)
Goods (LA)
Goods - food (LA)
Services (LA)
Goods - non-food (LA)
Energy consumed at home (RA)
Transport fuel (RA)
Commodity prices – not all are equal
Source: Bloomberg
Sub-indices of Bloomberg commodity index since 2010. 01.01.2010=100
Labour market Main labour market data, ‘000
Source: Statistics Latvia
0
50 000
100 000
150 000
200 000
250 000
750 000
800 000
850 000
900 000
950 000
1 000 000
1 050 000
1 100 000
Occupied job positions (LA) Employed (LA) Job seekers (RA)
Deleveraging will end one day Main cash flows between banks and non-financial sector, in quarters, Y/Y, % of GDP
Source: FCMC
data, DNB bank
forecasts
Forecast
Once the next lending boom starts ... ... ...
Increased lending to
households
Willingness to buy
RE price expectations
RE prices
RE purchases
WEALTH EFFECTS
Income
RE prices
Additional lending Additional
lending
Collateral value
INCOME EFFECTS
Boom will start from a very low point
Total domestic lending by financial sector (% of GDP)
Source: World Bank
Thanks for listening!
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