An expansionary budget and 2015 NOK buying
Norway’s 2015 fiscal budget has just been released and it was a bit more expansionary than leakages had indicated. The structural, oil-adjusted deficit is confirmed at NOK164bn in 2015, an increase of NOK21bn from 2014. This implies an expansionary effect of roughly 0.56% of mainland-GDP. Anyway, this is still close to expectations (Norges Bank expected an expansionary budget of 0.4% in the Monetary Policy Report on 14 March) and should not affect the expected interest rate path where the next monetary policy decision is due on 11 December.
However, the actual oil-adjusted deficit (not cyclically adjusted) is expected to be roughly NOK174.2bn, i.e. roughly NOK24.5bn higher than in 2014. The actual oil-adjusted deficit (not cyclically adjusted) is expected to be 24.5bn higher than in 2014. In addition, the (net) oil taxes are expected to be NOK135.6bn, roughly NOK 4.7bn lower than in 2014). Hence, the use of oil revenue (=oil-adjusted deficit) in NOK is 38.6bn higher than the actual oil revenue (net oil taxes) in NOK. This amount will be made available from the oil revenue in foreign currency but has to be transformed into daily purchases of NOK by Norges Bank. Based on the assumption that Norges Bank will stay away from the market in December, due to volatility, we expect Norges Bank to purchase roughly NOK160m per day in 2015 (see table below).
We view the budget as marginally positive for the NOK, as the increased budget and thereby expected NOK buying in 2015 was bigger than our expectations of an increased budget of NOK15-20bn. In recent days, the NOK has been hit by a combination of falling oil prices, negative global risk sentiment and some concerns about lay-offs in the oilrelated industry in Norway. These factors are unlikely to go away near term and will weigh on the NOK. However, we continue to expect that Norway will be able to live with lower oil investments and expect 2015 GDP growth at 2.2% in 2015 – close to trend growth. We expect EUR/NOK to consolidate in the current range of 8.10-8.25 but the next big move to be lower and we maintain our forecasts of 8.10 in 1M and 7.95 in 3M.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.