Danske Research Team
Danske Bank A/S
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.
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