Danske Research Team
Danske Bank A/S
Norges Bank (NB) has published the February Regional Network Survey, which is its preferred gauge of economic activity. The aggregated output index for the next six months dropped marginally to 1.46 (from 1.49) as seen on chart 1. This points to quarterly mainland GDP growth of around 0.73% going forward, which is a little higher than Norges Bank (NB) assumed in the December monetary policy report. The aggregate output score for the past three months (chart 2) rose to 1.43 suggesting Q1 growth around 0.72% q/q, highlighting that growth has been resilient at the beginning of the year.
Details. First of all, the survey implies that domestic growth has been, and is expected to be, slightly higher than expected, despite the global slowdown. This confirms our expectations of a March rate hike despite the weak global environment. As expected, oil related industries contributed to the upside, but despite the expected slowdown in retail trade, there are actually no soft spots in the report looking across sectors. Capacity utilisation rises to 38.27, the highest since May 2013. Expected investments moved up from 0.43 to 0.62, signaling a continued growth in investments. Wage expectations for 2019 are a bit higher, but at 2.99% still lower than Norges Bank's forecast from December (3.2%). However, the usual adjustments throughout the year imply that NB's forecast is well in reach. All in all, a strong report confirming our projection of a March rate hike next week. We are currently working on a full preview of the rate path but at this stage domestic factors suggest the front-end will remain little changed and that market pricing hence is too soft. We have just recommended selling EUR/NOK via a 2M bearish risk reversal, see FX Strategy, Sell 2M EUR/NOK risk reversal , 12 March.
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