The Norges Bank Regional Network Survey (RNS) has just been published. The key aggregate output index for the next six months rose to 1.02 (from 0.73 in Q4) indicating a further improvement in the private sector outlook (chart 1). Specifically, the RNS points to mainland GDP growing roughly 0.5 % q/q in Q2 and Q3. This is better than Norges Banks projections from December (chart 9). Also, capacity utilisation seems to be continuing further (chart 10) which alongside higher oil investments and financial stability concerns should outweigh lower inflation prints and thereby be arguments for a higher front-end rate path at the upcoming March meeting. Importantly, the figures clearly indicate that downside risks to the economy are being eliminated , which should have significant impact on monetary policy going forward as the economy enters the third phase after the oil shock.
Diminishing downside risks to the economy, combined with upside risks from the housing market will eventually push Norges Bank into a tightening bias. However, we still expect NB to be on hold throughout 2017 . In short, a strong report removing most of the downsides and hints of upside risks going forward. The Norwegian economy has survived the oil shock which supports our expectation of a gradually stronger NOK over the coming months .
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