Norges Bank has just published the Q3 Regional Network Survey, which is its preferred gauge of economic activity. The aggregated output index (next six months) surprisingly dropped from 1.29 to 1.11 (Danske: 1.45, no consensus estimate) .This translates to 0.55% q/q growth in mainland GDP for the next two quarters. This is marginally lower than Norges Bank's projection from the MPR in June (+0.6 %). Keep in mind that the GDP figures for Q2 and revised data for Q1 17 revealed that growth has been somewhat stronger than Norges Bank anticipated in June. In isolation, domestic growth will make a neutral contribution to the rate path in the new MPR next week. Meanwhile, with 1) low inflation, 2) strong NOK vs NB's forecast, 3) a cooling housing market and 4) lower global rates, NB can easily extend the on-hold stance at its meeting next week .
Details in regional survey weaker as well . Lower growth in all sectors besides export industries. Most noteworthy, domestic oil industries are back in negative growth territory after the encouraging growth prospects in May, illustrating that the downturn is far from over. Capacity constraints, a proxy for the output gap, are moderately down from 28.97 to 28.26. Expected employment growth dropped marginally, with May having been the best observation since November 2012. Wage expectations are still around 2.5% in 2017. Overall, the report suggests that growth continues to be above trend, but gives no support to our view of further acceleration, putting pressure on capacity utilisation .
NOK FX . We maintain EUR/NOK is a range play but the risk of a correction higher has in our view increased. Specifically, given the recent rise in long NOK positions, EUR/NOK has become increasingly sensitive to drops in the oil price. We are currently in the process of reviewing our EUR/NOK forecast profile of 9.30 in 1M, 9.30 in 3M, 9.10 in 6M and 9.00 in 12M.
To read the entire report Please click on the pdf File Below: