The world is facing the most challenging changes since World War II, related to growing geopolitical tensions, the climate crisis, war and terror - we read in a statement from Spare Bank 1.
The Norwegian krone is too weak
More and more countries are arming themselves intensively and limiting domestic production, which contributes to increasing economic growth and maintaining high price inflation. The world is slowly descending into a war economy, which is affecting both interest rates and the stock market. The growth of the US economy is now twice that of other G7 countries and is driven by a strong desire for military investment. Productivity growth and innovation are strong in the U.S., driving up the stock prices of U.S. technology companies.
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The US has adopted a $95 billion aid package for Ukraine, Israel and Taiwan, and several European countries need to follow suit. This will result in increased activity, investment and labor demand. For this reason, global price dynamics will remain high in the future and it is uncertain whether there will be a need to reduce interest rates in the US this year.
Norges Bank. There will be no interest rate cuts this year
On May 3, Norges Bank will hold an interest rate meeting and, in our opinion, it will have to signal that it is not certain whether there will be a cut in interest rates this year. What contributes to the need to keep the interest rate "higher for longer" is:
- Price growth in Norway is still well above target
- The koruna exchange rate may weaken further
- The salary settlement was higher than Norges Bank expected
- Productivity growth in the Norwegian economy is close to zero
- Increased political risk weakens the desire to invest; both increased property tax, land rent tax and exit tax reduce the willingness to invest
- Foreigners are net sellers of Norwegian shares
- Norwegian savings capital is increasingly leaving the country
- Housing prices are rising due to low levels of housing construction, while high immigration increases demand and increased costs of ownership drive up rental prices
- The value of the oil fund is growing rapidly, including: as a result of the weaker koruna exchange rate, and will result in increased expenditure above the state budget next year
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The weak exchange rate of the koruna is an obstacle
Because we believe that the single factor that Norges Bank will place the most emphasis on is preventing the krone from weakening further.
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Source: Spare Bank 1, Photo: Spare Bank 1/Elisabeth Holvik – Chief Economist SpareBank 1 Gruppen
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