Norges Bank could remain at peak interest rates until autumn, DNB Markets believes.
Senior Economist at DNB Markets, Oddmund Berg. Photo: Stig B. FiksdalPublished:
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– In case of falling inflation, the interest rate can be lowered starting from September 2024.
This is what DNB Markets senior economists Oddmund Berg and Kyrre Aamdal write in a recent edition of the “Economic outlook” report. The brokerage firm believes the Norwegian economy will land “softly” in 2024.
The report is presented just two hours before Norges Bank’s first interest rate meeting of the year. After the surprise rate hike to 4.50% in December, “everyone” believes that this time the central bank will keep rates unchanged.
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Like Nordea Markets, DNB Markets believes the market is behaving too harshly when pricing in up to 6 interest rate cuts during the year.
– We believe that the market has gone too far in pricing in rapid and frequent interest rate cuts in the coming year and that long-term market interest rates are therefore also too low at the beginning of 2024, writes DNB Markets in the report .
I think the interest rate will drop to 3.25%.
– We believe the central bank will gradually proceed with interest rate cuts in a meeting twice until the key rate reaches 3.25% at the end of 2025, economists Berg and Aamdal believe.
DNB Markets therefore expects five interest rate cuts over the next two years. Nordea Markets, for its part, said on Wednesday that it expects three cuts in the same time period.
DNB economists are clear in their speech: the interest rate cut will stop at 3.25%, due to persistent inflation and a robust economy.
They justify this with the prospect that price increases will be slightly above target throughout the forecast period and that projected wage growth will remain at a level above that consistent with 2% inflation.
Looking forward to business growth
In summary, DNB Markets expects activity growth to moderate in the first half of 2024, before rebounding.
The basis for this trend reversal is expected to be an improvement in private consumption, driven by the decline in inflation while wage growth remains high.
– However, the turning point comes towards the end of the year, which means that mainland China’s GDP will grow by only 0.6% in 2024. In 2025, we estimate slightly higher, but still moderate, growth of 1 ,4%.
I think unemployment is on the rise
For the labor market this means lower employment growth, which combined with an increase in the labor force will result in some increase in unemployment in the coming years.
DNB Markets estimates that unemployment in Norway in 2024 will be 2.4%, compared to 1.8% in 2023.
– Even in the event of a recovery in activity, the unemployment rate will probably increase further over the forecast period, reaching approximately 2.8% in the period 2025-2027.
2024-01-25 07:00:03
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