Norway's mainland economy stagnated through H2 2015, according to the Q4 GDP figures. The slowdown was mainly due to oil related reasons. Excluding oil dependent sectors, the economic growth is fairly well. Meanwhile, jobless figures also show a sharp contraction. Unemployment rose sharply in oil exposed regions on West coast, whereas it remained flat in the rest of the country.  There are many reasons why growth was up outside the oil related sectors.

The downturn of oil is not expected to have been over. Demand from oil sector is likely to decline further, although at a slightly slower rate. Norges Bank, in order to avert a too weak overall development, will likely try to keep NOK relatively weak. This might be more difficult to attain than thought earlier as interest rates outside Norway have dropped considerably lately. In order to avoid a too strong NOK, the central bank is expected to lower the rates to zero before the end of 2016.

There are many other reasons also for expecting the rates to reach zero. Firstly the wage settlement is very much expected to be more moderate than projected. The labor unions seem to demand unchanged real wages. With an agreement to base the settlement on price growth at 2.5% that shows nominal wage growth of 2.5%, which is below the central bank's earlier forecast of 2.75%. Money market spreads is still too high and along with general higher credit spreads, it implies tighter financial conditions.

The expected rate cut in March appears close to a done deal. The central bank in the December report gave a March cut possibility a lot of weight and almost all news since then is on the weak side. The news is possibly weak enough for the central bank to announce another rate cut in June meeting. The timing for the third cut is uncertain but it is likely to take place in December.  After the third cut, surprises on the downside will put a pressure on Norges Bank to lower rates into negative territory. However, the central bank might be hesitant in lowering rates to negative territory because of the uncertain costs.