Norges Bank likely to keep rates on hold in Sept as data show reduced downside risk for the economy

Norway's mainland GDP rose by 0.4 percent q/q in Q2, higher than Norges Bank and consensus expectations, both at 0.3 percent.  A marked decline in imports was a main contribution, while net exports added as much as 0.5 percentage points.

Core inflation, measured by the CPI-ATE was up sharply y/y in July to 3.7 percent, from 3.0 percent in June. A slight reversal is expected in August, but mostly due to base effects. The number of registered unemployed fell by 0.1 percentage points to 3.1 percent of the labor force in August, in line with expectations. Seasonally adjusted figures showed a fall in the number of registered unemployed by about 1000, while gross unemployment fell by 300 people.

Retail sales fell 0.6 percent m/m in July following a decline of 0.6 percent m/m in June missing forecasts for a increase of 0.3 percent. The goods consumption index, the main indicator of private consumption of goods in the national accounts fell 0.8 percent in July, after falling 0.4 percent in June. Manufacturing PMI also missed expectations, fell by 3.4 points from July to 50.8 in August.

Weak goods consumption and a fall in manufacturing PMI is not very unexpected, since real wages and manufacturing production are falling, and is unlikely to alter Norges Bank's view.

"We expect the central bank to keep interest rates on hold in September, and that prospects for further improvement in the economy mean that interest rates will be kept at current levels going forward," said DNB Bank in a report.