Norway Norges rate cuts to be very dovish

Norges Bank cut rates at the June meeting by 25bp to 1.0%, but signalled that another cut may be needed in September. Indeed rates markets are currently pricing in ~40% chance of a cut for the September meeting. 

This was more dovish, as the macro picture, while mixed, has been better. 1Q Mainland GDP growth held up at 0.5% Q/Q and inflation remains stable and close to the Central Bank's target. 

Unemployment is clearly a concern, and with oil companies, like Statoil, reporting more job cuts in the pipeline, further weakness in unemployment can be expected, while the latest Norges Bank Regional Network report was also downbeat about the outlook.

Adding to the positives, the most recent oil investment intentions survey indicated that 2016 oil investments will be significantly better than expected, showing investments flattening in 2016 rather than falling further.

Oil continues to play a large role in the outlook, and has recently stabilized, albeit at low levels. Although our commodity team is not bullish on oil, forecasting Brent at at $61/bbl by the end of the year, we do not expect a drop of the magnitude we saw from the highs of last June.

The oil industry will certainly feel the pain of lower oil prices, and with many of the 2015 oil investment decisions made prior to the sharp decline in oil prices, the trend in oil investments in 2016 and beyond is important.

Should oil investments indeed flatten out as expected, the outlook for the economy will be more positive than currently expected.