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Nordea predicts a significant strengthening of the krona against the dollar. Vacations in America can be much cheaper if the prediction comes true.
The case is being updated.
MAJORSTUA (Nettavisen Økonomi): Both DNB Markets and Handelsbanken Capital Markets have recently forecast a permanently weak crown in the future, especially against the euro. But the krona has strengthened recently, especially against the dollar (see chart below). Nordea Markets Chief Economist Kjetil Olsen believes in further strengthening and levels that we have not had in a long time.
STRONGER KRONE: The krona has strengthened considerably against the dollar, and Nordea believes that the krona could be much stronger.
Photo: (Front)
– Yes, in the long run, the crown can be much stronger. Two forces act here. We believe in a gradually higher oil price, which may cause the krone to strengthen a bit. So we think the dollar will weaken a lot in the future, Olsen tells Nettavisen Økonomi.
Also read: Surprising trend in banks: – Time with low interest rates does not last forever
– Why?
– The dollar does not seem so attractive to investors. The interest rate differential against the currencies of other countries is no longer positive. There have been many more dollars in circulation and there are large public and private deficits in the US economy that must be financed by foreigners, the chief economist responds.
Also read: Now the crown is shooting
Not since 2015
When the world economy is growing, the dollar tends to weaken. Therefore, Nordea Markets is forecasting a significantly stronger crown going forward, down to 7.50 in a couple of years.
So the corona pandemic is probably over, so a potential vacation to the US will be a lot cheaper.
Also Read: Chief Economist Permanently Predicts Expensive Vacation Abroad After Crown Crisis
If Nordea economists are right, the krone has not been this strong since mid-May 2015. We are talking about a possible 14 percent strengthening from current levels.
– The Norwegian krone will be a little stronger, while the dollar will be significantly weaker, says Olsen. The forecast against the euro is 9.75 by the end of 2022 in the recent Nordea Markets market report.
Also read: DNB: This affects the crown more
– What is the most important message you bring in this report?
– Which has turned out better than expected so far. The recovery of the Norwegian economy has been faster and stronger than both we and most others think, responds Olsen.
– 2-3 percent of Norwegian economy sectors are out of the game and will be, but the last 2-3 percent will be difficult to reach, the chief economist said in a presentation Wednesday morning of the quarterly report.
Also read: Norwegian economy: the biggest recession in history
Surprisingly good
The chief economist says that since the previous market report in early May, the biggest change is that things have gone better than feared. In fact, things have gone better than even the most optimistic scenario suggested for Nordea just four months ago. People have started to return to a more normal life.
– There are still industries and areas that suffer restrictions and that do not fully recover until everything returns to normal. It depends on a vaccine, which can take a year or two. Parts of the Norwegian economy will operate at a much lower level for a long time, says Olsen.
– This makes it difficult to restore balance to the Norwegian economy very quickly. But there are also other areas that are growing and winning the corona pandemic, she continues.
Significantly improved
– Are you more or less optimistic now compared to this spring?
– I have become more optimistic, it seems brighter. The outlook for the oil industry has improved significantly, because the price of oil has risen and the pre-summer oil tax package has made it more profitable to invest, responds Olsen.
Olsen exemplifies this with the fact that where the profitability limit for new extraction was previously $ 45 per barrel, this limit has been lowered to $ 30 per barrel. Nordea Markets expects oil prices to recover as the world economy recovers. In fact, according to Olsen, there is a risk that the price of oil will be very high.
– This is because little is invested globally. Today it appears as a lack of demand for oil, in a few years there may be a shortage of oil.
Many people seem surprised at how well retail has done in Norway. But Olsen says this isn’t really that difficult when you look at how much less we spend on services and travel abroad. This is much more than the increase in the consumption of goods.
90 billion!
Nordea has calculated that for the four months of March, April, May and June, this lower consumption amounts to a staggering NOK 90 billion. This corresponds to more than 16,000 crowns per Norwegian.
Furthermore, there is the effect of a 1.25 percentage point reduction in interest rates for borrowers. In total, we are talking about a savings of 7-8 percent of a year’s income.
– Those who are at work and have loans, have it formidable. They have never been richer in terms of liquidity, says Olsen. Household consumption accounts for about half of the Norwegian economy.
Also read: This loan has never been cheaper
Extremely important
– So households are the driving force of the economy?
– Yes, households are an extremely important factor behind the recovery. There is a lot of involuntary saving, but the savings that accumulate mean that households are left with more money at the end of the month. They cannot spend money on trips and cultural activities, such as concerts and soccer games.
Norwegians spend approximately 11 billion abroad during the holiday months. Now this consumption drowns to almost zero. And there is no reason to be fearful of big interest rate hikes down the road.
Norges Bank has its first interest rate meeting on September 24. Olsen believes few new interest rate signals here. As mentioned, the krona has strengthened somewhat, which in isolation lowers interest rate expectations. But the interest rate should not be below 0 percent.
A higher oil price pulls in the opposite direction, and that price increase is currently well above the 2 percent target. A surprisingly strong housing market has emerged as one that can drive interest rates up the fastest.
Valve
– The housing market is a factor, but the effects are likely to be greater if they reverse the greater flexibility in mortgage regulations. Regulations are a safety valve so that house prices don’t go all the way up, and we see signs that parts of the housing market are disappearing, says Nordea’s chief economist.
Nordea has calculated that a drop in interest rates of 1.25 percentage points in isolation means that borrowers can bid 15% more on homes. The assumptions are an annuity loan over 25 years and otherwise unchanged income.
– The interest rate cuts are extremely strong in the housing market, Olsen told the press corps present.
Rods on the ceiling
– But many reach the ceiling in a maximum of five times the income in debt and the rules of equity. I can’t imagine Norges Bank raising the key interest rate just because of house prices, Nordea’s chief economist tells Nettavisen.
But interest rate increases may come a little earlier than Norges Bank has anticipated, and that the first 0.25 percentage point increase will occur during the first half of 2022. Then there may be a corresponding increase in the second half. .
Norges Bank is the first of the world’s central banks to now talk about raising interest rates.
– Zero interest rates are not good for the economy. Interest rates are on the ground, we will not go any further. Norges Bank is very skeptical about negative interest rates, Olsen said at the presentation.
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Humble
– But these forecasts are terribly difficult, and here we are quite humble. It depends on when we get the vaccine and how the infection is managed, says Olsen.
In other words, it is involuntary savings and falling interest rates that mean that households have much more to do this year. What we are left with in greater purchasing power after the payment of wages are trifles in an age when we spend much less money.
Nordea Markets believes that average salary growth in 2020 is close to 2 percent, while prices may increase by 1.5 percent. Next year, the brokerage firm expects a 3 percent price increase.
– And then we believe in a 2.5 percent salary increase. Here we are probably a bit taller than most of the others. But we are still on the way to recovering, and we believe that even if employees have less bargaining power, it will be demanding to get a pay deal as low as this year.
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Less unemployed
– If not, the labor market will be tight, then it will be better, with even fewer unemployed next year. Some sectors are affected by the corona pandemic, while in other parts of the economy things are better than ever, says Olsen.
It is demanding to achieve so-called negative real wage growth in Norway, that wages rise less than prices. The YS workers’ organization announced Tuesday that they believe there is room for real wage growth even in the crown year 2020.
Olsen estimates, in a normal situation, that annual wage growth should be 3 to 3.5 percent. Norges Bank manages monetary policy after a long-term price increase of 2 percent. Therefore, a normal real wage growth is 1 to 1.5 percent,
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