Interest rate increases may be canceled

Households are spending less than expected, despite the fact that most people have relatively good prospects. The key rate from Norges Bank can be kept unchanged or cut during the year, according to economists.

Monday let the SSB figures show that households spend much less money than the experts expected. While an average of economists expected that consumption would increase by 0.5 percent from March to April, the result was zero.

Chief Economist Steinar Juel at Nordea believes consumption figures are surprisingly weak, and far weaker than Norges Bank has assumed in its interest rate forecasts.

“The question is now whether there is any further interest rate hikes from the Bank at all during the year,” Juel told NRK.

“One of the explanations for the weak spending figures are record high energy prices this winter. In addition, the negative news about the economic problems in Europe, people felt a pinch of the wallet a little more,” he says.

Can get two interest rate cuts during the year

Chief Economist Jan Andreassen Terra Group was among the few who expected weak retail figures. He believes the trend of households spending less on shopping will continue.

“The problems in Greece and the euro zone makes consumers both at home and abroad uncertain about the future, which probably makes them more cautious about spending money in the future,” said Andreassen.

He expects that the Bank will cut its key rate twice this year, so that the interest rate at the end of 2010 will remain at 1.5 percent.

“There is no reason that the Bank will not cut interest rates. The krone is strong and credit growth is low. An interest rate cut would have helped both the export industry and households,” said Andreassen.

More money to spend for most

Chief Economist Frank Jullum in Fokus Bank believes, like his economist colleagues in Nordea and Terra group, the international turmoil puts a damper on the buying at home.

“The income level is very high, and there is a paradox that we have a lot of money to spend while consumption is kept so low,” said Jullum.

He points out that the result of wage settlements so far and inflation figures suggest that most people will get real salary increases and thus more money to spend in your wallet this year compared to last year.

Fokus Bank believes that the Bank despite a reduced interest rate path in June, will increase interest rates twice more this year.

Source: NRK