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The Norwegian economy is improving, DNB is giving encouraging signs just over a week before Christmas.
Forecasters at DNB Markets released a recent update on the Norwegian economy two days before Norges Bank releases its main financial report.
DNB Markets has kept the door open so that we can already have an interest rate hike next year, the new interest rate signals that we will receive from Norges Bank until Thursday.
In the recent update, DNB Markets mitigates the risk of an increase in interest rates in the new report. The main view is that Norges Bank is hoping to raise the key interest rate until early 2022, in which case from 0 to 0.25 percent.
According to DNB, the better overall outlook combined with higher house prices points to an interest rate increase in March 2022. So far, Norges Bank has indicated that the first interest rate increase will occur towards the end of 2022.
Also read: New report: Bad news for you who have not tied the interest rate
Best
In any case, the good news is that DNB Markets believes that the outlook for the Norwegian economy has improved compared to the report they released in August. Yes, the second corona wave is worse than expected, but on the other hand, the recovery after the first wave this spring has been stronger than expected.
The restrictions and the closure of the society are now lighter than in the spring, and the development of an effective vaccine comes sooner than expected.
By 2020, DNB experts predict that the mainland economy will fall 3.4 percent, which is an unusually large drop. However, the unusually sharp drop may be replaced by an increase of up to 4 percent in 2021. This is indeed slightly less growth than DNB predicted in the August report.
Also read: NHO fears the repression of vaccines for the Norwegian economy
Successful vaccination
On the other hand, growth in the Norwegian economy in the third quarter was stronger than expected. And with a successful vaccine program next year, financial experts at Norway’s largest bank believe the restrictions will be phased out during the first half of the year.
In that case, it is headed for a strong economic recovery in the second half of 2021, driven by higher private consumption.
The big picture is still a bit hazy. Since DNB Markets published its forecast in August, three factors have influenced the Norwegian economy in different directions.
Four months ago, the forecast was for lower growth now in the fourth quarter after an expected strong summer. That should give a good third trimester. And growth in the quarter was strong, up 5.2%, above expectations.
New closures
October’s figures were also clearly above DNB’s forecast. However, the higher infection rates in October led to new closures and restrictions starting on November 5. Furthermore, unemployment increased from 3.5 percent in October to 3.9 percent at the end of November. So they are not just bright spots.
But DNB economists expect the Norwegian economy to grow 1.1 percent in the fourth quarter, which is much stronger than normal growth (0.4-0.5 percent). This is due to strong growth in October and a higher entry rate in the quarter.
The current restrictions are not as bad for the economy as they did in March and April. Therefore, a strong first quarter is expected in 2021, given further easing of measures.
Also read: New survey: this is the form of loan that Norwegians abhor
Shopping party
And we look forward to the summer, the big launch of effective vaccines can really boost the economy. If we make it through the summer, according to DNB, we are most likely in the process of a comprehensive vaccination, which can lead to strong growth in private consumption by Norwegians.
Some of the money will be saved until 2022 and thus a further increase in consumption. But unemployment will not drop drastically, DNB predicts a decline from 4.7 percent in 2020 to 4.5 percent in 2021.
So-called core inflation, rising prices adjusted for tax changes and energy prices, will be relatively high this year, above Norges Bank’s 2% price target. This is due to the weakness of the crown, the prices of imported goods have risen somewhat. But with a stronger crown, it is headed for lower inflation next year.
The awards party continues
House prices are projected to rise 7-8 percent this year, according to the latest figures from Eiendom Norge. DNB predicts that the high growth in house prices will continue and believes 8% next year as well.
Even with flat development in 2021, average home prices will be 4.4 percent higher than in 2020. But DNB experts believe home prices will rise an average of 0.6 to 0.7 percent more per month than normal next year.
The effects of historically low interest rates have yet to fully materialize, and most households have strengthened their finances thanks to the crown crisis and travel restrictions.
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