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NHO is not sure how effective a coronary vaccine will be and could have a major impact on the Norwegian economy.
NHO has released its latest quarterly economic report, and it’s a mixed picture drawing towards the end of the 2020 crown year.
– If I am going to try to reduce it to a headline, it is that once again Norway has done better than most of the others. It has gone better than feared, that is the only message. Point two is that we now see the light at the end of the tunnel, and it is related to positive news about vaccines, chief economist Øystein Dørum at NHO tells Nettavisen Økonomi.
Norway has performed better than most countries in terms of economic activity and the number of deaths per crown. But behind a fairly usable overall image, there are big commercial differences.
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Absurd
– Yes, it is somewhat absurd that at the same time that we are now seeing improvement up there, quite a few industries and companies have come even closer to the precipice recently. With the closure, many have returned to have higher expenses than income.
– The same happens in the labor market. Most of us have kept our jobs and income and have gotten more to work with. At the same time, many who were already weak in the job market are even weaker than before the pandemic. They have lost their jobs and their income has been reduced, and several of them will not get their jobs back, says Dørum.
Times of crisis are times of change, where the corona pandemic appears to be leading to digital quantum leaps in the economy. Something returns, something does not return.
– We need more IT engineers in the future, but probably less airplane and bus seats, fewer square feet of offices, and fewer beds for overnight stays in the enterprise market in the near future. It happens even if the crisis becomes less serious than we think in the worst case, says the chief economist.
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Wound
The question is what wounds the crown crisis will leave to those most affected. Dørum says that a lot depends on the implementation of a vaccine in the new year, and that it will be generally available sometime before the summer.
– But, of course, there is uncertainty about efficiency. Although a vaccine helps against disease, it does not necessarily help against infection. Many have said that they should not take the vaccine, it is demanding to get it out and the virus can mutate as the nightmare of the Danish mink has just shown us, says Dørum.
NHO now estimates growth in the mainland economy next year of 2.8 percent, followed by growth in 2022 of 2.3 percent. The biggest factor of uncertainty is the further development of the pandemic.
– We base our estimates on the vaccination program that is being implemented, as the authorities have pointed out, and that infection control measures can be eliminated mainly for the summer, says Dørum.
As usual?
But NHO is not sure how much of the service consumption Norwegians had to give up this year, which is withdrawn when it is allowed to do what it wants again.
– Do we double our restaurant bills in 2021, do we return to normal, or does it take some time before we return to normal because someone has become safer to go abroad?
Dørum says that the light in the tunnel can also be affected by the willingness of companies to invest and hire. There is a shortfall in revenue, low capacity utilization, and potentially more restrictive lending. Banks can become more restrictive on lending, because many companies have lost money and have less capital left.
According to the latest statistics from Statistics Norway, the Norwegian economy is now 1.5 percent below February’s level, that is, just before the corona pandemic. The latest report from Norges Bank’s regional network reports zero growth in the fourth quarter.
Deterioration
– Our member survey shows a slight underlying deterioration. I think the best we can hope for is zero growth in the remaining two months. Perhaps in December we are 2 percent below the level of February. The new year starts “on the back foot,” says Dørum of the state of the economy.
Therefore, the Norwegian economy has not made up for lost time. With NHO’s growth estimates, we are first back where we were towards the end of 2021, given normal growth of just under 2 percent.
– It’s a bit earlier than we expected and of course the prognosis is uncertain, but it says something about seriousness.
– What worries you most?
– Our main concern is that we will not be successful in restructuring and that we will be left with excess capacity in some industries. The challenge is finding new jobs for employees in these industries. Where we are now will be a perfectly correct situation to accelerate the green shift towards a new green economy.
– But perhaps it is better to find many of those who will have these jobs in school banking than in industries that are now shrinking, admits NHO’s chief economist.
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Softer
But those are bright spots. We are in a new wave of infection that, based on infection figures, looks much more serious than the previous wave. However, the economies around us are falling much less than ours. Yes, it is a double fall, but the second fall is much lighter.
– It is both a certificate for politics and a more specific and proportionate closure than when panic took us this spring, says the chief economist.
Dørum’s previous employer, DNB Markets, has pointed out that the first interest rate hike could occur as early as 2021. The brokerage firm repeats this in a market update on Wednesday, a week before the next interest rate meeting. from Norges Bank. Dørum says he doesn’t really believe in an increase in 2021.
– No, not if you look at the amount of resources available in the Norwegian economy in terms of capacity utilization, employment and investment plans, as well as inflation expectations.
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Like a joker
– Then we are left with an important joker, and it is the evolution of house prices and possible financial imbalances. But the Norwegian economy is characterized by spare capacity and associated low inflationary pressures. Our trading partners will have an even longer period with zero interest rates and low inflationary pressures, he says.
Dørum doesn’t rule out Norges Bank raising the so-called interest rate trajectory next week a few tenths later in the period. A rise in interest rates already in 2021 seems premature.
NHO predicted in April that house prices could fall as much as 12 percent through 2020 and 2021. But house prices are perhaps the biggest surprise this year, it is based on the latest figures from Eiendom Norge to a growth annual about 8 percent.
Dont worry
– The growth is not worryingly high, it is more surprising that the growth is so high with the generally weak image we have. We have had to adjust and I think the explanation lies in the interest rate cuts and the fact that most of us have kept our jobs, says Dørum.
NHO now believes that home prices will rise 5 percent in 2021 and then halve to 2.5 percent in 2023.
The Norwegian Confederation of Business and Industry notes in the report that 2020 is an exceptional year. Since the Spanish flu struck a hundred years ago and killed tens of millions of people, a virus has not affected economic activity.
A serious consequence of long-term unemployment is that it can weaken the ability to work and potentially lead to the disappearance of people from the workforce.
Not sustainable
As a result of the crown crisis, the government and the Storting have presented large packages of measures that result in a gigantic deficit in the state budget and record withdrawals from the oil fund. NHO writes that deficits of this magnitude are not sustainable.
Extensive corona measures against the spread of the infection have caused the worst setback in recent times in the world economy.
But in any case, there are reasons to expect strong growth in private consumption next year. Business demand for both labor and investment may come back stronger as the pandemic is fought and uncertainty is reduced.
Strong growth
Overall, NHO expects fairly strong growth in the world around us, both next year and the next few years thereafter. Globally, the world economy may grow by as much as 5.5 percent in 2020. In that case, it will be well above what is considered a long-term growth trend.
NHO predicts that Norway’s trading partners will have growth in the economy next year of 3.25 percent and the same in 2022.
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