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Statistics Norway announced on Friday that it expects coronary vaccination, which will likely begin early next year, to mean that Norges Bank will initiate a gradual increase in interest rates starting in mid-2021.
In Statistics Norway’s economic trend for the fourth quarter, the agency writes that the Norwegian economy has recovered much of the decline in March and April, but that the new round of intrusive infection control measures is slowing further recovery.
– Again we are in a situation where it will get worse before getting better. We assume that much of the population must be vaccinated before we can expect the economy to return to normal levels, says researcher Thomas von Brasch from Statistics Norway.
DNB’s chief economist Kjersti Haugland believes the agency has taken the optimistic side, but says she does not believe the report is outside what she calls a “reasonable profit margin” for the Norwegian economy.
– But an interest rate hike already in mid-2021, which I interpret as June, I think is too optimistic, says the chief economist.
“Consumption will increase”
Haugland believes that even in a scenario where everything goes according to plan with mass vaccination and easing of infection control measures, there will not be an interest rate increase until the fall of 2021.
– The economy must show a real recovery so that an increase in interest rates can take place. We must also ensure that restrictions with our business partners are removed.
She adds:
– I think Norges Bank will wait until the economic effects of the infection control cuts are clear. There is still uncertainty associated with the long-term impact of the krone, and it is natural to wait for confirmation before the interest rate rises again, Haugland says.
Furthermore, Statistics Norway assumes that consumption will increase by around eight percent next year and by around six percent in 2022.
The level of household consumption is still lower than before the coronavirus broke out, but Statistics Norway believes that a historically high savings rate of around 15% this year will contribute to consumption growth for years to come.
– It is consumption that will really drive the rally, says chief economist Haugland, who emphasizes that there is a lot of liquidity pent up in households when consumption opportunities reopen.
It will take time
Von Brasch of Statistics Norway notes that it will still be a long time before enough people have been vaccinated and infection control measures can be eased.
– We expect it to happen during the spring of next year, and that activity will then increase significantly. As activity normalizes, interest rates should also rise to more normal levels. According to our calculations, Norges Bank will gradually start increasing the key interest rate next summer and end at 1.0% before the end of 2023, says Thomas von Brasch.
Statistics Norway writes that investments in oil will be reduced by a total of five percent in 2020, and that there will be a significant increase in investments in oil in 2023 alone.
“Total demand for oil investments directed towards the mainland is expected to raise mainland Norway’s GDP growth by 0.3 percentage points in 2023. We assume that the price of oil will remain around $ 50 a barrel in the coming years.” writes Statistics Norway.
Thomas von Brasch, researcher at Statistics Norway. (Photo: Gunnar Blöndal)
Believe in house price growth of three to four percent
Furthermore, Statistics Norway assumes that the zero interest rate primarily, but also a higher savings rate through the corona pandemic, has ensured the sharp rise in house prices so far this year.
“We estimate that house prices will rise four percent on an annual average this year. It is the development of income, debt, population, as well as the supply of housing and real interest rates, which largely determines measure the evolution of house prices, “writes Statistics Norway.
The agency further writes that it believes in an annual increase in house prices of about three to four percent in the next few years.
On average, unemployment was 5.2 percent from August to October, according to the Labor Force Survey (EPA). Industries such as accommodation and restaurants have seen the steepest increase, while strict infection control measures have been introduced.
Statistics Norway doesn’t think unemployment will drop much in the coming months, but here he is optimistic beyond 2021.
The agency expects an EPA-measured unemployment rate of 4.8 percent for the full year 2020, before unemployment drops to around four percent in 2022 and 2023. By comparison, unemployment has been 3.7 percent in average so far in the 2000s.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases via a link, which leads directly to our pages. Copying or other use of all or part of the content may only be done with written permission or as permitted by law. For more terms, see here.
