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The coronavirus and the strict measures that Norway has put in place led the Norwegian economy to fall 2.1% in the first quarter and as much as 6.3% in the second quarter. To help the economy, Norges Bank has lowered interest rates to a record low of zero percent during the period.
Statistics Norway now expects the interest rate to gradually increase from mid-2021 and end at 0.75% in 2023.
House prices will accelerate interest rate hikes
According to Statistics Norway, low interest rates have helped keep activity going through new business loans. In addition, the rise in house prices will help raise interest rates again, according to the statistical agency.
“The sharp rise in house prices that followed the interest rate cuts will likely help speed up the timing for the first rise in interest rates,” writes Statistics Norway.
From March to August, house prices in this country have increased by 3.3 percent. Statistics Norway estimates that house prices will rise 3.2% on average this year.
It is also assumed that there will be a moderate increase in house prices from 2021 to 2023.
Recession for several years
Although activity in the Norwegian economy has recovered in May, June and July, the situation remains dire, according to Statistics Norway.
– The Norwegian economy will continue to catch up in the future, but the fallout from infection control measures and the decline in the international economy will likely mean that the recession here at home will persist for several years, says researcher Thomas von Brasch in a release.
– Calculations show that the economy will return to the level we had before the corona pandemic hit us a year from now. Furthermore, it will be a few more years before we return to a normal situation, where economic activity and unemployment are no longer heavily affected by the crisis, says von Brasch.
Hoping for a pay cut next year
This year, Statistics Norway estimates that the calculated annual salary will increase slightly after many of those who have lost their jobs or been laid off come from low-paying occupations. The agency estimates that average annual salary growth will be around two percent this year and next.
But as inflation looks set to rise next year, real wages are likely to fall, according to Statistics Norway.
“In 2022 and 2023, real wage growth is expected to exceed 1%,” the forecasts say.
Every year, prices in the country increase by a small percentage, the so-called inflation. Therefore, to calculate how much more you have to spend, you must subtract this inflation from wage growth.
Statistics Norway further expects inflation to be 1.5% this year as a result of low energy prices, which are also expected to remain low during the fall. But in 2021, it may look significantly different.
“Energy prices appear to rise markedly next year. According to calculations, the increase will help raise CPI inflation to 2.9 percent in 2021,” writes Statistics Norway.
