Statistics Norway Looks Brighter on Outlook, Expecting Interest Rate to Increase Next Year – E24

The case is being updated

Statistics Norway (SSB) now believes that Norges Bank will initiate a gradual increase in interest rates next year, based on new forecasts for the Norwegian and international economy.

– Since there will be no new wave of infections, forecasts show that the key policy rate will rise gradually starting in mid-2021, before ending at 0.75 percent in late 2023, the agency writes.

The agency’s previous June report called for a cautious increase in interest rates from 2022 to 0.75 percent by the end of 2023.

– 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 greatly affected by the crisis, says Statistics Norway researcher Thomas von Brasch. in a press release.

The interest rate is currently at a record low of zero percent. The central bank’s forecast from June points to an increase in interest rates from the end of 2022. Norges Bank’s next interest rate decision and forecast will be made on September 24.

– Since Norges Bank lowered the interest rate to zero, we have seen strong home price growth. This is likely to help speed up the initial rate hike. In 2023, we will still be far from what the central bank considers a normal interest rate level, von Brasch says.

Significant house price adjustment

After the strong summer in the housing market, Statistics Norway is raising its opinion on house prices to growth of 3.2% this year, while before the summer they expected a drop of 1.0%.

In 2021, there is also a sharp rise in estimates to 3.9 percent from the previous 1.0 percent growth.

Statistics Norway emphasizes, however, that there is great uncertainty around the house price estimate. The agency also believes that the removal of temporary exceptions in mortgage regulations will help slow home price growth going forward.

This year’s GDP estimate increases

Statistics Norway now estimates that continental GDP will fall 3.2% this year, compared to 3.9% in the June report. At the same time, growth for 2021 will slow to 3.6%.

While oil investments last year boosted growth in the mainland economy by 0.3 percentage points, Statistics Norway believes they will reduce growth by the same amount next year. This year, there is likely to be a drop of around three percent in oil investments, and next year this drop will increase to more than ten percent.

The crisis package for the oil industry, which included deferred excise duties and a higher level of tax-free income, means that more development and operation plans will likely be presented in 2021 and 2022, Statistics Norway believes.

Thus, a moderate increase in investments is expected in 2022 and strong growth in 2023.

Lower real wages

Statistics Norway forecasts wage growth of around two percent this year and next.

“The economic crisis has been skewed. Many of those who have lost their jobs or been laid off come from low-wage occupations, and this contributes to raising the estimated annual salary a bit this year.”

At the same time, inflation is likely to rise further and cause real wages to fall next year. However, inflation will gradually decline in line with rising wages and productivity and low imported inflation. Therefore, inflation will decline towards the two percent target in 2022 and 2023, believes Statistics Norway.

The agency also expects unemployment to continue falling.

– We expect the improvement in the labor market to continue as economic activity recovers, writes von Brasch.

From March 10 to March 31, the number of completely unemployed at NAV (including those laid off) increased from about 65,000 to about 300,000. Since then, unemployment has fallen dramatically to 112,000 in the last week.

Statistics Norway’s message: Improvement in sight, but the situation remains dire