The Covid-19 pandemic, Russia’s attack on Ukraine, skyrocketing inflation, and increased interest rates all contributed to the costs of living in Norway substantially growing last year.
The Norwegian government has said it was willing to consider any measure to help push down prices. Still, the cost of living crisis has proven to be very difficult to address in Norway and throughout Europe.
Are there any grounds for optimism?
Here’s what Norwegian economists and financial analysts think.
Some positive signals
Danske Bank’s chief economist Frank Jullum sees signs that Norway is beginning to approach the ceiling in terms of inflation and interest rates.
The probability that things will get much worse in 2023 is getting smaller, Jullum told Norwegian Broadcasting (NRK).
Alexandra Morris, investment director in Skagen Funds, a Scandinavian mutual fund company, is quite optimistic. She sees several positive features in the stock market going forward.
“The time for quick profits and money printing is over. Now we are back to sober times where quality and earnings trump future expected growth,” Morris said.
Kyrre Knudsen, the chief economist at Sparebank 1 SR-Bank, also believes Norwegians can be somewhat optimistic heading into 2023.
“Norway has good control over the pandemic and has the highest employment ever measured. Unemployment is at a record low, while at the same time, there are a good number of vacant positions,” he noted.
Risks and potential challenges
On the other hand, financial industry experts also believe multiple negative developments will continue to affect global markets moving forward.
Sparebank 1 SR-Bank’s Knudsen pointed to several issues that he thinks won’t go away any time soon: Russia’s war against Ukraine, global energy policy challenges, and issues with value chains and supply links.
“The world order, not least in Europe, has been disrupted. We have not experienced this many times. I also think that the lack of trust in the world is disturbing,” Knudsen said.
Jullum at Danske Bank is concerned about the effect of interest rate increases and inflation. This combination is hitting businesses and households hard all over the world.
“Broadly speaking, also in Norway, consumption has been kept up by drawing on saved funds. But this source is starting to dry up. We will therefore have an economic downturn with higher unemployment and more bankruptcies during 2023. I am concerned that it may be deeper and more prolonged than we think,” he noted.
A more expensive year overall
However, it seems things will get worse before they get better – at least in terms of mortgages, energy, and food prices, Norwegian broadcaster TV 2 reports.
The channel has spoken to several economists and looked more closely at the expenses Norwegians can expect in 2023.
“Those who have mortgages will feel it significantly more now, compared to 2022. The more you are indebted in relation to your income, the worse it will probably be financially…
“If a household has a total income of 1 million kroner, and they have 3 million kroner in loans, then they can expect to pay 34,000 kroner more a year in interest and repayments compared to 2022,” consumer economist at Danske Bank Thea Olsen told the channel.
The calculation is based on the average interest rate applied by lenders being 4.85 percent in 2023.
“If the same household has 5 million kroner in loans, meaning that they have borrowed five times their income, then they will have to expect increased interest and repayments on their loan of 56,000 kroner a year,” Olsen explained.
In addition to increased interest expenses, Norwegians should also expect the price of food to rise further, the head of industry policy in the Enterprise Federation of Norway (Virke), Jarle Hammerstad, told TV 2.
“We are probably not done with inflation yet. We see that both electricity prices and food prices are still high, and this will probably last for some time,” he said, adding that the price of clothing is also expected to rise.
In its outlook report for 2023, among other things, Danske Bank noted that there is a clear slowdown underway in the Norwegian economy and that the housing market is reacting to higher interest rates.
Furthermore, the bank expects housing prices to fall by 3.5 percent in 2023 as a whole, further than previously predicted.