Publish here the forecast of my next door neighbour Jarmo about Norway’s economy and his vision on its future.
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My note is based on the information on Norwegian Central Bank’s publishments.
The biggest problem in Norway during these days is the high leverage. This year, 2008, Norwegians have 197 % debt compared with the disposable income. Due to the credit crunch, the risk premiums have increased which will affect on the assets’ prices by declining them.
The Bank of Norway (Norges Bank) has made massive liqduity injections. This means: 1) Inflation rate goes up (this will effect into the economy later, probably at the end of 2009) 2) Norwegian Crown (Krona) depriacates against Euro if all other things remain the same.
I see a bubble in house prices in Norway. This has been accelerated by renewing of a law in 2005. Owning of a house has been made favored and that has led to increase to the demand of houses. The high debt rate of Norwegian households combined with the more expensive lending is not a promising to the house prices.
Unemployment rate in Norway is relatively low, only 3 %. This means that the Norwegian economy is working efficiently and the unemployment is close to the rate that is connected with potential output. The unemployment rate will rise slightly in 2009.
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I believe this recession will not hit to Norway as much as it hits to some other countries due to the natural resources. However, I am worried about the amount of debt people have here according to the statistics.
Seemingly, at least Kristiansand area seem to be in a boom, and now seems that the oil price is dropping dramatically. People don’t seem to care so much for money here but they prefer to live in corageous houses.
I hope that this recession doesn’t hit so badly to Norway but I am afraid that this country will not be a safehaven neither because of the tightening of capital and money markets worldwide.
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Comments are highly appreciated if you have anything to say of course.
