The pandemic, inflation and higher interest rates will probably be the main topics in the economy in the new year. E24 has asked nine economists what 2022 can offer.
Economists believe that pandemics, inflation, bottlenecks, interest rate rises and fluctuations in stock markets will affect the economy in the coming year.
DNB Markets’ main scenario is that an ever higher vaccination rate globally over the next year will cause the pandemic to drop.
– But we can certainly not be sure, says the bank’s chief economist Kjersti Haugland.
Despite the reopening party turning to infection records and restrictions at the end of the year, 2021 was still the year in which Norges Bank raised the record low zero interest rate for the first time since the outbreak of the pandemic.
However, massive monetary policy support worldwide, combined with a sudden increase in demand and bottlenecks in production and transport, gave rise to an accelerating fear of inflation (inflation) towards the end of the year.
Norges Bank has said that the interest rate will most likely continue up to 0.75 per cent in March, after the interest rate increases in September and December this year to 0.5 per cent.
Thereafter, there are plans for two more increases to 1.25 per cent by the end of 2022, if the development is as the central bank expects.
More interest rate hikes next year
Of the nine economists E24 has been in contact with, chief economist Kari Due-Andresen in Akershus Eiendom is the only one who believes that Norges Bank must limit itself to two withdrawals in 2022.
– I think pandemics and global value chain disruptions will dampen economic growth more than Norges Bank envisages, she explains.
Handelsbanken’s chief economist Marius Gonsholt Hov is one of the three who believe Norges Bank is sticking to the plan with three interest rate hikes.
– But should we see that the omikron turmoil passes fairly quickly, at the same time as wage and price pressures continue to surprise Norges Bank on the upside, we should not ignore the fact that interest rates will be raised even a little faster, he says.
Four of the nine economists predict four interest rate increases to 1.50 per cent next year. Then we will then be back at the level from before the pandemic.
Jan Ludvig Andreassen, chief economist at Eika Gruppen, puts his trust in that not There will be more interest rate hikes at all in 2022.
– The more we raise the interest rate, the greater the risk we get of unnecessary krone strengthening and falling house prices. Norges Bank is now destabilizing the Norwegian economy, he says.
End of extraordinary house price growth
House prices accelerated surprisingly during the pandemic, helped by low interest rates. In November, annual growth came down to 6.6 per cent from a peak of over 12 per cent in April. Eiendom Norge’s forecast for 2022 is four percent growth.
Nordea’s chief economist Kjetil Olsen points out that higher interest rates point in the direction of lower house prices, while higher wage growth pulls in the opposite direction.
In sum, we believe that the effects of both higher interest rates and higher wage growth will result in approximately unchanged house prices. However, we are open to the fact that house prices may fall a little in the places where they have risen the most, such as Oslo, he says.
Handelsbanken is among those with the lowest forecast for house price growth of 2.5 per cent in 2022, but he does not rule out that things will get better.
– But the period of extraordinary house price growth, which we looked forward to and including March this year, is behind us anyway, says the chief economist.
Due-Andresen in Akershus Eiendom believes that house price growth will slow further in the time ahead, and is excited about how house prices will react to rising interest rates. Norges Bank itself expects that house prices will be reduced to 2.8 per cent in 2022 from 9.1 per cent in 2021.
– I fear it may be too high, especially if the central bank gets through three interest rate hikes as it now plans, she says.
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Higher wage bargaining power
Unemployment, which rose to a peak of over ten percent in the spring of 2020, recently fell to a pre-pandemic level of just over two percent.
Economists believe that unemployment will rise somewhat due to the new measures in the short term, but that we may again see lower levels towards the summer than before the pandemic.
Combined with higher price inflation, this will probably lead to demands for higher wages. Wage growth in 2021 was estimated at 3.3 per cent, but was overshadowed by the 3.4 per cent rise in prices, according to figures from Statistics Norway.
– Employees will demand compensation for the high price growth, and have higher bargaining power than for a long time, as a result of the shortage of labor, says Haugland in DNB Markets.
She also believes that employees in the public sector will “sharpen their knives extra”, as a result of the private sector ending up with higher wage growth than the framework indicated in 2021.
Economists’ estimates for wage growth in 2022 range from just over three percent to four.
Inflation gives higher interest rates and a tumultuous stock market
Both the US and Europe have experienced significant price increases in recent months. Here at home, core price inflation, which Norges Bank looks at most in interest rate setting, is still lower than the target of two per cent.
Total inflation, on the other hand, rose to over five per cent in November, the highest in 13 years, driven by record high electricity prices.
– Inflation will remain higher than the central bank’s targets. In response, several central banks will step down on stimuli and raise interest rates. It will not be so problematic for the economies, but it can be more confusing in the stock markets, which have benefited greatly from very low interest rates, says Nordeas Olsen.
SEB chief strategist Erica Dalstø does not yet believe that inflation has reached its peak and sees clear indications of underlying inflationary pressures.
– This puts Norges Bank in a difficult situation where it must react with interest rate hikes in order not to fall behind, while at the same time making sure not to slow down the economic recovery too sharply.
Inflation can dampen purchasing power
DNB’s Haugland also believes that inflation is picking up after increased production costs as a result of international bottlenecks, and that total inflation is being lifted by “spectacularly high” power prices.
– It draws in purchasing power, and can thus affect consumption growth and thus growth in the Norwegian economy, she says.
Nordeas Olsen still believes it is time for a shopping party throughout the year.
– Yes, households still have a lot of savings that are ready to be used when we are again allowed to spend money on what we want. The course of the pandemic will determine how strong the growth in consumption will be, he says.
Most economists believe that the krone will strengthen somewhat during the year, both as a result of higher oil prices and higher interest rates. However, as long as the pandemic lasts, the krone exchange rate may still fluctuate somewhat.
The krone has strengthened slightly through Christmas, so that one euro now costs 9.98 and one dollar 8.83. That is around three kroner less than when the pandemic hit the country in March 2020.
– Higher oil prices should pull the krone somewhat stronger. The joker will be the development in the stock markets, says Nordeas Olsen.
– Will the pandemic ever be over?
– In Norway, I hope the pandemic is over during the next year, so that we can live virtually without restrictions domestically. On a global basis, I fear that we will have until 2023, says Due-Andresen.
Bjørn Roger Wilhelmsen in Nordkinn Asset Management believes the virus will exist in different variants for a long time, but that the pandemic as we know it from 2020 and 2021, with blown capacity in hospitals and strict national measures to prevent spread, will be over in the course of 2022
– Will it ever be over, or is it something we learn to live with, SEBs Dalstø asks.
Jan Ludvig Andreassen in Eika thinks the pandemic will never completely go away, and that we just have to plan for new ones to come.
When asked if there will be a holiday abroad this summer, economists are still uncertain.
– The recent development in the pandemic is a reminder that the pandemic is not over and that we must live with the uncertainty that it may flare up. There will probably be more Norwegian holidays (and fewer abroad) in the summer of 2022 than before the pandemic, says Kyrre Knudsen, chief economist at SpareBank 1 SR-Bank.
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