DNB and Nordea expect continued economic growth – and more interest rate increases

Nordea and DNB both believe in increased wage and price growth in the coming years. The banks also believe that interest rates will rise faster than Norges Bank has so far signaled.

“Omicron seems to be just a bump in the road, and much is in place for continued solid growth going forward,” chief economist Kjetil Olsen in Nordea Markets wrote on Wednesday.

On Wednesday, DNB and Nordea published their forecasts for the Norwegian economy.

Faster interest rate increase

Both banks believe that the strong economic development will open the door to six interest rate hikes over the next two years, writes E24. Kjetil Olsen predicts an increase in interest rates every quarter until well into 2023, with a peak of 2% by the end of 2023.

In the latest forecasts from Norges Bank, an interest rate peak of 1.75% has been signaled towards the end of 2024.

“Even though Norges Bank raised interest rates twice last year, interest rates are still at an abnormally low level. We must expect more interest rate hikes in the future and probably somewhat higher interest rates than Norges Bank has signaled so far,” Olsen said.

Wage growth

Nordea expects that unemployment will be back to the same level as before the last restrictions during the second quarter of 20222, which will give rise to a battle for employees and higher wage growth.

“Together with demands for compensation for lost purchasing power last year, wage growth could quickly approach 4% this year. It will give good growth in people’s purchasing power,” Olsen said.

DNB is of the same opinion, with a forecast of 3.8%, writes E24.

“A tight labor market and higher inflation will facilitate the highest wage growth since 2013,” the bank writes in its report.

Housing prices

Growth in house prices slowed down during 2021, after robust growth in 2020. When interest rates rise, house prices will be reduced somewhat, while wage growth will pull in the opposite direction. All in all, Nordea believes that house price growth will remain at a stable, moderate level.

“However, we are open to the fact that house prices may fall slightly in the places where they have risen the most and where the debt ratio is higher than the national average, as in Oslo,” according to Nordea.

Here too, DNB agrees with Nordea’s analysis. The price estimate from DNB is 2.5% growth in 2022.

Source: © NTB Scanpix / #Norway Today / #NorwayTodayFinance