Higher consumption was supposed to drive the economic recovery in Norway after the corona crisis, but now it turns out that consumers are holding on to their purses tighter than expected.
There are signs that Norwegian consumers are somewhat more hesitant to increase consumption in the future and instead choose savings and repayment of loans over consumption, according to Finans Norge’s Expectations Barometer for the third quarter.
“The survey for the third quarter shows that Norwegians have faith in the country’s economy but choose to postpone higher consumption in favor of increased savings and repayment of loans,” Idar Kreutzer, CEO of Finans Norge, stated.
However, confidence in the country’s economy next year has never been greater since the surveys began in 1991. And the Expectations Barometer’s main indicator is now back at the same level as before the corona pandemic hit with paralyzing force in late winter last year.
In addition, the indicator for Norwegians’ expectations of their own savings is at a near-record high level over the same period.
Fear of interest rate increase
The Expectations Barometer is a quarterly collaboration between Finans Norge and Kantar TNS. It measures households’ expectations of their own and the country’s economy and consists of five individual indicators merged into one main indicator.
In step with a reduced infection situation, gradual softening of government restrictions, and higher economic activity, the Expectations Barometer has, since the end of 2020, given clear signals of positive development in households’ economic expectations.
But the sharp increase in consumption, which economists expected to be one of the most important drivers in the economic recovery as society opens up more and more, may to some extent seem to be neutralized by the announced normalization of interest rates in Norway.
Norges Bank has given clear signals that the first interest rate increase from the current zero point will come in September, and the interest rate path published in the Monetary Policy Report in June gives reason to expect a further three interest rate increases of 0.25% over the next twelve months. Thus, the key policy rate will be 1% higher by the summer.
“The announced interest rate increase from Norges Bank may explain why Norwegian consumers choose to repay loans rather than increase consumption. At the same time, the overall increase in Norwegians’ consumption in the future may be smaller than expected and thus put a damper on further growth in the second half of the year,” Kreutzer said.
The Expectations Barometer shows a positive development across the political landscape, but the greatest progress is on the red-green side in the last poll before this year’s parliamentary elections. Through the pandemic, the red-green block has been the most negative, but this time, it shows the most progress. At the same time, the conservative side has the highest proportion of optimistic respondents.
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