Rising house prices: What's next for the Norwegian economy?
Will Norway's economy burst back to life in the second half of 2021 and what about the impact of the Covid-19 pandemic on house prices in the country? A new report from the International Monetary Fund (IMF) reveals some clues.
The report from the IMF outlined that while Norway had been hit hard by the coronavirus pandemic, it had overall coped well with the virus spread and subsequent economic crisis.
The IMF said that the government’s response to the pandemic meant that Norway was not only among the countries in Europe with the lowest infection numbers but also suffered the least economic decline.
In 2021 the IMF expects the Norwegian economy to grow by 3.2 percent when measured by gross domestic product (GDP).
This is in line with estimates of 3.8 percent growth from Norges Bank and a forecast of 3.3 percent growth from Statistics Norway.
Economists consider the the ideal economic growth rate to be anywhere between 2.5 to 3.5 percent. This is regarded as the sustainable rate an economy can grow without encountering any negative side effects.
Although, the IMF did note that there is a risk that any delays to the vaccine program, which has suffered setbacks and delays already, will undermine the likelihood of Norway achieving this predicted growth.
The housing market in Norway was an area of concern for the IMF. The report said that rising house prices pose a risk to financial stability.
“This acceleration in house prices should be limited through a mix of monetary policy, tax, structural policy and fiscal policy that aims to increase the supply of housing while dampening demand,” the report said.
This isn’t the first time the IMF has been wary of rising house prices in Norway and it has, on several occasions, recommended that authorities tighten mortgage regulations.
The Minister of Finance, Jan Tore Sanner, echoed the concerns of the IMF.
“I share the concern about the strong growth in house prices, and especially in Oslo and other major cities, especially over the last year,” the minister told financial paper Dagens Næringsliv.
However, the finance minister doesn’t believe there is a need for tighter regulation. Sanner expects historically low interest rates to rise in the second half of the year, meaning house price rises should slow down naturally.
Welfare and support
In the annual statement, the IMF also recommended that Norway’s Covid relief support schemes should be gradually reduced and become more targeted as the economy picks up.
“As economic activity picks up, fewer companies and households will be dependent on support from the state,” the IMF’s report said.
The monetary fund also said that future policy should create incentives for economic activity.