Norwegian economy clearly cooling off

Money matters


Photo: Ludvig Heiberg Larsen / NTB
DNB ASA, Norway’s largest financial services group, is headquartered in Oslo.


Three Norwegian banks—DNB, Nordea, and Sparebanken Sør—all raised interest rates on deposits and mortgages May 8 after the central bank Norges Bank raised the key interest rate to 3.25% on May 4.

“Based on Norges Bank’s decision to raise the key interest rate by 0.25 percentage points at the interest rate meeting on May 4, DNB has decided to increase the interest rate on mortgages and deposits by up to 0.25 percentage points,” said Ingjerd Blekeli Spiten, head of personal banking at DNB in a stock exchange announcement.

Nordea also increased interest rates on mortgages and deposits by up to 0.25 percentage points. New interest rates for existing loans will apply from June 20 on.

“We have decided to increase interest rates on mortgages and deposits as a result of Norges Bank’s new interest rate hike,”  said Randi Marjamaa, head of personal banking at Nordea Norge in a press release.

Sparebanken Sør raised their interest rates by the same percentage points as the other two banks. The interest rates for new loans took effect on May 9. For existing loan customers, the increase takes effect June 21, according to Fædrelandsvennen.

Weak krone reinforces price growth

Although the Norwegian economy has withstood the rise in interest rates and prices better than expected, Nordea now predicts weak economic development. One of the reasons is a very weak krone.

“Price and wage growth has been higher than many had predicted. In addition, the krone has weakened to a much greater extent than anyone could have imagined. This helps maintain higher price growth,” said Kjetil Olsen, chief economist at Nordea Markets.

A weak krone is good for those who export, while all imports become more expensive. Thus, the weak krone reinforces the price growth.

Consequently, Olsen believes­­—as do many others—that the key interest rate will be at 4% sometime this fall.

“Norges Bank wants to reduce the price growth, and we therefore believe that the interest rate peak will be higher than many believed just a little while ago,” he said.

No crisis—but a clear slowdown

The fact that interest rates continue to rise will, according to Nordea, affect the economy and cause more people to be out of work.

“We do not predict a crisis, but a clear slowdown in growth,” said Olsen.

He points out that even if the causes of the problems come from the world economy, inflation must be curbed here at home.

“What started as high price growth as a result of conditions outside the country’s borders can take on a life of its own within. Norges Bank is therefore seeking to slow down the economy enough for inflation to come down again. Inflation is unlikely to come down without costs to the economy, even if we wish that wasn’t the case,” said Olsen.

House prices down starting this summer

The housing market is something most people have a feel for, and the interest rate hike will eventually hit this market. So far, house prices have held up, rather surprisingly, according to Nordea’s analyses. This is not the case in neighboring Sweden.

“The changes in the mortgage regulations from the beginning of the year, which mean that more people can borrow more, have probably contributed to the fact that prices of previously owned homes have developed better than they would have otherwise. However, we imagine that house prices will fall somewhat starting this summer. It is partly because we believe that interest rates will continue to rise, and partly because unemployment is going to increase somewhat,” concluded Olsen.

This article originally appeared in the June 2023 issue of The Norwegian American.

Avatar photo


NTB (Norsk Telegrambyrå), the Norwegian News Agency, is a press agency and wire service that serves most of the largest Norwegian media outlets. The agency is located in Oslo and has bureaus in Brussels, Belgium, and Tromsø in northern Norway