Norway Better Placed to Weather Deepening Euro Turmoil, IMF Says
Wednesday, 23 November 2011 | 00:00
Norway is “better placed” than most in Europe to weather an intensification of the euro area’s debt turmoil, the International Monetary Fund said.The country’s mainland economy, which excludes oil and shipping output, will grow “moderately” and is projected to expand about 2.5 percent in 2011 and 2012, the Washington-based group said in a report presented today in Oslo.
“Expansion will be driven mainly by domestic demand, given strong wage growth, continued momentum in the housing market, and sluggish growth amongst major trading partners,” the IMF said. “The closing of the output gap, along with strong wage pressures, should result in a gradual rise in inflation from its current low rates toward the 2.5 percent target over the next two years.”
Norway, the world’s seventh-largest oil exporter, has been shielded from the worst of the debt crisis as its crude revenue generates surpluses and unemployment remains around 3 percent. Mainland gross domestic product grew 0.8 percent in the third quarter, slowing from 1.3 percent in the period through June as consumers cut spending, Statistics Norway said today. The failure of European leaders to end the debt crisis in the euro area is damping economic growth in Norway, which sends more than 60 percent of its exports to the region.
The IMF warned that “soaring” house prices and high household debt are a “significant risk,” backing measures by Norwegian regulators that include tighter mortgage lending standards to curb credit growth. Home prices gained 9.3 percent in October and household credit growth hovers at more than 7 percent. The central bank estimates consumer debt burdens will grow to more than 204 percent of disposable income next year, the highest since at least 1988.
“A fall in house prices poses a major macroeconomic risk, as it would dampen consumption via wealth effects and reduce residential investment,” the IMF said. “Norway has one of the highest ratios of household debt to disposable income amongst OECD economies. Very high household debt levels imply that a house price drop could also push up default rates and stress banks’ balance sheets.”
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