Norges Bank released a report on Norway's financial stability and overall economic situation on Monday. In one of the statements, economists expressed concern about the current situation. They also emphasize that the threats to the Norwegian economy are greater today than they used to be.
Greater sensitivity of the financial system
The previous report was published in November last year. As shown in Monday's document, the sensitivity of the financial system has increased compared to the previous period. Current the risk is further intensified by high commercial real estate prices.
Increase in household debt
Economists are concerned for another reason as well. Their attention was particularly drawn to the growing indebtedness of households. As a result, this phenomenon may have negative consequences for all Norwegian entrepreneurs. In the longer term, this may also affect the entire banking sector.
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As the report shows, the growing debt is clear and continues to increase. Increasing liabilities combined with unstable prices and rising interest rates may result in lower household consumption. This, in turn, will mean a difficult financial situation for enterprises, weaken the economy and, consequently, also have a negative impact on the banking sector. Especially in the areas of corporate lending.
Record real estate prices
Economists are also concerned about high real estate prices. They are at a historically high level, especially considering their relation to income. Prices have been rising for many years, and then began to drop slightly in 2017. The authors of the report believe that houses and flats are the most valuable resource for most households. If their prices continue to fall, it could significantly reduce the equity capital of all Kingdom residents.
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Commercial real estate is also a problem
Houses and apartments are not the only real estate whose prices are at record high levels. This problem also affects commercial real estate. According to the report's authors, rising interest rates may contribute to lower price levels in this market. Thus, the same real estate will lose much of its value. As practice shows, this phenomenon causes financial losses for banks that grant mortgage and corporate loans.
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