Norway interest rate hike impacts small businesses and housing

Norway's central bank, Norges Bank, has raised the policy rate to 4.5 percent, triggering concerns across different sectors of the economy.

SMB Norge has criticized the rate hike, arguing it is unnecessary and could lead to job losses in small businesses. The organization claims the central bank may have an overly optimistic view of the labor market, noting that its regional surveys underrepresent small enterprises, which make up over 90 percent of Norwegian businesses. According to SMB Norge, higher interest rates, rent, and wage costs are squeezing margins for local shops, craftsmen, and service providers, limiting their ability to invest or hire.

The housing market is also feeling the impact. Norges Bank predicts housing price growth will slow to 3 percent this year, down from 5.9 percent last year. Hilde Midsem, chief economist at Norske Boligbyggelag, noted a strong correlation between interest rates and housing prices, suggesting a rule of thumb where a one percent increase in rates can lead to a ten percent drop in housing prices. Additionally, new home sales have seen a significant decline, with sales volumes down 48 percent compared to 2021.