Economic trends for Norway and abroad
A soft landing for the Norwegian economy?
Two and a half years of economic upswing have made their mark in the form of higher employment growth and lower unemployment. On the other hand, there have been no indications of increased inflation or wage growth. Somewhat higher interest rates and a major reduction in the growth impetus from oil investments are expected to curb the future production growth. In 2007, we forecast that a poorer development in Norwegian export markets will contribute further to the stabilising of the Norwegian economy. The boom in the economy we are currently experiencing can, however, be extremely moderate compared with the strong booms of the past 25 years.
We anticipate that the moderate international economic upswing will continue in 2006, and will intensify slightly in the short term. Oil investments are likely to increase from 2005 to 2006, but much less than the year before. Slightly stronger growth abroad is heading in the direction of slightly higher international interest rates, which in turn forms the basis for higher Norwegian interest rates, without affecting the strength of the NOK considerably. We anticipate that Norges Bank will put up the benchmark rates by 0.75 percentage points in 2006, but that the interest rates will not change during the remainder of the forecast period. Overall, these factors clearly indicate less growth in the mainland economy through 2006 than 2005.
Continued high consumption growth in households – but housing investments flatten off
The underlying income growth in households has been relatively high, but is now expected to fall somewhat. Growth in household consumption, including non-profit organisations, which was 3.8 per cent in 2005, is expected to remain at roughly the same level in 2006, but will subsequently experience a slight fall. Housing investments rose by a total of 14.5 per cent last year. Together with the income development, a high level of housebuilding activity over a number of years and prospects of somewhat higher interest rates contribute to a moderate fall in future housing investments and almost unchanged housing prices.
Two years with modest impulses from the fiscal policy
We take our basis for 2006 and 2007 in the modest impulses of the fiscal policy. A continued high level of the oil price will lead to a marked increase in the Petroleum Fund (The Government Pension Fund – Global). We forecast that some of the potential for a more expansive fiscal policy that ensue from this will be used. This may contribute to increased growth in the mainland of Norway’s economy in 2008 and 2009. An assumed international economic upswing will stimulate the Norwegian economy further towards the end of the forecast period.
Employment growth and lower unemployment
Employment increased last year and unemployment is now clearly falling. Despite the somewhat poorer production growth we are now experiencing, we anticipate that employment will increase throughout the entire forecast period. The increase in employment is estimated to be somewhat higher than the influx to the labour market, and unemployment will therefore gradually fall. In 2005, the rate of unemployment was quoted in the Labour Force Survey as 4.6 per cent, and this rate is expected to fall to 3.8 per cent as a year average in 2006, and further down to 3.4 per cent in 2009.
|Main economic indicators 1997-2009. Accounts and forecasts. Percentage change from previous year unless otherwise noted|
|Demand and output|
|Consumption in households etc.||3.2||2.7||3.3||3.9||1.8||3.0||2.9||4.7||3.8||3.9||3.6||3.1||3.2|
|General government consumption||2.5||3.3||3.2||1.3||5.8||3.7||1.3||2.2||1.4||2.0||2.3||3.8||3.4|
|Gross fixed investment||15.5||13.1||-5.6||-3.6||-0.7||-1.0||0.2||8.1||10.8||6.6||-2.4||1.1||0.2|
|Extraction and transport via pipelines||24.9||22.2||-13.1||-23.0||-4.1||-5.3||16.1||7.8||15.7||6.3||-5.1||0.0||0.0|
|Demand from Mainland Norway 1||4.5||3.9||2.6||2.3||3.2||3.1||1.4||4.5||4.0||3.8||2.5||3.0||2.8|
|Crude oil and natural gas||4.1||-5.8||0.4||4.1||8.8||1.9||-0.7||-0.7||-3.4||-3.2||6.6||5.6||-1.4|
|Gross domestic product||5.2||2.6||2.1||2.8||2.7||1.1||1.1||3.1||2.3||1.3||2.5||2.7||1.4|
|Total hours worked, Mainland Norway||2.5||2.3||0.6||-0.7||-1.2||-1.2||-1.7||2.0||1.0||0.9||0.7||1.2||0.6|
|Labor force 3||2.1||1.6||0.8||0.7||0.3||0.4||-0.5||0.4||0.9||0.7||0.6||0.6||0.7|
|Participation rate (level) 4||72.7||73.6||73.8||74.0||73.9||73.8||73.0||72.8||72.8||72.6||72.3||72.0||71.8|
|Unemployment rate (level)||4.0||3.2||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.8||3.7||3.6||3.4|
|Prices and wages|
|Wages per standard man-year||4.8||6.6||5.3||4.5||5.1||5.3||3.9||4.3||3.5||3.8||4.0||4.2||4.0|
|Consumer price index (CPI)||2.6||2.3||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.6||1.9||2.0||1.9|
|Export prices, traditional goods||-0.6||2.0||-0.4||9.9||-1.6||-8.9||-2.3||8.4||3.2||1.2||-1.1||0.2||1.8|
|Import prices, traditional goods||-1.2||1.1||-2.9||5.1||-0.7||-7.5||-0.3||4.5||0.3||-0.3||-1.1||-0.7||-0.1|
|Housing prices 6||10.9||9.7||9.4||14.1||7.2||4.0||1.6||10.1||7.9||3.4||0.6||1.8||0.4|
|Income, interest rates and excange rate|
|Household real income||3.8||5.6||2.7||3.5||-0.2||7.3||4.3||4.8||6.5||-6.0||3.7||3.1||3.1|
|Household saving ratio (level)||2.9||5.9||5.6||5.2||4.2||9.0||9.7||9.8||12.1||3.2||3.3||3.3||3.3|
|Money market rate (level)||3.7||5.8||6.5||6.8||7.2||6.9||4.1||2.0||2.2||2.9||3.3||3.3||3.3|
|Lending rate, banks (level) 7||6.0||7.4||8.4||8.1||8.9||8.5||6.6||4.2||4.0||4.3||4.8||4.8||4.8|
|Real after-tax lending rate, banks (level)||1.7||3.0||3.7||2.6||3.3||4.8||2.3||2.6||1.3||0.5||1.6||1.5||1.5|
|Importweighted krone exchange rate (44 countries) 8||-0.4||2.5||-1.2||2.9||-3.1||-8.5||1.3||3.0||-3.9||1.1||-0.2||0.1||0.0|
|Current balance (bill. NOK)||70.5||0.5||66.4||228.9||235.2||193.9||204.3||233.0||319.7||333.7||314.2||315.9||301.3|
|Current balance (per cent of GDP)||6.3||0.0||5.4||15.6||15.4||12.8||13.0||13.6||16.8||16.6||15.3||14.7||13.6|
|Exports markets indicator||9.4||8.6||7.0||11.7||0.8||1.3||2.6||7.1||4.9||5.7||4.2||1.8||3.0|
|Consumer price index, euro-area||1.6||1.1||1.1||2.3||2.1||2.3||2.1||2.1||2.2||2.1||1.9||1.9||1.9|
|3 mths. interest rate, euro||4.2||4.2||2.9||4.4||4.2||3.3||2.3||2.1||2.2||2.7||3.0||3.0||3.0|
|Crude oil price NOK (level) 9||135||96||142||252||219||197||205||257||351||365||317||316||316|
|1||Consumption in households and non-profit organizations + general government consumption + gross fixed capital formation in mainland Norway.|
|2||Change in stockbuilding. Per cent of GDP.|
|3||Unemployed (Labour Force Survey) and employment (NA) exclusive of foreigners in foreign shipping.|
|4||Unemployed (Labour Force Survey) and employment (NA) exclusive of foreigners in foreign shipping as a share of the average population.|
|5||CPI adjusted for tax changes and excluding energy products.|
|7||Households' borrowing rate in private financial institutions. Yearly average.|
|8||Increasing index implies depreciation.|
|9||Average spot price Brent Blend.|
|Source: Statistics Norway. The cut-off date for information was 14 March 2006. Published 16 March 2006.|
NOK remains strong, inflation low
Electricity prices have risen steeply in recent months and on an annual basis are positioned to increase by around 20 per cent in 2006. This contributes to the expectation of an increase in the growth in the Consumer Price Index (CPI) from 1.6 per cent last year to 2.6 per cent this year. Taxation changes will contribute to increase the CPI growth by around 0.4 per cent this year, which is roughly the same as the previous year. As long as the oil price remains high and interest rates in Norway are at least at the same level as the Euro area, we believe that the NOK will remain relatively strong. There are prospects that we will have inflation in line with the measure of inflation in the Euro area which will probably return to around 2 per cent when the effect of the autumn’s high oil prices are exhausted during the summer of 2006. The underlying price rise, measured in the CPI adjusted for energy prices and without taxation changes that increased by 1.0 per cent last year, is expected to increase during the course of this year and then stabilise at around 2 per cent during the remainder of the forecast period.