Economic trends for Norway and abroad
Cyclical upturn and signs of falling unemployment
Following the cyclical upturn that has lasted for the past two years without clear signs of falling unemployment, unemployment is expected to fall in the time ahead. However, lower demand at home and abroad will curb the growth in activity levels next year. The krone has appreciated due to the high price of oil and relatively low inflation in Norway. A continued strong krone, low rate of inflation and low interest rates are expected in several years ahead.
The growth in the Norwegian economy continued in the first half of 2005, and the cyclical upturn is set to continue at its current pace. The service industry is benefiting from considerable growth in consumer spending, the building and construction industry is reaping the benefits of the growth in housing investment, and the manufacturing industry is experiencing increased demand from abroad and from petroleum investment. The cyclical upturn is broadly based both in regards to which demand components are increasing and which industries are benefiting from the upturn.
The expansionary phase is expected to continue until the beginning of 2006. Weaker growth in Norwegian export markets, declining petroleum investment and a moderate tightening of fiscal policy contribute to the reversing growth. In addition, the growth impulses from low interest rates on consumer spending and housing investment are expected to become weaker.
Given a continued high price of oil and interest and inflation rates approximately on a par with the euro zone, a persistent strong krone is expected in the next few years. Combined with moderate wage inflation, this will contribute to keep inflation below 2.5 per cent. We expect the Norwegian economy to enter a moderate downturn in the course of next year. Against this background, interest rates will remain unchanged until 2008.
We anticipate that the international downturn will bottom out and that a recovery will be seen in 2008, probably resulting in higher interest rates internationally. By then the Petroleum Fund will have grown so much that there will be room for a more expansionary fiscal policy, according to the fiscal rule. This will have a positive effect on the Norwegian economy. Because the Norwegian downturn will be very moderate, there will be little idle production capacity at the early stage of the cyclical upturn. A somewhat tighter monetary policy is therefore expected. We assume that Norwegian interest rates will follow the path for foreign interest rates, but with some lag.
An increase in man-hours per employee, partly due to reduced sickness absence, has hampered the fall in unemployment so far. However, a more marked decline in unemployment is expected next year. Following moderate employment growth in 2007, the recovery and a marked increase in public sector employment will contribute to lower unemployment further in 2008 and 2009.
|Main economic indicators. Accounts and forecasts. 1997-2009. 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||3.0||4.4||4.2||3.9||3.5||2.6||2.8|
|General government consumption||2.5||3.3||3.2||1.3||5.8||3.7||1.4||2.3||2.1||2.3||2.5||4.1||4.0|
|Gross fixed investment||15.5||13.1||-5.6||-3.6||-0.7||-1.0||-2.0||9.1||11.8||1.3||-1.3||0.6||1.5|
|Extraction and transport via pipelines||24.9||22.2||-13.1||-23.0||-4.1||-5.3||16.9||12.3||21.8||-1.9||-4.8||-2.8||-2.6|
|Demand from Mainland Norway 1||4.5||3.9||2.6||2.3||3.2||3.1||1.6||4.1||4.1||3.2||2.7||2.9||3.2|
|Crude oil and natural gas||4.1||-5.8||0.4||4.1||8.8||1.9||-0.6||-0.5||-3.3||5.7||0.1||1.2||1.8|
|Gross domestic product||5.2||2.6||2.1||2.8||2.7||1.1||0.4||2.9||2.6||2.8||1.8||2.7||3.5|
|Total hours worked, Mainland Norway||2.5||2.3||0.6||-0.7||-1.2||-1.2||-1.2||2.0||1.7||0.4||0.4||1.3||1.6|
|Labor force 3||2.1||1.6||0.8||0.7||0.3||0.4||0.0||0.2||0.6||0.6||0.6||0.7||1.0|
|Participation rate (level) 4||72.7||73.6||73.8||74.0||73.9||73.8||73.3||72.9||72.7||72.5||72.3||72.2||72.2|
|Unemployment rate (level)||4.0||3.2||3.2||3.4||3.6||3.9||4.5||4.5||4.5||4.1||4.1||3.9||3.4|
|Prices and wages|
|Wages per standard man-year||4.8||6.6||5.3||4.5||5.1||5.3||3.9||3.8||3.7||3.5||3.7||3.9||3.7|
|Consumer price index (CPI)||2.6||2.3||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.2||1.7||1.7||2.2|
|Export prices, traditional goods||-0.6||2.0||-0.4||9.9||-1.6||-8.9||-2.2||7.9||2.6||-2.1||-1.2||1.8||2.0|
|Import prices, traditional goods||-1.2||1.1||-2.9||5.1||-0.7||-7.5||0.4||3.8||-0.8||-2.7||-0.7||1.9||2.5|
|Housing prices 6||10.9||9.7||9.4||14.1||7.2||4.0||1.6||10.1||10.2||4.2||4.0||0.8||5.1|
|Income, interest rates and excange rate|
|Household real income||3.8||5.6||2.7||3.5||-0.2||7.3||4.7||4.6||5.3||-4.7||2.7||2.9||2.2|
|Household saving ratio (level)||2.9||5.9||5.6||5.2||4.2||9.0||10.1||10.3||10.9||3.2||2.4||2.7||2.2|
|Money market rate (level)||3.7||5.8||6.5||6.8||7.2||6.9||4.1||2.0||2.1||2.2||2.2||2.4||3.0|
|Lending rate, banks (level) 7||6.0||7.4||8.4||8.1||8.9||8.5||6.6||4.2||4.0||3.7||3.5||3.6||4.1|
|Real after-tax lending rate, banks (level)||1.7||3.0||3.7||2.6||3.3||4.8||2.3||2.6||1.2||0.4||0.8||0.9||0.8|
|Import-weighted krone exchange rate (44 countries) 8||-0.4||2.5||-1.2||2.9||-3.1||-8.5||1.3||3.0||-4.7||-2.9||1.0||1.7||1.9|
|Current balance (NOK billion)||70.5||0.5||66.4||228.9||235.2||193.9||200.3||227.8||319.4||416.1||366.3||356.2||369.6|
|Current balance (per cent of GDP)||6.3||0.0||5.4||15.6||15.4||12.8||12.8||13.5||16.9||20.3||17.9||16.9||16.7|
|Exports markets indicator||9.4||8.6||7.0||11.7||0.8||1.3||2.6||5.8||4.0||3.2||1.2||3.6||7.2|
|Consumer price index, euro-area||1.6||1.1||1.1||2.3||2.1||2.3||2.1||2.1||2.2||2.4||1.5||1.6||1.9|
|3 mths. interest rate, euro||4.2||4.2||2.9||4.4||4.2||3.3||2.3||2.1||2.1||2.1||2.1||2.7||3.1|
|Crude oil price NOK (level) 9||135||96||142||252||219||197||205||257||356||368||311||312||318|
|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 13 September 2005. Published 15 September 2005.|