Economic trends for Norway and abroad

Gradually increasing growth in mainland economy


After small changes in the activity of the Norwegian economy in the second half of 1998 and first half of 1999, several factors indicate new growth ahead. Further decline in oil investments is, however, contributing to the slowdown in manufacturing. Unemployment will probably increase somewhat in both 2000 and the next year, and price inflation could drop to the euro area level.

Seasonally adjusted figures from the quarterly national accounts show an increment in the gross domestic product (GDP) for mainland Norway of around one per cent in third and fourth quarter 1999, after zero economic growth in the first half year. Several signs are now pointing in the direction of new growth, although in 2000 the negative impact of the downturn in investments in the petroleum industry will consequently cause the growth in mainland Norway's GDP to be modest. Increased oil and gas production will push the overall GDP above the mainland GDP. In 2001 Norway expects its mainland economy to grow in line with the historical average. The main reason for the upswing in the mainland economy next year is that the decline in petroleum investments is expected to come to a halt.

Positive international economic outlook

From a Norwegian standpoint, the international economic outlook is now rather positive. A number of commodity prices have increased from extremely low levels in early 1999. Activity growth in Europe now appears to be on the incline, and many of the Asian countries that had major economic problems in 1998, now seem to be over the worst difficulties. Economic growth in the United States continues to be higher than expected, which is positive in the short term, but is also increasing the probability of a future pronounced economic slump. On this basis we expect internationally somewhat higher inflation and nominal interest rates than previously expected. With a healthy Norwegian balance of payments and a gradual reduction in the inflation differential compared with other countries, we expect Norwegian money market interest rates to nevertheless remain relatively stable in the future.

Dichotomizing of the economy continues

Increased growth in household demand and foreign demand in the coming months is pointing in the direction of a higher level of activity in the mainland economy. Lacklustre investments in petroleum and industry in general will be offsetting factors. The trend towards a two-way split in the economy, with slow growth in some manufacturing sectors and healthy growth in a number of service sectors, is expected to continue. Unemployment is expected to increase somewhat both in 2000 and next year while at the same time there is a shortage of labour in some submarkets. Various degrees of pressure in different parts of the labour market is a significant uncertainty factor in assessing future wage trends. Wage growth appears to have been reduced by around one and half percentage points from 1998 to 1999. We now estimate a similar reduction in the growth rate in 2000.

Consumer price growth is now estimated to be 2.4 per cent in 2000, slightly higher than previously estimated. The increase is mainly attributed to higher import prices. Duties at the turn of the year also increased more than indicated by inflation adjustment, and which, together with the restructuring of the consumer price index to monthly observations of rent, are causing high price inflation in early 2000. Towards the end of the year we expect the price inflation rate to drop to barely two per cent.

Main economic indicators 1999-2001. Accounts and
forecasts (percentage change from previous year un-
less otherwise noted)
  Accounts Forecasts
  1999 2000 2001
Demand and output      
Consumption in households and non-profit organizations 2,1 2,7 2,8
General government consumption 2,5 2,0 1,9
Gross fixed investment -7,0 -5,8 2,3
Petroleum activities -14,0 -21,6 0,3
Mainland Norway -3,5 -0,6 2,8
Firms -3,3 -2,8 -0,2
Housing -2,8 9,1 14,7
General government -4,5 -1,5 2,0
Demand from mainland Norway 1 1,1 1,9 2,6
Stockbuilding 2 -0,0 0,0 0,0
Exports 0,6 6,2 4,5
Crude oil and natural gas -0,3 10,1 3,5
Traditional goods 2,6 5,0 4,7
Imports -3,6 0,8 4,6
Traditional goods -2,4 2,2 5,7
Gross domestic product 0,8 2,7 2,6
Mainland Norway 0,8 1,3 2,3
Labour market      
Employed persons 0,5 0,1 0,2
Unemployment rate (level) 3,2 3,6 3,8
Prices and wages      
Wages per standard man-year 5,1 3,7 3,5
Consumer price index 2,3 2,4 2,0
Export prices, traditional goods 0,0 7,2 1,8
Import prices, traditional goods -2,2 2,4 1,3
Real prices, dwellings 6,6 6,8 6,6
Balance of payment      
Current balance (bill. NOK) 43,8 130,1 144,8
Current balance (per cent of GDP) 3,7 10,1 10,7
Memorandum items      
Household saving ratio 7,5 6,9 6,7
Money market rate (level) 6,4 5,7 5,3
Average borrowing rate (level) 3 8,4 8,0 7,5
Crude oil price NOK (level) 4 142,0 169,0 160,0
International market growth 5,4 6,9 6,5
Importweighted krone exchange rate 5 -1,2 -0,6 -0,6
1   Consumption in households and non-profit organizations + general government + gross
fixed capital formation in mainland Norway.
2   Change in stockbuilding. Per cent of GDP.
3   Households' borrowing rate in private financial institutions.
4   Average, Norwegian oil production.
5   Increasing index implies depreciation.