Economic trends for Norway and abroad
High capacity utilisation long time ahead
The strong growth in production and employment in the Norwegian economy over the past few years is expected to become more moderate in the time ahead. However, unemployment is expected to fall further and remain at a low level. This contributes to high wage growth and slightly higher inflation.
Following the cyclical upturn that has lasted for the past four years, production continued to increase sharply in the second quarter of this year, albeit at a slower pace than previously. The high level of activity growth has translated into strong demand for labour, resulting in employment growth at record levels. This has been possible due to a considerable fall in unemployment, high labour immigration and increasing labour force participation. In the past two years, unemployment has been halved, reaching the levels of the mid 1980s.
Rise in interest rates
Good growth in Norwegian export markets, strong growth in petroleum investments, increased public sector demand and low interest rates are the drivers behind the strong and lasting upturn in the Norwegian economy. In the past two years, Norges Banks has dampened this growth through gradual interest rate increases. In August, the key interest rate was raised to 4.75 per cent. We assume that the key interest rate will increase by a further 0.5 percentage points in the next four to five months. The average lending rate will thus reach 6.5 per cent. The interest rate difference against the euro will increase somewhat, which again will lead to an appreciation of the krone.
Lower growth in house prices
Household consumption has risen sharply, but recently there have been signs that the growth in household consumption will become more moderate. With rising interest rates, this development will continue for some time. There was only a slight increase in housing investments last quarter, and this development is set to continue in the time ahead. However, the level of housing investments remains high. We assume that house prices will increase somewhat less than prices in general.
Increasing petroleum investments
The growth in petroleum investments is likely to continue. In addition, there are indications that other commodity producing industries will see a considerable growth in investments in the time ahead, whereas investments in mainland service industries will be more moderate.
Decline in Norwegian exports
The development in traditional commodity exports was weak in the last quarter, which may indicate lower demand in Norwegian export markets. We assume that a moderate cyclical setback internationally in the next two-year period will result in a decline in Norwegian export growth.
Further falls in unemployment
Despite some strong demand impulses from investments, we anticipate a somewhat lower growth in Norwegian demand and that demand will be covered by imports to a greater extent. Combined with a somewhat weaker development internationally, the growth in GDP for mainland Norway will be somewhat weaker in the next years than in the 2004-2007 period. The increase in employment will be reduced, but due to lower growth in the labour force we expect an additional slight decline in unemployment.
High wage growth
Strong profitability in trade and industry and a very tight labour market have contributed to higher wage growth. We assume that the wage growth will remain at a high level in the time ahead. Measured by the growth in the CPI adjusted for tax changes and excluding energy products (CPI-ATE), inflation has risen slightly in the past year, but was still only 1.4 per cent in April. We expect a gradual rise in inflation to 1.8 per cent on average in 2008 and to 2.3 per cent in 2010. We anticipate that a marked growth in electricity prices from autumn 2007 into 2008 will result in an increase in the consumer price index from 0.8 per cent this year to 2.7 per cent next year.
|Main economic indicators 1998-2010. Accounts and forecasts. Percentage change from previous year unless
|Demand and output|
|Consumption in households etc.||2.8||3.7||4.2||2.1||3.1||2.8||5.6||3.3||4.4||6.3||3.7||3.3||3.9|
|General government consumption||3.4||3.1||1.9||4.6||3.1||1.7||1.5||1.8||3.3||2.7||3.2||2.7||3.0|
|Gross fixed investment||13.6||-5.4||-3.5||-1.1||-1.1||0.2||10.2||11.2||7.4||7.8||6.6||4.0||3.6|
|Extraction and transport via pipelines||22.2||-13.0||-22.9||-4.6||-5.4||15.9||10.2||19.1||4.4||6.3||9.9||9.3||10.3|
|Demand from Mainland Norway 1||4.2||2.9||2.6||3.0||3.0||1.4||5.0||3.9||4.7||5.6||4.0||3.0||3.2|
|Crude oil and natural gas||-5.8||0.4||3.8||6.6||2.4||-0.6||-0.5||-5.0||-6.5||-2.5||7.4||-0.4||-0.4|
|Gross domestic product||2.7||2.0||3.3||2.0||1.5||1.0||3.9||2.7||2.8||3.5||3.7||2.2||2.7|
|Total hours worked, Mainland Norway||2.5||0.8||-0.7||-0.9||-0.9||-2.1||1.7||1.2||2.1||3.1||2.0||1.1||1.6|
|Labor force 3||1.7||0.9||0.9||0.5||0.7||-0.4||0.5||1.1||1.8||2.3||1.3||1.0||1.1|
|Participation rate (level) 4||73.9||74.2||74.4||74.5||74.6||73.8||73.6||73.8||74.3||75.2||75.4||75.4||75.5|
|Unemployment rate (level)||3.2||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.4||2.6||2.5||2.4||2.5|
|Prices and wages|
|Wages per standard man-year||6.5||5.4||4.6||5.3||5.4||3.7||4.6||4.0||4.3||5.6||5.9||5.5||5.6|
|Consumer price index (CPI)||2.2||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.3||0.8||2.7||1.9||2.3|
|Export prices, traditional goods||1.9||-0.5||11.8||-1.8||-9.1||-0.9||8.5||4.0||11.7||3.6||-6.0||-3.6||4.0|
|Import prices, traditional goods||0.7||-2.9||6.5||-1.6||-7.2||-0.4||4.0||0.4||4.7||4.4||-3.2||-0.8||2.0|
|Housing prices 6||9.7||9.4||14.1||7.1||4.0||1.6||10.1||7.9||12.9||13.3||4.5||1.1||1.9|
|Income, interest rates and excange rate|
|Household real income||5.4||2.4||3.4||-0.3||7.9||4.2||3.5||5.4||-4.3||5.3||5.7||3.9||4.1|
|Household saving ratio (level)||5.8||4.7||4.3||3.1||8.4||9.1||7.3||8.9||1.3||0.0||2.0||2.7||3.1|
|Money market rate (level)||5.8||6.5||6.8||7.2||6.9||4.1||2.0||2.2||3.1||4.8||5.5||5.5||5.5|
|Lending rate, banks (level) 7||7.9||8.1||8.2||8.8||8.5||6.0||4.1||3.9||4.3||5.5||6.3||6.5||6.5|
|Real after-tax lending rate, banks (level)||3.1||3.7||2.7||3.3||4.8||2.2||2.5||1.3||0.7||3.2||1.8||2.7||2.3|
|Importweighted krone exchange rate (44 countries) 8||2.5||-1.2||2.9||-3.1||-8.5||1.3||3.0||-3.9||0.6||-1.2||-1.7||0.3||0.1|
|Current balance (bill. NOK)||-3.6||69.5||222.4||247.5||192.3||195.9||221.6||300.8||353.5||335.9||359.3||320.8||350.4|
|Current balance (per cent of GDP)||-0.3||5.6||15.0||16.1||12.6||12.3||12.7||15.5||16.4||14.9||15.1||13.2||13.6|
|Exports markets indicator||8.5||6.9||11.7||0.8||1.3||3.0||7.1||6.6||8.2||6.8||3.9||4.4||6.7|
|Consumer price index, euro-area||1.1||1.1||2.1||2.3||2.3||2.1||2.1||2.2||2.2||1.9||1.9||1.9||1.9|
|3 mths. interest rate, euro||4.2||2.9||4.4||4.2||3.3||2.3||2.1||2.2||3.1||4.1||4.3||4.3||4.3|
|Crude oil price NOK (level) 9||96||142||252||219||197||205||257||351||414||401||380||358||381|
|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 4 September 2007. Published 6 September 2007.|