Economic trends for Norway and abroad

High electricity prices contribute to downturn


Norwegian economy is now in a cyclical downturn, but it will hardly be especially deep or long lasting. Unemployment will, however, increase in months ahead. The interest rate may go further down – even if increased electricity prices may result in a considerably higher growth of consumer prices in the short run.

A year with high real interest rate and a strong NOK has left its mark on economic statistics. Together with a high growth in wages these two factors have led to a strong weakening of profitability in competitive industries, but also contributed to a lower production in sheltered industries – through lower domestic demands towards Norwegian manufacturers. For 2002 the growth in GDP is expected to be about one and a quarter per cent. The growth in the GDP has been lower than its potential for three years, and Norwegian economy seems now to have entered a cyclical downturn. The pressure in the economy diminishes and unemployment increases.

Low growth in total demands

Next year as well – low growth in total demands is expected, and together with loss of market shares this will reduce the growth in the GDP compared with 2002. Lower power production and higher electricity prices will impair the growth in the GDP next year, but probably contribute to a stronger growth in production in 2004 than previously assumed. A distinct increase in production is expected in 2004, as a result of international recovery being strengthened – as well as less negative impulses from domestic demands. The number of unemployed as a portion of the work force is expected to increase by one percentage point within the end of 2004.

Even if the rate of growth in the consumer price index (CPI) has increased toward the end of 2002 due to higher electricity prices, the growth in prices excluding changes in taxes and energy goods (CPI-ATE) has declined since this summer. The strong NOK is expected to contribute to a low growth in prices next year as well, even if the NOK is assumed to become somewhat weaker in the next years. Lower wage increase – influenced by low profitability in competitive industries and increased unemployment – will also contribute to somewhat curb the inflation. The extremely high electricity prices that most likely will persist throughout this winter will counteract this.

Stronger inflation

The higher electricity prices indicate that inflation – measured by the CPI – will increase in the near future; the 12-month growth may reach more than 4 per cent in the beginning of 2003 against 2.1 per cent in November this year. For the entire 2003 the price growth is expected to be 3.1 per cent against an estimated growth of 1.2 per cent for this year. A normalisation of electricity prices through 2003 and into 2004, along with minimum prices for child-care centres in 2004 will contribute to a very low growth in prices in 2004, estimated at 1.4 per cent. Adjusted for tax changes and excluding energy goods (CPI-ATE) the price growth in 2004 is expected to be close to 2 per cent. Reduced activity level and declining inflation pressure in the next two years are creating possibilities for the Central Bank to lower the interest rate. From the summer 2003 the 3-month money market interest is assumed to be stabilised at 6.25 per cent; a somewhat less decline that has been expected in the market recently.

Main economic indicators. Accounts and forecasts. 2001-2004. Percentage
change from previous year unless otherwise noted
  Accounts Forecasts
  2001      2002      2003      2004
Demand and output        
Consumption in households and non-profit organizations 2.5 3.0 2.7 3.6
General government consumption 2.0 2.6 1.6 2.0
Gross fixed investment -4.6 -2.2 1.6 0.5
Extraction and transport via pipelines 7.2 -1.2 11.1 2.6
Mainland Norway -0.3 -4.4 -1.3 -0.2
Firms -1.3 -6.9 -0.3 -1.0
Housing 5.1 -5.3 -4.5 1.1
General government -4.3 4.2 -0.2 0.2
Demand from mainland Norway 1 1.8 1.6 1.8 2.5
Stockbuilding 2 -0.8 -0.2 0.0 0.0
Exports 4.2 0.1 0.3 3.7
Crude oil and natural gas 5.2 1.1 0.8 5.0
Traditional goods 4.0 3.5 1.4 2.9
Imports 0.0 0.9 4.3 2.9
Traditional goods 4.0 1.6 2.7 2.7
Gross domestic product 1.4 1.1 0.8 2.9
Mainland Norway 1.2 1.3 0.9 2.5
Labour market        
Employed persons 0.5 0.3 0.0 -0.5
Unemployment rate (level) 3.6 3.9 4.4 5.0
Prices and wages        
Wages per standard man-year 5.0 5.4 4.4 4.2
Consumer price index (CPI) 3.0 1.2 3.1 1.4
CPI adjusted for tax changes and excluding energy products (CPI-ATE) 2.6 2.3 2.2 1.9
Export prices, traditional goods -3.1 -10.0 0.4 5.3
Import prices, traditional goods 0.4 -7.2 0.2 3.1
Housing prices 7.2 3.7 3.4 4.4
Balance of payment        
Current balance (bill. NOK)  233.4  207.0  174.8  185.2
Current balance (per cent of GDP) 15.4 13.7 11.4 11.6
Memorandum items        
Household saving ratio (level) 4.5 7.1 6.4 7.3
Money market rate (level) 7.2 6.9 6.5 6.3
Lending rate, banks (level) 3 8.9 8.5 8.1 7.8
Crude oil price NOK (level) 4  220.1  196.6  178.5  179.9
Exports markets indicator 0.3 0.8 7.0 7.3
Importweighted krone exchange rate (44 countries) 5 -3.1 -8.4 -2.1 2.9
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   Households' borrowing rate in private financial institutions.
4   Average spot price Brent Blend.
5   Increasing index implies depreciation.
Source:  Source: Statistics Norway. The cut-off date for information was 11 December 2002. Published 12 December 2002.