Economic trends for Norway and abroad

How long will the boom last?

Published:

The Norwegian economy is still in the expansionary phase of this business cycle. So far, employment growth has been moderate and unemployment has hardly shown any decline. But unemployment is expected to decline in the period ahead, and to continue to decline after the cyclical peak is reached around the turn of the year. Wage and price inflation is expected to remain moderate in the period ahead, even though inflation is likely to edge up through the next few years.

Moderate cyclical fluctuations

A strong increase in petroleum investment, a highly expansionary monetary policy, positive fiscal impulses and a weak international cyclical upturn are factors behind the current upswing. As in previous reports, we expect a weakening of external growth impulses as from the beginning of next year approximately at the same time as petroleum investment starts to decline. In the absence of any considerable, new monetary or fiscal impulses, growth in activity will then normalize and gradually fall slightly below trend growth. From the end of 2007, the Norwegian economy will enter into a moderate downturn.

High oil prices, which we expect to be a persistent feature ahead, will contribute to strong growth in the Petroleum Fund. This paves the way for a more expansionary fiscal policy than previously assumed. As from 2008, these developments, combined with improved international cyclical conditions, will contribute to a renewed cyclical upturn in the Norwegian economy through 2009.

Rising inflation?

Consumer price inflation has been very low in the beginning of 2005, but may now appear to be edging up. The recent appreciation of the krone is, however, generating uncertainty as to developments ahead. With an import-weighted weakening of the krone to a level on a par with that prevailing in 2004, inflation will move up to around 2.5 per cent, according to our projections. Should the current exchange rates persist over a longer period, it can virtually be ruled out that the inflation target will be reached, even within the three-year horizon.

Main economic indicators. Accounts and forecasts. 1997-2009. Percentage change from previous year unless otherwise noted
 
  1997 1998   1999 2000 2001 2002 2003* 2004* Forecasts
  2005 2006 2007 2008 2009
 
Demand and output                          
Consumption in households etc. 3.2 2.7 3.3 3.9 1.8 3.0 3.0 4.4 4.1 4.0 3.2 2.2 2.5
General government consumption 2.5 3.3 3.2 1.3 5.8 3.7 1.4 2.3 1.7 1.8 1.8 3.1 2.9
Gross fixed investment 15.5 13.1 -5.6 -3.6 -0.7 -1.0 -2.0 9.1 12.5 1.5 -2.6 -0.4 1.2
Extraction and transport via pipelines 24.9 22.2 -13.1 -23.0 -4.1 -5.3 16.9 12.3 25.0 -5.6 -8.5 -2.9 -2.7
Mainland Norway 11.8 8.6 -0.1 -1.2 4.3 2.5 -2.2 6.1 6.9 4.0 -0.5 0.4 2.5
Industries 9.5 8.9 -1.5 0.1 2.6 4.6 -4.9 6.0 4.2 5.7 -0.9 0.3 4.2
Housing 12.1 7.8 3.0 5.6 8.2 -0.6 -5.3 12.3 15.7 3.4 0.1 0.8 1.1
General government 18.0 8.6 0.5 -11.4 4.2 1.0 9.2 -0.6 2.1 0.3 -0.2 0.0 0.0
Demand from Mainland Norway 1 4.5 3.9 2.6 2.3 3.2 3.1 1.6 4.1 3.9 3.4 2.2 2.1 2.6
Stockbuilding 2 0.8 0.4 -0.5 0.8 -1.2 -0.2 -0.8 1.1 -0.1 0.0 0.0 0.0 0.0
Exports 7.7 0.6 2.8 4.0 5.0 -0.8 1.6 0.9 1.5 3.9 0.5 1.9 3.4
Crude oil and natural gas 4.1 -5.8 0.4 4.1 8.8 1.9 -0.6 -0.5 0.0 5.8 0.1 1.2 1.7
Traditional goods 7.6 5.4 2.2 5.1 1.5 0.4 5.1 3.0 3.4 1.4 0.1 2.7 5.7
Imports 12.4 8.5 -1.8 2.7 0.9 0.7 2.2 9.1 7.1 4.5 2.5 2.3 3.6
Traditional goods 8.5 9.0 -1.9 3.8 3.6 3.4 4.3 11.0 5.9 4.5 2.3 2.1 3.8
Gross domestic product 5.2 2.6 2.1 2.8 2.7 1.1 0.4 2.9 3.1 2.8 0.9 1.7 2.3
Mainland Norway 4.9 4.1 2.7 2.5 2.1 1.4 0.7 3.5 3.8 2.3 1.1 1.8 2.6
Manufacturing 3.6 -0.7 0.1 -0.8 -0.1 -0.1 -3.9 1.7 2.2 0.9 -2.2 -0.6 2.1
Labour market                          
Total hours worked, Mainland Norway 2.5 2.3 0.6 -0.7 -1.2 -1.2 -1.2 2.0 1.0 0.8 -0.2 0.6 0.9
Employed persons 2.9 2.5 0.8 0.4 0.2 0.0 -0.6 0.2 0.6 1.2 0.2 0.2 1.3
Labor force 3 2.1 1.6 0.8 0.7 0.3 0.4 0.0 0.2 0.5 0.9 0.5 0.3 0.7
Participation rate (level) 4 72.7 73.6 73.8 74.0 73.9 73.8 73.3 72.9 72.6 72.6 72.3 71.9 71.7
Unemployment rate (level) 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.5 4.3 3.9 4.2 4.4 3.7
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 3.5 3.3 3.5
Consumer price index (CPI) 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.4 1.5 2.3 2.4 2.1 2.0
CPI-ATE 5 .. .. .. .. 2.6 2.3 1.1 0.3 1.2 2.3 2.4 2.0 1.9
Export prices, traditional goods -0.6 2.0 -0.4 9.9 -1.6 -8.9 -2.2 7.9 1.3 -1.8 0.6 3.1 2.1
Import prices, traditional goods -1.2 1.1 -2.9 5.1 -0.7 -7.5 0.4 3.8 -1.5 -0.5 0.4 1.3 1.2
Housing prices 6 10.9 9.7 9.4 14.1 7.2 4.0 1.6 10.1 8.4 2.5 2.9 -0.3 3.0
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 2.9 -3.2 2.2 2.7 3.2
Household saving ratio (level) 2.9 5.9 5.6 5.2 4.2 9.0 10.1 10.3 9.1 2.4 1.4 1.9 2.6
Money market rate (level) 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.2 2.5 2.5 2.5 2.5
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 4.4 4.4 4.4
Real after-tax lending rate, banks (level) 1.8 3.1 3.7 2.6 3.3 4.8 2.3 2.6 1.4 0.9 0.7 1.1 1.1
Importweighted krone exchange rate (44 countries) 8 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 3.0 -2.7 2.0 1.4 0.5 0.4
Current account                          
Current balance (NOK billion 70.5 0.5 66.4  228.9  235.2  193.9  200.3  227.8  258.1  255.0  248.1  268.6  304.8
Current balance (per cent of GDP) 6.3 0.0 5.4 15.6 15.4 12.8 12.8 13.5 14.1 13.5 12.7 13.2 14.2
International indicators                          
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 2.1 1.9 1.9 1.9 1.9
3 months interest rate, euro 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.1 2.0 1.8 1.8 2.3 2.4
Crude oil price NOK (level) 9  135 96  142  252  219  197  205  257  301  286  292  310  337
 
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.
6   Freeholder.
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 June 2005. Published 16 June 2005.