Economic trends for Norway and abroad
Improvement, but slowdown continues
The dramatic fall in economic activity in Norway and abroad during the winter half of the year is over. However, growth is barely strong enough to prevent an increase in unemployment for a long time to come. Nevertheless, the increase in unemployment in Norway has been much lower than in other OECD countries, a situation that we expect to continue.
The current slowdown in Norway began as far back as early 2008, but worsened dramatically when the financial crisis hit the economy with full force at the end of the third quarter last year. According to the most recent seasonally-adjusted figures from the quarterly national accounts, the GDP for mainland Norway fell by 2.7 per cent from the third quarter last year to the first quarter this year. The GDP for mainland Norway increased by 0.3 per cent in the second quarter and growth is expected to gradually recover in the next few years. The activity in 2011 is expected to recover to such a degree that it can be characterised as an upswing in the economy. Unemployment is likely to peak the same year with an unemployment figure, according to the Labour Force Survey, of approximately 110 000 persons.
Counter-cyclical policy effective
The economic slump is easing off after extensive policy interventions aimed both directly at the problems in the financial markets and in the form of more traditional demand stimulation. Interest rates are at record low levels and the fiscal policy is extremely expansive. Our trading partners, however, still face major challenges in the economy and also have much less leeway with the fiscal policy than Norway. We therefore expect international growth to remain weak for quite some time.
Export industries will continue to struggle
Many of the traditional export industries in Norway have been hard hit by the international slowdown. However, the financial crisis has been partly responsible for a weakening of the value of the NOK, which eased the pressure on many companies. Part of this weakening has now been reversed, and the strengthening of the NOK is expected to continue. Because the Norwegian economy as a whole is fairing much better than the national economy of our trading partners, we should also expect a higher growth in wage costs in Norway than in our competitors’ countries. Impaired cost-related competitive power will therefore counteract the improvement in the international markets. Despite progressive growth in traditional exports of goods, the export volume in 2012 is expected to only just surpass the level of 2008.
|Demand and output|
|Consumption in households etc.||3.7||4.2||2.1||3.1||2.8||5.6||4.0||4.8||6.0||1.4||0.4||5.4||4.6||3.5|
|General government consumption||3.1||1.9||4.6||3.1||1.7||1.5||0.7||1.9||3.4||3.8||5.7||3.5||3.0||2.9|
|Gross fixed investment||-5.4||-3.5||-1.1||-1.1||0.2||10.2||13.3||11.7||8.4||3.9||-5.9||-0.2||4.5||6.6|
|Extraction and transport via pipelines||-13.0||-22.9||-4.6||-5.4||15.9||10.2||18.8||4.3||5.5||6.6||5.5||-1.8||1.5||-1.3|
|Demand from Mainland Norway 1||2.9||2.6||3.0||3.0||1.4||5.0||4.6||5.3||6.0||2.2||0.1||4.1||4.6||4.0|
|Crude oil and natural gas||0.4||3.8||6.6||2.4||-0.6||-0.5||-5.0||-6.5||-2.6||-1.5||-5.6||-1.7||0.8||-1.5|
|Gross domestic product||2.0||3.3||2.0||1.5||1.0||3.9||2.7||2.3||3.1||2.1||-1.6||1.4||2.5||2.3|
|Total hours worked, Mainland Norway||0.7||-0.7||-1.6||-0.9||-2.1||1.7||1.4||3.1||4.3||3.3||-1.7||0.4||1.3||1.4|
|Labor force 3||0.5||0.7||0.5||0.7||-0.1||0.3||0.7||2.0||2.5||3.4||0.3||0.3||0.8||1.2|
|Participation rate (level) 3||72.3||72.5||72.5||72.5||71.9||71.6||71.4||72.0||72.8||73.9||73.0||72.2||71.8||71.7|
|Unemployment rate (level)||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.4||2.5||2.6||3.3||3.9||4.0||3.8|
|Prices and wages|
|Wages per standard man-year||5.4||4.6||5.3||5.4||3.7||4.6||3.8||4.8||5.6||5.8||4.0||3.7||3.7||4.2|
|Consumer price index (CPI)||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.3||0.8||3.8||1.9||0.9||2.0||2.6|
|Export prices, traditional goods||-0.5||11.8||-1.8||-9.1||-0.9||8.5||4.1||11.4||2.5||2.3||-6.5||-0.8||5.7||5.1|
|Import prices, traditional goods||-2.9||6.5||-1.6||-7.2||-0.4||4.0||0.5||4.0||3.7||3.2||-1.8||-3.4||2.1||2.7|
|Housing prices 5||11.2||15.7||7.0||5.0||1.7||7.7||9.5||13.7||12.6||-1.1||2.2||6.2||6.1||6.1|
|Income, interest rates and excange rate|
|Household real income||2.4||3.4||-0.3||7.9||4.4||3.6||7.6||-6.4||5.9||2.9||2.8||5.6||2.9||2.8|
|Household saving ratio (level)||4.7||4.3||3.1||8.4||9.1||7.4||10.2||0.1||0.4||2.0||4.6||4.5||2.9||2.3|
|Money market rate (level)||6.5||6.8||7.2||6.9||4.1||2.0||2.2||3.1||5.0||6.2||2.5||2.7||4.4||5.7|
|Lending rate, banks (level) 6||8.4||8.0||8.8||8.4||6.5||4.2||3.9||4.3||5.7||7.3||4.7||3.7||5.3||6.8|
|Real after-tax lending rate, banks (level)||3.7||2.7||3.3||4.8||2.2||2.5||1.3||0.7||3.3||1.5||1.5||1.8||1.7||2.3|
|Importweighted krone exchange rate (44 countries) 7||-1.2||2.9||-3.1||-8.5||1.3||3.0||-3.9||0.7||-1.8||0.0||3.8||-4.6||-1.9||-1.0|
|NOK per euro (level)||8.3||8.1||8.1||7.5||8.0||8.4||8.0||8.1||8.0||8.2||8.8||8.2||8.0||7.9|
|Current balance (bill. NOK)||69.5||222.4||247.5||192.3||195.9||221.6||316.6||372.1||362.3||496.4||322.8||274.6||297.0||329.2|
|Current balance (per cent of GDP)||5.6||15.0||16.1||12.6||12.3||12.7||16.3||17.2||15.9||19.5||13.4||11.1||11.3||11.8|
|Exports markets indicator||6.9||11.7||0.8||2.1||4.4||7.0||6.3||8.5||7.2||1.6||-10.0||1.6||4.1||7.8|
|Consumer price index, euro-area||1.1||2.1||2.3||2.3||2.1||2.1||2.2||2.2||2.2||3.3||0.2||0.7||1.0||1.8|
|Money market rate, euro (level)||2.9||4.4||4.2||3.3||2.3||2.1||2.2||3.1||4.3||4.6||1.4||1.4||2.4||3.5|
|Crude oil price NOK (level) 8||141||251||223||198||201||255||355||423||422||536||379||387||440||495|
|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||According to Statistics Norway's labour force survey(LFS).|
|4||CPI adjusted for tax changes and excluding energy products.|
|5||Break in data series in 2004.|
|7||Increasing index implies depreciation.|
|8||Average spot price Brent Blend.|
|Source: Statistics Norway. The cut-off date for information was 1 September.|
Investments in industry declining
The decline in investments in Norwegian mainland industries that started earlier this year is expected to continue into 2010. On an annual basis, we expect a 12.5 per cent fall this year and a further 4 per cent at least next year. On the other hand, the investments in the mainland industries are expected to see a clear increase in 2011 and 2012, but still not surpassing the 2008 level. Investments in petroleum are expected to fall somewhat from the first half of this year, but on an annual basis will increase from 2008 to 2009 and stabilise at around the 2009 level throughout the projection period. The development in petroleum investments is not therefore expected to lead to any major growth impetus for the Norwegian economy, but does nevertheless entail a stabilising element.
Expansive fiscal policy
The fiscal policy is extremely expansive this year, with estimated growth in public consumption and investments of 5.7 and 12 per cent respectively. The policy is expected to be far less expansive next year. Public consumption is expected to grow by 3.5 per cent, while investments are expected to increase almost as much as this year. The stance of the fiscal policy in 2011 and 2012 is expected to be relatively neutral. Growth in the Government Pension Fund – Global can result in a budget deficit in 2012 that is perfectly in line with the fiscal rule, after the budget deficit being too large in the intervening years.
Interest rates going up
We believe that the money market has already bottomed out and that Norges Bank will gradually put the base rates up starting in December. The banks’ interest on loans is affected by a time lag by the money market rate. On an annual basis, the average interest on loans in the banks is expected to reach its lowest level in 2010, at 3.7 per cent, and subsequently increase gradually to 7 per cent during 2012.
Halt in consumption fall
Low interest rates, increased incomes, increased wealth and better prospects all contributed to increased household consumption in the second quarter, after being in decline for a year. As an annual average, growth this year is estimated at 0.4 per cent, and 5.4 per cent next year. Household consumption corresponds to approximately 55 per cent of the GDP in mainland Norway, and the development in activity is contributing to a considerable increase in activity in the Norwegian economy. Consumer growth, however, is expected to diminish in 2011 and 2012, partly due to the higher interest rates.
Housing market picking up
Housing prices fell during the second half of 2008, but have subsequently increased. However, no further increase is expected for the rest of 2009 and housing prices as a year average will therefore be around 2 per cent higher than 2008. Housing prices over the next three years are expected to increase by approximately 6 per cent per year. The real housing price could thus surpass previous peaks in 2011. The improvement in the housing market is expected to contribute to increased investments in housing, thus turning the decline of the past two years into an upswing next year.
Reduced wage growth and inflation
The current slump in the Norwegian economy is partly responsible for the clear fall in wage growth. Wage growth in 2009 is expected to increase by 4 per cent from last year, compared with almost 6 per cent in 2008. Wage growth is expected to fall further in the two subsequent years. Consumer inflation, which was 3.8 per cent in 2008, is expected to fall, with an annual average in 2009 of 1.9 per cent. The strengthening of the NOK is expected to contribute to inflation falling below 1 per cent next year.