Economic trends for Norway and abroad
Increased demands, slow growth in production
Strong growth in real income and a relatively strong NOK indicate that the growth in domestic demands in the next few years seems to be stronger than the growth in production. Unemployment will therefore increase, something that after a while may dampen the growth in wages.
The strong real income increase – as a result of several years with high wage increases and low inflation – may gradually lead to increased demands from households, in spite of the continual high real interest rate. The growth in private consumption is expected to increase from 2.5 per cent in 2001 to above 3 per cent in 2002-2004. With a continued growth in housing investments – even if less than in previous years – and a gradual turn in the enterprises' investments – the growth in total demands from Mainland Norway will gradually increase from about 2 per cent last year to 3 per cent in 2004.
The increase in real income – along with the strengthening of NOK – contributes on the other hand to impair the Norwegian enterprises' ability to compete with foreign producers. The growth in exports and their domestic deliveries will therefore end up being relatively weak, whereas the growth in imports will be correspondingly strong. Imports of traditional goods to Norway are estimated to increase by an average of 3.5 per cent for the years 2002-2004. The corresponding growth in traditional exports is expected to be only 1 per cent, in spite of more than 6 per cent annual growth in our export markets.
The strong international market growth is first and foremost influenced by the expansive monetary and financial policy in the USA the last year. The upturn in the USA is based on a situation with already low savings by the households, high house prices and a relatively high investment level in the enterprises. This may, however, indicate an uncertainty about the strength and possible duration of the American upswing. A weaker development will hit Norwegian export companies.
A weakening of the ability to compete will imply that the growth production for Mainland Norway in will reach the previously estimated trend growth of 2 ¼ per cent for Norwegian economy only in 2004. For manufacturing it is expected that the decrease in production registered last year will get even stronger this year – and then gradually flatten off toward 2004.
In addition to weaken production the increase in wages motivate the enterprises to rationalize their production, and turn the use of inputs away from labour toward imported intermediate goods and real capital. This will lead to very slow growth in employment, whereas unemployment will increase from 3.6 per cent in 2001 to about 5 per cent in 2004.
Increased unemployment will gradually contribute to dampen the growth in wages. Even with a gradual weakening of NOK from the present record high level, the consumer price growth will clearly remain within the goal for the monetary policy. There is, however, not room for a considerable decrease in the interest rate, without a more rapid decrease in wages than we have assumed.
|Main economic indicators 2001-2004. Accounts and forecasts. Percentage
change from previous year unless otherwise noted
|Demand and output|
|Consumption in households and non-profit organizations||2.5||3.1||3.0||3.3|
|General government consumption||2.0||1.8||1.9||2.4|
|Gross fixed investment||-4.6||0.9||1.7||2.2|
|Extraction and transport via pipelines||7.2||0.5||1.7||-2.0|
|Demand from mainland Norway 1||1.8||2.0||2.6||3.1|
|Crude oil and natural gas||5.2||2.4||3.0||4.0|
|Gross domestic product||1.4||1.5||1.8||2.5|
|Unemployment rate (level)||3.6||3.9||4.2||4.8|
|Prices and wages|
|Wages per standard man-year||5.0||5.0||4.4||4.6|
|Consumer price index (CPI)||3.0||1.1||2.1||2.1|
|CPI adjusted for tax changes and excluding energy products (CPI-ATE)||2.6||2.3||2.1||2.2|
|Export prices, traditional goods||-3.1||-4.1||3.7||4.9|
|Import prices, traditional goods||0.4||-6.7||1.9||1.3|
|Balance of payment|
|Current balance (bill. NOK)||233.4||205.0||203.0||226.0|
|Current balance (per cent of GDP)||15.4||13.5||12.8||13.5|
|Household saving ratio (level)||4.6||5.9||5.7||5.8|
|Money market rate (level)||7.2||7.3||7.3||7.3|
|Lending rate, banks (level) 3||8.8||8.6||8.8||8.3|
|Crude oil price NOK (level) 4||220.1||199.7||220.1||189.1|
|Exports markets indicator||0.4||4.0||7.1||7.1|
|Importweighted krone exchange rate (44 countries) 5||-3.2||-6.0||0.8||0.9|
|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 12 June 2002. Published 14 June 2002.|