Economic trends for Norway and abroad

Moderate growth and inflation


The development in the Norwegian economy ahead is characterized by a continued moderate production growth, which may lead to an increase in unemployment. This will normally contribute to lower growth of prices and costs – and the interest rate may go down somewhat.

The quarterly national accounts show that the Norwegian economy grew moderately in the first half of this year. The growth in the mainland economy was about one per cent annual rate calculated from the previous half-year. Such a moderate growth agrees with a sign of a somewhat weaker development in the labour market. It is, however, not fair to characterize the situation in Norwegian economy as a recession. It is rather the downward economic trend – that started after the trend peaked in 1998 – that continues at moderate pace.

A slow recovery abroad

International economy is, however, characterized by a slow recovery. The growth in the GDP for our trade partners – which was hardly 1.5 per cent in 2001 – may be somewhat higher this year, but the tendencies have been towards a downward adjustment of the growth rates for the present and the next year. The estimates continue to be based on the assumption that an increased growth will take place in the US, but the uncertainty seems to have increased. Room for further expansion of US monetary policy seems to be limited, and the previous large surplus in federal budgets have turned to deficits, partly due to discretionary initiatives and partly for cyclical reasons.

Strong currency contributes to moderate inflation

The combination of low international growth, great uncertainty in the international financial markets and high Norwegian interest rates are important factors behind the strong appreciation of NOK during the past year. This has led to declining import and export prices measured in Norwegian currency. So far the impact from lower import prices to Norwegian consumer prices has been relatively modest. Still less impact has the appreciation NOK had on wages and salaries. If calculated in a common currency, wages in Norway have increased considerably the last year, compared to our trading partners.

The import-weighted NOK exchange rate has remained strong throughout the entire summer. Our estimates for the Norwegian economy ahead are based on a modest depreciation of NOK compared to the level in early September. Still, the import-weighted Norwegian currency is assumed about 6 per cent stronger in 2004 than in 2001.To reach the inflation target of 2.5 per cent in 2004, it is important that NOK is not depreciated substantially more than we have assumed.

Increased unemployment - interest rates somewhat down

The main picture we present of the development of the Norwegian economy ahead is marked by a moderate growth in production, which over time will lead to an increase in unemployment. This will normally contribute to lower growth of prices and costs. Along these lines we think that the interest rates may decline somewhat throughout 2003 compared with the present level. According to our calculations this still makes it possible to reach the goal for inflation after 2004 without further changes in the Norwegian currency.

Main economic indicators 2001-2004. Accounts and forecasts. 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 2.9 2.8 3.5
General government consumption 2.0 2.5 1.6 2.6
Gross fixed investment -4.6 -0.1 2.5 1.6
Extraction and transport via pipelines 7.2 3.2 6.3 1.2
Mainland Norway -0.3 -1.9 0.3 1.8
Firms -1.3 -4.0 0.5 0.7
Housing 5.1 -2.7 -0.2 5.9
General government -4.3 5.2 0.2 -0.5
Demand from mainland Norway 1 1.8 1.9 2.0 3.0
Stock building 2 -0.8 -0.3 0.0 0.0
Exports 4.2 1.0 2.2 3.5
Crude oil and natural gas 5.2 2.9 2.9 4.0
Traditional goods 4.0 1.6 1.6 4.9
Imports 0.0 1.8 4.9 4.2
Traditional goods 4.0 2.4 3.0 3.2
Gross domestic product 1.4 1.3 1.5 2.6
Mainland Norway 1.2 1.2 1.3 2.7
Labour market        
Employed persons 0.5 0.1 0.3 -0.4
Unemployment rate (level) 3.6 3.9 4.2 4.8
Prices and wages        
Wages per standard man-year 5.0 5.2 4.6 4.4
Consumer price index (CPI) 3.0 1.2 2.1 2.0
CPI adjusted for tax changes and excluding energy products (CPI-ATE) 2.6 2.4 2.1 2.1
Export prices, traditional goods -3.1 -8.9 1.6 2.5
Import prices, traditional goods 0.4 -6.8 0.0 2.4
Housing prices 7.2 2.3 5.3 9.4
Balance of payment        
Current balance (bill. NOK)  233.4  221.3  215.4  224.2
Current balance (per cent of GDP) 15.4 14.6 13.8 13.6
Memorandum items        
Household saving ratio (level) 4.6 6.1 5.8 6.1
Money market rate (level) 7.2 7.0 6.9 6.7
Lending rate, banks (level) 3 8.8 8.6 8.4 8.3
Crude oil price NOK (level) 4  220.1  195.5  195.3  197.5
Exports markets indicator 0.3 1.9 7.6 7.1
Importweighted krone exchange rate (44 countries) 5 -3.1 -7.5 -0.5 1.7
1   Consumption in households and non-profit organizations + general government consumption + gross fixed capital
formation in mainland Norway.
2   Change in stock building. Per cent of GDP.
3   Households' borrowing rate in private financial institutions.
4   Average spot price Brent Blend.
5   Increasing index implies depreciation.
Source:  Statistics Norway. The cut-off date for information was 4 September 2002. Published 5 September 2002.