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Economic trends for Norway and abroad
Norwegian economy in moderate slowdown
The growth in the Norwegian economy has decreased substantially. However, unemployment remains stable and the rate of inflation has increased. Weaker growth impulses internationally, lower commodity prices and a stronger krone are likely to contribute to continued low activity growth, slightly higher unemployment and, eventually, lower inflation. We therefore expect lower interest rates in 2009.
Lower growth in household demand and investments in mainland Norway has contributed to weak growth in the mainland economy in the first half of 2008, marking the end of almost five years of strong economic growth. The shift occurred around the turn of the year. Figures from the quarterly national accounts (QNA) show that the underlying economic growth is still positive, but that it is lower than trend growth. The upswing gained a broad footing and the shift to lower growth is evident in many industries, but not all. Industries that directly or indirectly supply the petroleum sector are still doing well. This is also the case for some industry niches. The construction industry, on the other hand, is one of the industries that have experienced weaker growth, a development that started a year ago.
In the time ahead, the Norwegian economy will be subject to conflicting impulses. Public sector demand will continue to increase and so will petroleum investments. On the other hand, the weak international cyclical development will contribute to lower export. The development in investments in mainland industries will also be weak. However, we do not expect that the weak development in household consumption in the past six months will continue, although the growth in the next three years will not reach the level of the past upturn. The decrease in housing starts indicates a continued decline in housing investments – a development which is seen to continue to the end of next year. On the whole, the growth in activity levels in mainland Norway will be relatively weak until improved cyclical conditions internationally contribute to stronger growth in Norway in 2010.
The international economic growth is weak, particularly in the euro zone. Several leading EU countries experienced lower GDP from the first to the second quarter. The weak growth in the US continues, and the financial crisis will not be over for some time yet. The basis for our prognosis is that our trading partners will experience weak economic growth for some time ahead. The impulses from high energy and commodity prices are expected to become weaker and translate into lower inflation soon. Together with weaker economic growth, this is expected to contribute to lower interest rates in the euro zone and some other countries during 2009. We expect the money market rate in the euro zone to fall by slightly more than one percentage point next year and reach 3.8 per cent in 2010. Lower interest rates and a normalisation of the financial markets will contribute to renewed international growth in 2010.
Interest rate has peaked
We anticipate a change in the money market rate in step with the euro zone, only with a lag. According to our prognosis, the money market rate will be 5.25 per cent in spring 2010. The high and slightly increasing interest rate margin will contribute to an expected strengthening of the krone against the euro to an annual average of 7.75 in 2010. The import-weighted strengthening of the krone is expected to be around 0.5 per cent per year during 2009-2011.
Slightly higher unemployment ahead
According to the QNA, the cyclical downturn has only had a slight negative impact on employment growth so far. However, seasonally adjusted monthly figures from the Labour Force Survey (LFS) show that the growth in employment has come to a halt, but that there are no evident signs of rising unemployment. As the weak development in activity levels continues, however, we expect unemployment to increase somewhat. Lower inflow of foreign labour may limit the growth in unemployment, which is expected to be 3.1 per cent of the labour force in 2010.
Lower wage growth ahead
Strong profitability in trade and industry and the very tight labour market have contributed to marked wage growth in the past five years. We expect the wage growth to peak at 6.0 per cent this year, followed by wage growth of around 5 per cent in 2009 and around 4.5 per cent in 2010 and 2011.
Higher wage growth, weak productivity growth and higher commodity prices have resulted in higher inflation. The twelve-month growth in the CPI adjusted for tax changes and excluding energy products (CPI-ATE) has risen in the past two years and was 2.9 per cent in July. We anticipate further increases before lower commodity prices internationally and a stronger krone contribute to dampen the price growth. Eventually lower wage costs at home and higher productivity will result in lower inflation. The price of futures power contracts indicates a strong increase in electricity prices this autumn and into next year. We project the CPI to rise to 4 per cent on average this year and 3.1 per cent next year.
|Demand and output|
|Consumption in households etc.||2.8||3.7||4.2||2.1||3.1||2.8||5.6||4.0||4.7||6.4||2.6||2.9||2.9||3.5|
|General government consumption||3.4||3.1||1.9||4.6||3.1||1.7||1.5||0.7||2.9||3.6||3.6||3.1||3.3||3.1|
|Gross fixed investment||13.6||-5.4||-3.5||-1.1||-1.1||0.2||10.2||13.3||7.3||9.3||3.9||-0.9||2.3||2.6|
|Extraction and transport via pipelines||22.2||-13.0||-22.9||-4.6||-5.4||15.9||10.2||18.8||2.9||5.5||6.2||9.2||5.9||4.9|
|Demand from Mainland Norway 1||4.2||2.9||2.6||3.0||3.0||1.4||5.0||4.6||4.8||6.2||2.9||1.7||2.7||3.1|
|Crude oil and natural gas||-5.8||0.4||3.8||6.6||2.4||-0.6||-0.5||-5.0||-6.6||-2.8||-1.5||2.5||0.0||0.0|
|Gross domestic product||2.7||2.0||3.3||2.0||1.5||1.0||3.9||2.7||2.5||3.7||2.5||1.9||1.9||2.6|
|Total hours worked, Mainland Norway||2.5||0.8||-0.7||-0.9||-0.9||-2.1||1.7||1.4||2.6||4.1||3.5||1.1||1.5||1.4|
|Labor force 3||1.7||0.9||0.9||0.5||0.7||-0.4||0.5||1.4||2.2||3.1||2.8||1.6||1.6||1.4|
|Participation rate (level) 4||73.9||74.2||74.4||74.5||74.6||73.8||73.6||74.0||74.7||75.9||76.8||76.8||76.8||76.7|
|Unemployment rate (level)||3.2||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.4||2.5||2.7||2.8||3.1||3.0|
|Prices and wages|
|Wages per standard man-year||6.5||5.4||4.6||5.3||5.4||3.7||4.6||3.8||4.9||5.6||6.0||5.0||4.4||4.5|
|Consumer price index (CPI)||2.2||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.3||0.8||4.0||3.1||1.9||2.3|
|Export prices, traditional goods||1.9||-0.5||11.8||-1.8||-9.1||-0.9||8.5||4.1||11.4||2.2||1.3||-2.8||3.1||7.7|
|Import prices, traditional goods||0.7||-2.9||6.5||-1.6||-7.2||-0.4||4.0||0.5||4.7||3.4||1.0||-0.6||1.1||3.2|
|Housing prices 6||9.7||9.4||14.1||7.1||4.0||1.6||10.1||7.9||12.9||12.3||2.6||2.6||1.5||4.9|
|Income, interest rates and excange rate|
|Household real income||5.3||2.4||3.4||-0.3||7.9||4.1||3.5||7.5||-6.5||6.4||4.0||3.0||4.4||3.9|
|Household saving ratio (level)||5.8||4.7||4.3||3.1||8.4||9.1||7.4||10.2||0.1||-0.4||1.2||1.6||3.1||3.6|
|Money market rate (level)||5.8||6.5||6.8||7.2||6.9||4.1||2.0||2.2||3.1||5.0||6.3||6.1||5.3||5.5|
|Lending rate, banks (level) 7||7.4||8.4||8.0||8.8||8.4||6.5||4.2||3.9||4.3||5.7||7.2||7.2||6.4||6.4|
|Real after-tax lending rate, banks (level)||3.1||3.7||2.7||3.3||4.8||2.2||2.5||1.3||0.7||3.3||1.2||2.0||2.7||2.3|
|Importweighted krone exchange rate (44 countries) 8||2.5||-1.2||2.9||-3.1||-8.5||1.3||3.0||-3.9||0.6||-1.7||-3.1||0.1||-1.1||-0.5|
|NOK per euro (level)||8.5||8.3||8.1||8.1||7.5||8.0||8.4||8.0||8.1||8.0||8.0||7.8||7.8||7.7|
|Current balance (bill. NOK)||-3.6||69.5||222.4||247.5||192.3||195.9||221.6||316.6||373.4||350.7||493.8||538.4||556.3||671.9|
|Current balance (per cent of GDP)||-0.3||5.6||15.0||16.1||12.6||12.3||12.7||16.3||17.3||15.4||19.1||19.7||19.5||21.8|
|Exports markets indicator||8.3||6.9||11.7||0.8||2.4||3.5||8.3||6.9||8.9||5.4||3.8||1.6||4.5||7.7|
|Consumer price index, euro-area||1.1||1.1||2.1||2.3||2.3||2.1||2.1||2.2||2.2||2.2||3.6||2.4||1.9||1.9|
|3 mths. interest rate, euro||4.2||2.9||4.4||4.2||3.3||2.3||2.1||2.2||3.1||4.3||4.8||4.3||3.8||4.0|
|Crude oil price NOK (level) 9||96||142||252||219||197||205||257||351||414||423||576||552||566||665|
|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.|
|8||Increasing index implies depreciation.|
|9||Average spot price Brent Blend.|
|Source: Statistics Norway. The cut-off date for information was 26 August 2008. Published 28 August 2008.|