Economic trends for Norway and abroad
Norwegian economy makes moderate headway
The trend growth of the past two years is expected to continue for another few years, before an economic upturn in 2014. Unemployment is set to increase in the years ahead, and thereafter remain more or less unchanged.
The very weak impetus from the global economy is offset by higher growth in domestic demand. Interest rates are expected to fall slightly going forward, and will not increase until 2013, when a very modest increase is expected.
Long-term downturn in the global economy
Great uncertainty surrounds the global economy, particularly in relation to how the EU is handling the debt crisis currently being experienced by a number of the member states. Growth is weak throughout the entire OECD and growth in the emerging economies is also showing signs of decreasing. Our projections are based on the assumption that the debt crisis will not develop into a new global financial crisis, but that the downturn in the OECD area will nevertheless last until 2014.
Weak export development
Indications are that Norwegian exports are unlikely to show much growth going forward. This is due to low growth in demand in the global market, higher wage growth in Norway than in competing countries and a stronger krone. The global market prices of key Norwegian export products are also expected to fall.
Lower interest rates
The base rate was last increased in May, and was subsequently 2.25 per cent. Turbulence in international financial markets has contributed to Norway’s three-month money market rate increasing to well above the base rate. Given this high premium, low inflation, low international money market rates and prospects of a relatively moderate upturn in the Norwegian level of activity, Norges Bank is likely to reduce the base rate by 0.5 percentage points on 14 December, and the money market rate in 2012 is expected to remain at 2.8 per cent. Through 2013 and 2014, we expect the base rate to be increased and the money market rate to increase gradually until reaching just over 4 per cent at the end of 2014. The average interest on loans in the banks is thus expected to reach 5.6 per cent in 2014.
High income growth in households
The high income growth in 2011 to date has not led to any marked increase in household consumption. This is expected to change going forward, assisted by lower interest rates and interest rate expectations. The income growth in households is expected to remain high in the years ahead, but not quite as high as this year since the real wage growth is likely to be lower. Consumption will to a large extent follow income developments. Per capita, the projections indicate that growth in consumption will increase gradually from 1 per cent this year to just over 3 per cent in 2014.
Lower growth in housing market going forward
Following a period of marked increases in house prices and housing investments, growth was lower in the third quarter. A considerable increase in the population and high real income growth, in addition to continuing low interest rates, mean potential for further growth in prices and investments, but slightly more modest than in the first half of 2011. The housing investments are expected to increase by almost 22 per cent this year, followed by a clear fall, leading to growth in 2013 and 2014 of around 4 per cent. The growth in house prices is estimated to be 8.3 per cent this year, and is expected to fall to around 6 per cent in the next three years.
Increase in business investments
Investments in the petroleum sector are expected to increase by as much as 15 per cent in 2011. Marked growth is also expected next year, with investments expected to remain high in 2013 and 2014. The investments in Norwegian mainland industries have shown a marked increase this year, but growth is expected to fall considerably in the years ahead.
More expansive fiscal policy after 2012
The Ministry of Finance estimates that money spent from petroleum activities in 2011 will constitute 3.2 per cent of the capital in the Government Pension Fund Global at the start of the fiscal year. This figure may turn out to be even lower. In our projections, the demand impulses from the fiscal policy mainly follow the estimate in the National Budget in October, but with higher growth in public demand in 2012. A continued high oil price will contribute to a clear increase in the Pension Fund. If the authorities were to follow the fiscal rule’s 4 per cent path, the result would be very expansive impulses in the subsequent years, unless turbulence in the international financial markets pulled down the fund’s value substantially. A trade-off between the consideration to businesses exposed to competition and improved welfare services and infrastructure, in addition to future challenges faced in relation to the ageing population, leads us to believe that the fiscal policy will be more expansive in 2013 and 2014. Nevertheless, the distance to the 4 per cent path is expected to increase by around 1 percentage point until 2014.
Slight increase in unemployment
The turnaround to growth in the GDP for mainland Norway in autumn 2009 gradually contributed to a marked increase in employment, and unemployment has fallen slightly since the end of 2010. The increase in employment is expected to continue going forward, but at a slightly slower rate. The workforce is also likely to increase, both as a result of a larger share of the population in various age groups wanting to work and an increase in the population. This is expected to result in a slight increase in unemployment next year, which will remain almost unchanged for the remainder of the projection period.
Moderate wage growth and low inflation
The average wage increase in 2011 is expected to be 4.2 per cent, compared with 3.7 per cent in 2010. A slight increase in unemployment, weak profitability developments in the business sector and low inflation will contribute to a clear fall in wage growth, to 3.4 per cent in 2012. Our projections show that wage growth will subsequently see a small, gradual increase, with growth in 2014 reaching the same level as 2011. Low wage growth, higher productivity growth, reduced international raw material prices and a strong krone will all contribute to inflation remaining low. However, the price-curbing impulses will diminish gradually, which in turn will lead to slightly higher inflation of almost 2 per cent in 2014.
|Demand and output|
|Consumption in households etc.||2.1||3.1||3.2||5.4||4.4||5.0||5.4||1.8||0.0||3.7||2.3||3.4||4.2||4.4|
|General government consumption||4.6||3.1||1.3||1.2||1.4||1.9||2.7||2.7||4.3||1.7||1.4||2.0||2.9||3.2|
|Gross fixed investment||-1.1||-1.1||0.8||11.1||13.5||9.8||11.4||0.2||-7.5||-5.2||7.4||5.3||3.0||3.9|
|Extraction and transport via pipelines||-4.6||-5.4||15.9||10.4||19.2||4.0||6.1||5.2||3.4||-9.0||15.0||10.4||2.3||2.3|
|Demand from Mainland Norway 1||3.0||3.0||1.6||5.1||4.9||5.2||6.3||1.4||-1.6||2.0||3.1||3.1||3.7||4.1|
|Crude oil and natural gas||6.6||2.4||-0.8||-0.7||-5.0||-6.6||-2.5||-1.0||-2.0||-4.8||-4.1||-0.5||-1.1||-1.1|
|Gross domestic product||2.0||1.5||1.0||4.0||2.6||2.5||2.7||0.0||-1.7||0.7||1.6||2.0||1.9||2.5|
|Total hours worked, Mainland Norway||-1.6||-0.9||-2.1||1.9||1.5||3.3||4.3||3.5||-2.0||0.8||1.5||0.9||0.8||1.5|
|Labor force 3||0.5||0.7||-0.1||0.3||0.8||1.9||2.5||3.4||0.0||0.5||1.0||1.4||1.3||1.5|
|Participation rate (level) 3||73.5||73.5||72.9||72.6||72.4||72.0||72.8||73.9||72.8||71.9||71.5||71.3||71.2||71.2|
|Unemployment rate (level) 3||3.5||3.9||4.5||4.5||4.6||3.4||2.5||2.6||3.2||3.6||3.3||3.6||3.7||3.7|
|Prices and wages|
|Wages per standard man-year||4.8||5.7||4.5||3.5||3.3||4.1||5.4||6.3||4.2||3.7||4.2||3.4||3.7||4.2|
|Consumer price index (CPI)||3.0||1.3||2.5||0.4||1.6||2.3||0.8||3.8||2.1||2.5||1.3||1.4||1.6||1.9|
|Export prices, traditional goods||-1.8||-9.2||-0.9||8.5||4.3||11.4||2.5||3.0||-6.2||5.5||8.1||-2.4||0.5||2.6|
|Import prices, traditional goods||-1.5||-7.1||0.0||2.7||0.4||4.1||3.7||4.2||-1.8||-0.5||4.6||0.2||0.4||1.5|
|Housing prices 5||7.1||5.0||1.7||10.1||8.2||13.7||12.6||-1.1||1.9||8.3||8.3||6.5||5.5||5.6|
|Income, interest rates and excange rate|
|Household real income||0.0||8.0||4.6||3.3||7.8||-6.4||6.3||3.9||3.9||3.5||5.1||3.6||4.0||3.7|
|Household saving ratio (level)||3.1||8.4||9.0||7.0||9.8||-0.5||0.9||3.5||6.8||6.3||8.6||8.6||8.5||7.9|
|Money market rate (level)||7.2||6.9||4.1||2.0||2.2||3.1||5.0||6.2||2.5||2.5||2.9||2.8||3.1||3.8|
|Lending rate, banks (level) 6||8.8||8.5||6.5||4.2||3.9||4.3||5.7||7.3||4.9||4.5||4.8||4.8||5.0||5.6|
|Real after-tax lending rate, banks (level)||3.3||4.8||2.2||2.5||1.3||0.7||3.3||1.5||1.4||0.9||2.1||2.0||2.0||2.1|
|Importweighted krone exchange rate (44 countries) 7||-3.1||-8.5||1.3||3.0||-3.9||0.7||-1.8||0.0||3.3||-3.7||-2.6||-0.6||-1.1||-0.6|
|NOK per euro (level)||8.05||7.51||8.00||8.37||8.01||8.05||8.02||8.22||8.73||8.01||7.80||7.69||7.61||7.56|
|Current balance (bill. NOK)||247.5||192.3||195.2||220.6||314.5||357.7||287.4||408.3||254.5||342.4||425.8||402.8||359.6||350.3|
|Current balance (per cent of GDP) 9||16.1||12.6||12.3||12.6||16.1||16.4||12.5||15.9||10.8||13.6||15.7||14.3||12.3||11.4|
|Exports markets indicator||1.4||2.1||2.7||7.8||7.3||9.5||5.5||1.2||-10.7||10.9||5.2||1.5||3.1||4.2|
|Consumer price index, euro-area||2.3||2.2||2.1||2.1||2.2||2.2||2.2||3.3||0.3||1.7||2.6||1.6||1.3||1.5|
|Money market rate, euro(level)||4.3||3.3||2.3||2.1||2.2||3.1||4.3||4.6||1.2||0.8||1.4||1.1||1.2||2.1|
|Crude oil price NOK (level) 8||223||198||201||255||356||423||422||536||388||484||623||555||565||595|
|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). Break in data series in 2006.|
|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.|
|9||Corrected 9 December 2011.|
|Source: Statistics Norway. The cut-off date for information was 6. December.|