Economic trends for Norway and abroad

Recovery continues

Published:

Continued low interest rates, low inflation and stronger growth in the Norwegian economy are expected in the time ahead, but there will only be a slight fall in unemployment.

The current cyclical upturn has lasted for one year, although production growth has been modest in the last two quarters. The international recovery is also moderate and, like in Norway, partly fuelled by low interest rates and strong household demand. Increased investments in the petroleum industry have also had a positive effect on the economic growth in Norway. In addition, the international recovery stimulates Norwegian exports of traditional goods. Following a moderate wage settlement and what seems to be a stabilisation of the NOK at a normal level, the situation has improved for industries exposed to international competition. In many ways it seems that the development in the factors that contributed to the cyclical downturn in 2001 and 2002 is about to be reversed.

Moderate recovery

The fact that the upturn is moderate both at home and internationally is perhaps most evident in the weak improvement of the labour market. The moderate upturn also affects inflation, which shows no signs of increase internationally if we disregard impulses from this spring's rising oil prices. In addition, the strong increase in production capacity in several Asian countries represents a supply side shock, keeping inflation at a low level despite the cyclical upturn in many western countries. On the other hand, the growth in Asia results in increased pressure and higher prices in several international primary commodity markets, particularly the market for oil. This may give rise to increased interest rates as a pre-emptive measure against higher inflation in the longer term.

Interest rates remain low

Given that this does not happen and given that the international upturn continues to be moderate, the interest level may remain stable for a long time. In this situation the upturn in the Norwegian economy is expected to gain foothold without the inflation reaching a level that requires a substantial change in monetary policy. GDP growth for mainland Norway could reach 3 per cent or more in 2004, 2005 and 2006. Unemployment will probably fall slightly, from 4.3 per cent in 2004 to 3.8 per cent in 2006, well above the 3.2 per cent recorded in the boom of 1998.

If oil prices stay high, this will have particular effects on the Norwegian economy. The uncertainty surrounding oil prices is of major importance to Norway. High oil prices may result in increased oil investments and a more expansionary fiscal policy, although Norway is already spending more Petroleum Fund money than what is set out in the fiscal rule. This will contribute to a stronger and prolonged cyclical upturn in Norway. However, calculations show that this will not necessarily have critical effects on inflation, and hence interest rates.

Main economic indicators 1996-2006. Accounts and forecasts. Percentage change from previous year unless otherwise noted
 
  1996 1997 1998 1999 2000 2001 2002* 2003* Forecasts
  2004 2005 2006
 
Demand and output                      
Consumption in households and non-profit organizations 6.5         3.2         2.7         3.3         3.9         1.8         3.6         3.8         5.0         5.3         4.2
General government consumption 3.1 2.5 3.3 3.2 1.3 5.8 3.1 1.4 2.5 1.8 1.5
Gross fixed investment 10.3 15.5 13.1 -5.6 -3.6 -0.7 -3.4 -3.7 5.3 2.5 4.1
Extraction and transport via pipelines -5.7 24.9 22.2 -13.1 -23.0 -4.1 -3.6 15.8 8.4 2.4 1.3
Mainland Norway 11.5 11.8 8.6 -0.1 -1.2 4.3 -2.5 -4.7 2.3 2.4 5.2
Firms 18.3 9.3 8.9 -1.6 0.1 2.5 -3.7 -10.1 3.7 2.8 7.9
Housing 2.9 12.1 7.8 3.0 5.6 8.2 -2.3 -5.2 3.0 3.9 4.3
General government 5.0 18.0 8.6 0.5 -11.4 4.2 0.1 10.1 -1.4 0.0 0.0
Demand from Mainland Norway 1 6.5 4.5 3.9 2.6 2.3 3.2 2.4 1.7 3.9 3.9 3.7
Stockbuilding 2 -1.9 0.8 0.4 -0.5 0.8 -1.2 0.6 -0.3 0.1 0.0 0.0
Exports 10.2 7.7 0.6 2.8 4.0 5.0 0.1 1.2 1.0 4.0 2.1
Crude oil and natural gas 13.5 4.1 -5.8 0.4 4.1 8.8 2.2 -0.2 0.4 2.9 0.1
Traditional goods 10.6 7.6 5.4 2.2 5.1 1.5 1.6 2.6 3.8 4.9 2.9
Imports 8.8 12.4 8.5 -1.8 2.7 0.9 2.3 2.2 5.4 5.7 4.7
Traditional goods 10.3 8.5 9.0 -1.9 3.8 3.6 3.8 4.0 6.2 6.3 5.5
Gross domestic product 5.3 5.2 2.6 2.1 2.8 2.7 1.4 0.4 2.6 3.3 2.5
Mainland Norway 4.2 4.9 4.1 2.7 2.5 2.1 1.7 0.6 3.3 3.3 3.0
Manufacturing 3.1 3.6 -0.7 0.1 -0.8 -0.1 -0.8 -3.8 1.6 2.9 2.4
Labour market                      
Total hours worked, Mainland Norway 1.6 2.5 2.3 0.6 -0.7 -1.2 -1.0 -1.1 0.9 0.6 0.5
Employed persons 2.0 2.9 2.5 0.8 0.4 0.2 0.3 -0.6 0.2 0.9 1.1
Labor force 3 2.0 2.1 1.6 0.8 0.7 0.3 0.7 0.0 0.0 0.7 0.8
Participation rate (level) 4 71.4 72.7 73.6 73.8 74.0 73.9 73.9 73.5 72.9 72.8 72.8
Unemployment rate (level) 4.8 4.0 3.2 3.2 3.4 3.5 3.9 4.5 4.3 4.0 3.8
Prices and wages                      
Wages per standard man-year 4.4 4.8 6.5 5.4 4.5 5.1 5.3 3.9 3.8 3.6 4.1
Consumer price index (CPI) 1.2 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.7 1.7 2.0
CPI adjusted for tax changes and excluding energy products (CPI-ATE) .. .. .. .. .. 2.6 2.3 1.1 0.5 1.9 2.3
Export prices, traditional goods -2.5 -0.6 2.0 -0.4 9.9 -1.6 -8.6 -1.2 5.3 -1.2 -0.6
Import prices, traditional goods -0.1 -1.2 1.1 -2.9 5.1 -0.7 -7.4 0.7 3.2 1.1 0.7
Housing prices 5 8.4 10.9 9.7 9.4 14.1 7.2 4.0 1.6 9.3 5.0 4.1
Income, interest rates and exchange rate                      
Household real income 3.4 3.8 5.7 2.8 3.6 -0.2 8.8 2.0 3.2 3.2 2.9
Household saving ratio (level) 2.3 2.9 5.9 5.6 5.2 4.1 9.5 7.7 5.5 3.6 2.4
Money market rate (level) 4.9 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.4 2.3
Lending rate, banks (level) 6 7.2 6.0 7.4 8.4 8.1 8.9 8.5 6.6 4.4 4.7 4.7
Real after-tax lending rate, banks (level) 3.8 1.7 2.8 3.3 2.4 2.9 4.5 2.0 2.5 1.7 1.3
Importweighted krone exchange rate (44 countries) 7 -0.4 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 4.0 0.7 0.4
Current account                      
Current balance (NOK bill.) 70.7 70.5 0.5 66.4  228.9  235.2  196.1  201.2  242.7  230.9  224.3
Current balance (per cent of GDP) 6.9 6.3 0.0 5.4 15.6 15.4 12.9 12.9 14.6 13.4 12.4
International indicators                      
Exports markets indicator 7.3 9.8 7.8 7.5 11.8 -1.2 2.4 3.9 4.8 5.1 2.8
Consumer price index, euro-area 2.1 1.6 1.1 1.1 2.3 2.1 2.3 2.1 2.0 1.8 1.7
3 mths. interest rate, euro 4.4 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.1 2.4 2.3
Crude oil price NOK (level) 8  133  135 96  142  252  219  197  205  225  210  212
 
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   Freeholder.
6   Households' borrowing rate in private financial institutions. Yearly average.
7   Increasing index implies depreciation.
8   Average spot price Brent Blend.
  *Preliminary figures.
Source:  Statistics Norway. The cut-off date for information was 15 June 2004. Published 17 June 2004.