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Economic trends for Norway and abroad
Slowdown in growth ahead
After almost five years of strong growth in the Norwegian economy it now seems that the cyclical peak is behind us. Weaker growth impulses from abroad and lower household demand contribute to the slowdown whereas a continued increase in demand from the petroleum industry and public sector dampens the decline.
The growth internationally is on the decline. Combined with weaker cost competitiveness due to a stronger krone and high wage growth, this will result in a marked fall in export growth in the time ahead. The interest rate hikes of the past three years are now beginning to affect household demand. High prices of energy are pulling in the same direction. Furthermore, there has been a fall in housing investments in the past four quarters and the growth in consumption has fallen considerably. There are no signs of reversed investment growth in the mainland industries yet, but we anticipate that these will appear soon.
The US economy has entered a marked slowdown while, somewhat surprising, the growth in Europe has remained relatively stable. However, several indicators suggest that a cyclical downturn is imminent in the euro area. We anticipate that high-growth economies like China and India will be affected by the slowdown in the OECD area, but expect their growth to remain relatively strong. The strong growth in demand from these countries has contributed to unprecedented prices of oil and other commodities. The basis for our prognosis is that a limited increase in the total oil extraction will result in oil prices around the current high level.
Lower interest rates in 2009
While the Federal Reserve has made substantial cuts in its key rate, the European Central Bank (ECB) has signalled that it will not cut its rate in an attempt to prevent rising inflation. However, we expect that lower prices of food and commodities internationally as well as lower capacity utilisation will result in lower inflation in the euro area towards the end of this year. Our prognosis is therefore based on the assumption that the ECB cuts its key rate by 0.5 percentage points in the first half of 2009. The instability in international financial markets has resulted in an unusually high mark-up between key rates and money market rates. A normalisation of the financial markets towards next summer will result in a money market rate in the euro area that is around 1 percentage point lower than today's level. We anticipate a similar development for Norwegian money market rates, but expect the decrease to appear slightly later. As a result, the interest rate difference against the euro area will increase in the period towards next summer. Together with high oil prices, this will contribute to a stronger krone in this period.
Have unemployment levels reached the bottom?
The upturn in the Norwegian economy has given a great boost to employment in the past two years, and very low unemployment. However, the decrease in unemployment during the past year has been very modest. A weaker cyclical development will result in lower growth in employment in the time ahead. The substantial labour immigration we have seen in recent years is likely to decrease, which will result in only a small increase in unemployment.
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 anticipate a peak in wage growth of 6.0 per cent this year, and that the growth will be less than 5 per cent next year.
Measured by the twelve-month growth in the CPI adjusted for tax changes and excluding energy products (CPI-ATE), inflation has risen for almost two years and was 2.4 per cent in April. Higher wage costs and lower productivity growth are important factors behind this development, and will, together with higher food prices, contribute to a further increase in inflation. Higher prices of energy are pulling in the same direction. The strengthening of the krone that we have witnessed in the past one and a half years will continue for some time, and will dampen the growth in inflation. Unless there are no new impulses from higher energy prices and international commodity prices fall, there will be a decrease in inflation after the turn of the year.
The prices of futures power contracts indicate a strong increase in electricity prices this autumn and into next year. Furthermore, we have not seen the total effects of higher oil prices yet. We anticipate a growth in consumer prices of 3.9 per cent this year and 3.1 per cent next year. In 2010 and 2011, we expect the growth to be slightly higher than 2 per cent.
|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||3.3||2.9||2.7||3.6|
|General government consumption||3.4||3.1||1.9||4.6||3.1||1.7||1.5||0.7||2.9||3.6||3.2||3.2||3.4||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||4.6||-0.5||0.4||2.3|
|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||9.9||6.6||3.0||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||3.2||2.0||2.3||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||-1.8||2.6||0.1||0.1|
|Gross domestic product||2.7||2.0||3.3||2.0||1.5||1.0||3.9||2.7||2.5||3.7||2.3||2.0||1.8||2.5|
|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||2.5||1.0||1.2||1.3|
|Labor force 3||1.7||0.9||0.9||0.5||0.7||-0.4||0.5||1.4||2.2||3.1||2.7||1.7||1.4||1.2|
|Participation rate (level) 4||73.9||74.2||74.4||74.5||74.6||73.8||73.6||74.0||74.7||75.9||76.7||76.8||76.7||76.4|
|Unemployment rate (level)||3.2||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.4||2.5||2.6||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||4.8||4.2||5.2|
|Consumer price index (CPI)||2.2||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.3||0.8||3.9||3.1||2.1||2.1|
|Export prices, traditional goods||1.9||-0.5||11.8||-1.8||-9.1||-0.9||8.5||4.1||11.4||2.2||1.9||-2.3||4.1||6.3|
|Import prices, traditional goods||0.7||-2.9||6.5||-1.6||-7.2||-0.4||4.0||0.5||4.7||3.4||-0.4||0.2||1.7||2.4|
|Housing prices 6||9.7||9.4||14.1||7.1||4.0||1.6||10.1||7.9||12.9||12.3||2.4||3.6||3.3||6.1|
|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||4.3||3.7||3.7||4.2|
|Household saving ratio (level)||5.8||4.7||4.3||3.1||8.4||9.1||7.4||10.2||0.1||-0.4||1.5||2.0||3.0||3.7|
|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||5.7||5.0||5.3|
|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||7.1||6.9||6.1||6.1|
|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||1.9||2.3||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||-5.4||-3.2||1.0||0.1|
|NOK per euro (level)||8.5||8.3||8.1||8.1||7.5||8.0||8.4||8.0||8.1||8.0||7.8||7.5||7.6||7.6|
|Current balance (bill. NOK)||-3.6||69.5||222.4||247.5||192.3||195.9||221.6||316.6||373.4||372.1||517.0||605.8||639.5||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||16.3||19.9||21.8||22.0||22.1|
|Exports markets indicator||8.3||6.9||11.7||0.8||1.5||3.5||7.5||6.9||8.4||7.6||4.9||2.4||4.9||8.2|
|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||3.3||2.2||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||4.6||3.8||3.8||4.0|
|Crude oil price NOK (level) 9||96||142||252||219||197||205||257||351||414||423||575||594||601||602|
|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 27 May 2008. Published 29 May 2008.|