Economic trends for Norway and abroad
The Norwegian economy is still characterized by relatively high utilization of capacity, low unemployment and generally higher price and cost growth than our trading partners, three and a half years after the long-term economic upturn that began in 1993 came to an end. Mainland Norways gross domestic product (GDP) has grown slowly in recent years, and the economic boom of the latter half of the 90s is now in practice over.
In the next few years the Norwegian economy is expected to grow about in line with the trend growth in the economy. A more expansionary fiscal policy resulting from the new rules covering the use of the returns from the Petroleum Fund will be balanced by a relatively tight monetary policy.
Growth in activities picks up
According to the preliminary national accounting figures, Mainland-Norways GDP increased by 1.8 per cent last year, while our estimate for this year is 1.0 per cent. High production of electric power last year because of meteorological conditions, affects, however, these growth rates to a considerable degree. The GDP for Mainland Norway excluding the power sector increased by 0.9 per cent in 1999 and 1.4 per cent last year. We expect that the growth in activities measured in this way will increase somewhat even more this year and in the two coming years, with growth rates increasing from 1 ½ this year to 2 ½ per cent in 2003. Increased domestic demand from both private and public consumption and investment are pushing in this direction, while traditional exports will continue to lose market shares. Despite the low growth in the level of activity, unemployment has remained stable at a low level in recent years. Although the activity growth in the mainland economy is expected to increase, unemployment is expected to remain at the present level in the years to come.
Decline in high inflation imminent
Since the 12-month growth rate in the consumer price index (CPI) fell to 1.9 per cent in August 1999, the pace of inflation has clearly increased. In the last measurement as of 15 May 2001, the rate of increase was up to 4.3 per cent, the highest in 10 years. The change was largely driven by higher energy prices, while tax increases, higher interest rates (through higher rent) and high wage growth have also contributed. The usual seasonal decline in electricity prices in the spring has not happened so far this year. The consumer price index excluding energy goods in May was 3.1 per cent higher than in May 2001 and we estimate that the tax increase has contributed about 0.6 percentage point of this growth. Changes in the tax system in July including halving the tax on food is expected to reduce consumer prices by about 1 percentage point. We expect that CPI growth on a 12-month basis may drop to under 2 per cent towards the end of the year, and that on an annual basis it will increase by 3.3 per cent. Both a tax cut and the direction of energy prices could cause the annual growth of the CPI to drop to 1.8 percentage points next year and that growth in 2003 could be in the region of 2-2.5 per cent.
The downturn in the US economy impacts the international situation
In the last half year the international economy has been showing increasing signs of being affected by the economic slowdown that began in the US about one year ago. This is completely in line with a normal economic pattern in which economic fluctuations in the US along with major shocks on the supply side of the oil market are the most common factor behind changes in the production trends in other countries. An American economic slowdown normally lasts for six quarters, i.e. the American economy could still post a couple of slow quarters with growth under the trend possibly with a direct fall in production through the summer months and further declines in interest rates before the setback is over. Based on normal lag Western Europe should have peaked economically two quarters after the United States, i.e. in fourth quarter last year. Preliminary national accounting figures from major European countries for the first quarter and various short-term statistics and the economic general business tendency surveys of recent months also show a clear decline in growth through the last half year. For Norways trading partners as a whole, the consensus now points to a GDP growth of 2.3 per cent this year compared with 3.5 per cent for 2000. There is reason to expect that the growth estimate for this year will be adjusted downwards in the course of the summer.
|Main economic indicators 2000-2003. Accounts and forecasts.
Percentage change from previous year unless otherwise noted
|Demand and output|
|Consumption in households and non-profit organizations||2,4||1,6||3,2||3,0|
|General government consumption||1,4||2,4||2,9||3,2|
|Gross fixed investment||-1,1||-2,7||3,8||4,8|
|Demand from mainland Norway 1||1,9||1,3||3,2||3,7|
|Crude oil and natural gas||6,4||5,4||0,3||-0,8|
|Gross domestic product||2,3||1,4||1,9||1,9|
|Unemployment rate (level)||3,4||3,3||3,3||3,3|
|Prices and wages|
|Wages per standard man-year||4,3||4,6||4,2||4,1|
|Consumer price index||3,1||3,3||1,8||2,2|
|Export prices, traditional goods||13,8||2,4||-2,0||0,4|
|Import prices, traditional goods||6,0||3,6||-0,9||-0,1|
|Balance of payment|
|Current balance (bill. NOK)||203,6||214,0||202,3||184,3|
|Current balance (per cent of GDP)||14,3||14,4||13,2||11,6|
|Household saving ratio (level)||7,7||9,0||9,8||10,4|
|Money market rate (level)||6,6||7,3||6,6||6,4|
|Average borrowing rate (level) 3||8,2||9,2||8,8||8,5|
|Crude oil price NOK (level) 4||252,0||236,0||227,0||221,0|
|Exports markets indicator||10,3||7,5||5,8||6,2|
|Importweighted krone exchange rate (44 countries) 5||2,5||-2,0||-0,4||-0,1|
|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||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 used was 12 June 2001.
Published 14 June 2001.