Economic trends for Norway and abroad
Weak foreign growth curbs Norwegian upturn
Increased domestic demand is expected to contribute to slightly higher growth in the Norwegian economy. However, the growth in the GDP mainland Norway will be markedly lower than during the previous upturn in the economy, and unemployment will remain more or less unchanged.
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- Economic trends for Norway and abroad
A stronger krone will result in low inflation, but will intensify the challenges faced by export-oriented activities as a result of low growth in international demand. The money market rates are expected to remain at the current level until the end of 2012, followed by a moderate rise. A marked growth in real wages and employment will thus lead to high income growth and high growth in the demand from households.
Long-term downturn in the global economy
The positive aspects of the global economy are diminishing. The growth in the OECD area is very weak. There are also signs of lower growth in emerging economies such as China and Brazil. The squeeze on central government finances in many countries coupled with various crises in economicpolicy decision-making processes mean that the recovery from the financial crisis is taking longer than expected. The downturn in the OECD area is expected to last until 2014, with international interest rates remaining low for some time to come.
Weak export development
A very modest growth is expected in Norwegian exports going forward. The effects of the low growth in demand in the global market are strengthened by higher wage growth in Norway than in many of our trading partners, and by a stronger krone.
Interest rate respite
The base rate was last increased in May, and was subsequently 2.25 per cent. Turbulence in international financial markets has led to the three-month money market rate increasing by around 0.3 percentage points in the last three months. At the start of September, the money market rate was approximately 3.1 per cent. Given the recent strengthening of the krone, low inflation, low international interest rates and prospects of a relatively moderate upturn in the Norwegian economy, the money market rate is not expected to increase until 2013. It will then increase gradually until reaching 4.4 per cent at the end of 2014. The average interest on loans in the banks is thus expected to reach almost 6 per cent.
Clear growth in household consumption going forward
High electricity bills were partly responsible for the modest increase in household consumption in the first quarter of 2011. The development in the consumption recovered in the second quarter. A more dramatic growth in consumption is expected towards the end of the year and thereafter. This must be viewed in light of the fact that the households’ disposable real income is expected to show a clear increase, and that higher house prices will lead to the housing wealth increasing, which in itself stimulates consumption. The recent increase in the money market rate is expected to push up the interest rate on loans somewhat towards the end of 2011.
Housing market in higher gear
Both house prices and housing investments have been showing a clear increase for some time. A considerable increase in the population and high real income growth, in addition to continuing low interest rates mean potential for further growth. The housing investments are expected to increase by as much as 24 per cent this year, and will continue to increase in the years ahead, albeit at a slower pace. The growth in house prices is estimated to be 8.5 per cent this year, and is expected to rise by an average of 7 per cent in the next three years.
Increase in business investments
The activity in the petroleum sector is important to the Norwegian economy. The petroleum investments are expected to increase by more than 8 per cent both this year and next. The investments in Norwegian mainland industries started to show a marked increase during spring 2010, and rose by 11.5 per cent from the first quarter of 2010 to the second quarter of 2011. These investments are also expected to increase in the years ahead, but not as dramatically as in the previous five quarters. An increase is expected in most industries.
Weak expansive fiscal policy
We estimate that money spent from petroleum activities in 2011 will constitute around 4 per cent of the capital in the Government Pension Fund Global at the start of the fiscal year. 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 a very expansive fiscal policy, unless turbulence in the international financial markets pulled down the fund’s value substantially. An improvement in the economic situation in Norway points solely towards a continuing restrictive fiscal policy. There will consequently be a political trade-off between the consideration to stabilisation and the consideration to the exposed sector on the one hand, and political desires for cost increases that the 4 per cent path actually affords on the other. No change is expected in real taxes and duties and it is assumed that public demand will increase more than the trend growth in the Norwegian economy. The fiscal policy can therefore be characterised as weakly expansive. Despite this, the spending of “petroleum income” will, according to our calculations, be reduced as a share of the Pension Fund, and in 2014 will constitute around 3 per cent.
Little change in unemployment
The turnaround to growth in the GDP for mainland Norway in autumn 2009 led to an increase in employment of 32 000 persons from the first quarter of 2010 to the second quarter of 2011. We expect this development to intensify in the period ahead. However, 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. Unemployment is expected to fall from 3.6 per cent of the workforce in 2010 to 3.4 per cent this year and next, and further to 3.3 per cent in 2013 and 2014.
High real wage growth and low inflation
The average wage increase in 2011 is expected to be 4.1 per cent, compared with 3.7 per cent in 2010. A stronger krone and low inflation will pull in the direction of slightly lower nominal wage growth in the next two years, despite a clear increase in the level of activity in the Norwegian economy. The real wage growth, however, is expected to remain high. The effects of a strong krone and reduced wage growth are expected to be intensified next year by a fall in energy prices, pushing the average consumer price growth for the year to below 1 per cent. The nominal growth in wages will increase slightly in 2013, followed by a somewhat stronger increase in 2014. When the pace of the strengthening krone is reduced, inflation will increase slightly. According to our calculations, the growth in the consumer price index adjusted for changes in indirect taxes, and excluding energy products (CPI-ATE) will increase gradually from 1.1 per cent in 2012 to 1.9 per cent in 2014.
|Demand and output|
|Consumption in households etc.||2.1||3.1||2.8||5.6||4.0||4.8||5.4||1.6||0.2||3.7||2.8||4.7||5.3||4.8|
|General government consumption||4.6||3.1||1.7||1.5||0.7||1.9||3.0||4.1||4.8||2.2||2.1||2.7||2.6||3.1|
|Gross fixed investment||-1.1||-1.1||0.2||10.2||13.3||11.7||12.5||2.5||-6.8||-7.4||7.0||8.8||6.6||4.1|
|Extraction and transport via pipelines||-4.6||-5.4||15.9||10.2||18.8||4.3||6.3||5.1||5.8||-12.4||8.7||8.3||2.3||2.8|
|Demand from Mainland Norway 1||3.0||3.0||1.4||5.0||4.6||5.3||6.7||1.7||-1.0||2.0||3.7||4.8||5.1||4.3|
|Crude oil and natural gas||6.6||2.4||-0.6||-0.5||-5.0||-6.5||-2.4||-2.0||-0.9||-7.4||-3.9||1.6||-1.4||-0.9|
|Gross domestic product||2.0||1.5||1.0||3.9||2.7||2.3||2.7||0.7||-1.7||0.3||1.6||2.9||2.6||2.4|
|Total hours worked, Mainland Norway||-1.6||-0.9||-2.1||1.7||1.4||3.1||4.3||3.4||-1.9||0.5||1.5||2.1||1.9||1.9|
|Labor force 3||0.5||0.7||-0.1||0.3||0.8||1.6||2.5||3.4||0.0||0.5||1.1||2.2||1.9||1.6|
|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||71.9||72.2||72.3|
|Unemployment rate (level) 3||3.5||3.9||4.5||4.5||4.6||3.4||2.5||2.6||3.2||3.6||3.4||3.4||3.3||3.3|
|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||4.1||3.6||3.7||4.4|
|Consumer price index (CPI)||3.0||1.3||2.5||0.4||1.6||2.3||0.8||3.8||2.1||2.5||1.4||0.9||1.6||1.8|
|Export prices, traditional goods||-1.8||-9.1||-0.9||8.5||4.1||11.4||2.7||2.4||-6.2||3.7||5.5||-2.1||0.3||1.6|
|Import prices, traditional goods||-1.6||-7.2||-0.4||4.0||0.5||4.0||4.0||4.7||-1.4||-0.2||3.0||-2.7||0.0||1.0|
|Housing prices 5||7.0||5.0||1.7||7.7||9.5||13.7||12.6||-1.1||1.9||8.3||8.5||6.1||5.7||8.0|
|Income, interest rates and excange rate|
|Household real income||-0.3||8.0||4.4||3.6||7.6||-6.4||6.3||3.5||4.4||4.1||4.4||4.1||4.6||3.9|
|Household saving ratio (level)||3.1||8.4||9.1||7.4||10.2||0.1||1.5||3.8||7.5||7.6||9.1||8.7||8.1||7.4|
|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||3.1||3.4||4.1|
|Lending rate, banks (level) 6||8.8||8.4||6.5||4.2||3.9||4.3||5.7||7.3||4.9||4.5||4.8||5.0||5.1||5.7|
|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||2.7||2.1||2.3|
|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||-2.8||-1.8||-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||7.79||7.69||7.61||7.56|
|Current balance (bill. NOK)||247.5||192.3||195.9||221.6||316.6||372.1||320.5||443.2||274.9||310.0||330.7||281.7||252.0||236.2|
|Current balance (per cent of GDP)||16.1||12.6||12.3||12.7||16.3||17.2||14.1||17.7||11.8||12.4||12.5||10.2||8.7||7.8|
|Exports markets indicator||0.8||1.8||4.1||7.3||6.4||8.7||5.4||0.9||-10.6||10.7||5.3||2.2||3.1||4.2|
|Consumer price index, euro-area||2.3||2.3||2.1||2.1||2.2||2.2||2.2||3.3||0.3||1.7||2.4||1.0||1.3||1.6|
|Money market rate, euro(level)||4.2||3.3||2.3||2.1||2.2||3.1||4.3||4.6||1.2||0.7||1.3||1.3||1.3||2.1|
|Crude oil price NOK (level) 8||223||198||201||255||355||423||422||536||388||484||595||546||562||581.0|
|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.|
|Source: Statistics Norway. The cut-off date for information was 6. September.|