Economic trends for Norway and abroad
Worst of the fall in output has passed
Together with the domestic economy impetus, a sharp fall in our export markets has contributed to a dramatic slowdown in the Norwegian economy. Unemployment has therefore increased markedly. Both the international and Norwegian slowdown are expected to abate gradually as the strengthened expansionary fiscal policy and monetary policy start to take effect. Nevertheless, a significant slump is still expected, and unemployment will continue to rise for the next two years.
The economic slowdown began in Norway at the start of 2008 and intensified dramatically during the second half of the year. The GDP for mainland Norway fell from the third quarter of 2008 to the first quarter of 2009 by 1.7 per cent. The activity could increase again in the second half of 2009, whereby the GDP for mainland Norway for 2009 as a whole would be expected to fall by 1.4 per cent in relation to 2008. The growth in activity is expected to slowly increase, with the next upswing in the economy starting in 2011.
The international slowdown in the wake of the financial crisis intensified in the first quarter of 2009, and the majority of OECD countries have now experienced four consecutive quarters with a falling GDP. Unemployment has increased at record speed, and could surpass 10 per cent in 2009 in a number of industrialised nations. The economy in countries experiencing high growth, such as China and India, continues to grow, however growth in these countries has also seen a marked decline. The major problems faced by the banking industry continue, and demand and production remain limited by a restrictive lending practice.
Ray of hope
Some signs have been in evidence since the spring that the international downturn is diminishing. Increased raw material prices and a strong development in international stock exchanges indicate a higher level of activity. This impression is supported by reduced risk premiums in financial markets and an improvement in confidence indicators for businesses as well as households. However, the poor development is expected to continue for some time to come, which is based on the expectation that Norway’s trading partners will not emerge from the economic slump until 2011.
|Demand and output|
|Consumption in households etc.||3.7||4.2||2.1||3.1||2.8||5.6||4.0||4.8||6.0||1.4||0.4||4.6||3.9||3.2|
|General government consumption||3.1||1.9||4.6||3.1||1.7||1.5||0.7||1.9||3.4||3.8||5.7||4.2||3.0||1.7|
|Gross fixed investment||-5.4||-3.5||-1.1||-1.1||0.2||10.2||13.3||11.7||8.4||3.9||-8.6||-2.1||1.9||6.2|
|Extraction and transport via pipelines||-13.0||-22.9||-4.6||-5.4||15.9||10.2||18.8||4.3||5.5||6.6||2.4||3.2||-0.3||-2.2|
|Demand from Mainland Norway 1||2.9||2.6||3.0||3.0||1.4||5.0||4.6||5.3||6.0||2.2||-0.4||3.0||3.7||3.4|
|Crude oil and natural gas||0.4||3.8||6.6||2.4||-0.6||-0.5||-5.0||-6.5||-2.6||-1.5||-2.0||-0.2||-1.1||-1.6|
|Gross domestic product||2.0||3.3||2.0||1.5||1.0||3.9||2.7||2.3||3.1||2.1||-1.2||0.7||1.9||2.1|
|Total hours worked, Mainland Norway||0.7||-0.7||-1.6||-0.9||-2.1||1.7||1.4||3.1||4.3||3.3||-1.1||-0.5||0.7||1.2|
|Labor force 3||0.5||0.7||0.5||0.7||-0.1||0.3||0.7||2.0||2.5||3.4||0.7||0.7||0.5||0.9|
|Participation rate (level) 3||73.3||73.4||73.5||73.5||72.9||72.6||72.4||72.0||72.8||73.9||73.8||73.6||73.2||73.1|
|Unemployment rate (level)||3.2||3.4||3.6||3.9||4.5||4.5||4.6||3.4||2.5||2.6||3.8||4.6||4.6||4.1|
|Prices and wages|
|Wages per standard man-year||5.4||4.6||5.3||5.4||3.7||4.6||3.8||4.8||5.6||5.8||3.8||3.5||3.5||4.7|
|Consumer price index (CPI)||2.3||3.1||3.0||1.3||2.5||0.4||1.6||2.3||0.8||3.8||1.7||1.1||1.7||2.5|
|Export prices, traditional goods||-0.5||11.8||-1.8||-9.1||-0.9||8.5||4.1||11.4||2.5||2.3||-6.3||-2.1||3.8||5.1|
|Import prices, traditional goods||-2.9||6.5||-1.6||-7.2||-0.4||4.0||0.5||4.0||3.7||3.2||-2.2||-2.8||1.6||2.7|
|Housing prices 5||11.2||15.7||7.0||5.0||1.7||7.7||9.5||13.7||12.6||-1.1||-2.3||2.0||4.8||5.4|
|Income, interest rates and excange rate|
|Household real income||2.4||3.4||-0.3||7.9||4.4||3.6||7.6||-6.4||5.9||2.9||2.5||3.6||2.9||2.8|
|Household saving ratio (level)||4.7||4.3||3.1||8.4||9.1||7.4||10.2||0.1||0.4||2.0||4.6||3.7||2.8||2.5|
|Money market rate (level)||6.5||6.8||7.2||6.9||4.1||2.0||2.2||3.1||5.0||6.2||2.5||2.2||3.7||4.9|
|Lending rate, banks (level) 6||8.4||8.0||8.8||8.4||6.5||4.2||3.9||4.3||5.7||7.3||4.5||3.4||4.6||5.9|
|Real after-tax lending rate, banks (level)||3.7||2.7||3.3||4.8||2.2||2.5||1.3||0.7||3.3||1.5||1.5||1.3||1.6||1.7|
|Importweighted krone exchange rate (44 countries) 7||-1.2||2.9||-3.1||-8.5||1.3||3.0||-3.9||0.7||-1.8||0.0||3.8||-6.6||-2.0||0.0|
|NOK per euro (level)||8.3||8.1||8.1||7.5||8.0||8.4||8.0||8.1||8.0||8.2||8.7||8.2||8.0||8.0|
|Current balance (bill. NOK)||69.5||222.4||247.5||192.3||195.9||221.6||316.6||372.1||362.3||466.2||297.7||274.9||311.9||336.8|
|Current balance (per cent of GDP)||5.6||15.0||16.1||12.6||12.3||12.7||16.3||17.2||15.9||18.3||12.3||11.2||12.1||12.3|
|Exports markets indicator||6.9||11.7||0.8||2.4||3.6||8.4||6.9||9.1||5.5||0.8||-11.2||-1.7||3.3||6.1|
|Consumer price index, euro-area||1.1||2.1||2.3||2.3||2.1||2.1||2.2||2.2||2.2||3.3||0.2||0.7||1.0||1.7|
|Money market rate, euro(level)||2.9||4.4||4.2||3.3||2.3||2.1||2.2||3.1||4.3||4.6||1.5||1.5||2.4||3.4|
|Crude oil price NOK (level) 8||142||252||219||197||205||257||351||414||423||527||350||388||436||470|
|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).|
|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 26 May.|
Export industries struggling
Many of our traditional export industries have been hit by the international slowdown. The production of industrial raw materials has fallen by around 30 per cent since last summer. This is partly responsible for the 7 per cent fall in the value added in manufacturing in the last three quarters.
Investments in mainland industries declining
The investments in Norwegian mainland industries fell dramatically in the first quarter after a moderate downturn in 2008. These investments are expected to continue to fall considerably this year and into 2010. However, we believe that investments in petroleum will remain at a high level, thus having a stabilising effect on the level of activity.
Interest rates to bottom out in second half of 2009
Higher interest rates for most of 2008 were partly responsible for the households' fall in demand. As the strength of the slowdown became clearer, the base rates both home and abroad were dramatically reduced. Since October 2008, the base rate in Norway has been reduced by a total of 4.25 percentage points, and now stands at 1.5 per cent. Together with the improvement in the effectiveness of the money market, this has contributed to the money market rate falling from almost 8 per cent at the start of October to 2.2 per cent at the end of May. We estimate that the interest rate will bottom out in the second half of 2009, at 2.0 per cent.
Interest rates for households
The banks’ interest on loans reacts to changes in the money market rate with a time delay. We estimate that the average interest on loans in banks will fall to 3.3 per cent by the end of 2009. In line with the improved economy, we expect the base rates to gradually be increased from summer 2010. The average interest on loans in banks is expected to be in the region of 6 per cent in 2012.
Expansive fiscal policy
The fiscal policy has been dramatically altered in an expansive direction, as a result of the economic slowdown. A number of measures have also been implemented to improve the effectiveness of the credit market. The impetus from the fiscal policy in 2009 is estimated in the revised national budget to be 3 per cent of the GDP for mainland Norway – the strongest impetus since the 1970s.
Housing market picking up
Housing prices fell during the second half of 2008, but have subsequently increased. We can now expect the rise in unemployment to contribute to the curb in the growth of housing prices until some time in 2010, when the prices on average will be around 2 per cent higher than in 2009. The year average for housing prices in 2011 and 2012 is expected to increase by approximately 5 per cent. Investments in housing, which have been in decline for the past two years, are expected to increase slightly in 2010.
Halt in consumption fall
The consumption in households has fallen in the last four quarters, but the fall was visibly curbed in the second half of the year. It is expected that income growth, a fall in interest rates and stable housing prices will all contribute to the future recovery of consumption in households. As a year average, growth in 2009 is estimated at 0.4 per cent, and 4.6 per cent in 2010.
Industries on different tracks
The development in activity has differed somewhat in the various industries, and this is expected to continue. Conditions are right for strong growth in public demand and a relatively quick and sharp, positive shift in the development of demand from households. The extent of the development in activity - particularly abroad - is likely to continue over a long period of time and be less pronounced. A large part of the increase in unemployment is therefore expected to be linked to industrial activity. Our estimates put unemployment at 130 000 in the first part of 2011.
Reduced wage growth and inflation
Wage growth in 2008 per FTE was 5.8 per cent, and consumer prices increased by 3.8 per cent. High unemployment, poor profitability in businesses, a fall in energy prices and prospects of a stronger NOK all indicate that both wage growth and inflation will fall by approximately 2 percentage points in 2009 and 2010.