Increased purchasing power despite high interest rates

Wage growth remains high but has slowed over the past year. Statistics Norway forecasts annual wage growth of 4.3 per cent in 2026. With inflation close to 3 per cent, this means that real wages will increase for the third consecutive year. At the same time, high borrowing rates are dampening purchasing power, particularly for highly indebted households.

“Household purchasing power continues to improve, despite interest rates remaining elevated, both this year and next year. We expect real wage growth to eventually contribute to a broad-based increase in consumer spending,” says Thomas von Brasch, researcher at Statistics Norway.

Interest rates remain elevated this year and next year

Norges Bank cut the key policy rate by a total of 0.5 percentage points in 2025. However, unexpectedly high inflation at the beginning of 2026 led to a marked shift in the interest rate outlook. In May, the key policy rate was raised to 4.25 per cent.

“Inflation remains well above the 2 per cent target. The strengthening of the krone since the start of the year will contribute to lower inflation ahead, but it will take time for inflation to come down. We therefore expect one further interest rate hike before rates can be cut next year,” says Thomas von Brasch.

The forecasts imply that the key policy rate will be raised by a further 0.25 percentage points this autumn. This will be followed by four interest rate cuts in 2027 and 2028 as inflation approaches the target. The key policy rate is then 3.5 per cent, in the upper part of the 2.25 to 3.75 per cent range that Norges Bank considers to be a normal interest rate level.

Residential construction remains subdued

Housing investment fell by around 25 per cent through 2023 and 2024 and has since remained at a reduced level.

“It will take time for housing construction to recover. Slow sales of new dwellings, high construction costs and persistently high interest rates are keeping investment subdued, despite household purchasing power improving,” says von Brasch.

According to the forecasts, housing investment will remain broadly unchanged this year and next year.

Growth in the Norwegian economy is picking up again

Following a clear upswing from mid-2024, growth in the Norwegian economy slowed from mid-2025 and through the first half of this year.

“The Norwegian economy has grown at a slightly slower pace than we forecast before the summer. Nevertheless, increased private consumption and a mildly expansionary fiscal policy will contribute to a renewed pick-up in growth,” says Thomas von Brasch.

According to the forecasts, growth in mainland GDP will remain close to the estimated trend growth rate of just over 1.5 per cent in the years ahead.

Employment growth to reduce unemployment

According to Statistics Norway’s Labour Force Survey (LFS), unemployed persons accounted for 4.6 per cent of the labour force in the second quarter of 2026. At the same time, registered unemployment at NAV has remained stable at around 2 per cent.

Labour force participation has continued to increase and is at its highest level since 2009. At the same time, the number of job vacancies has declined, and Norges Bank’s Regional Network indicates that labour market pressures have eased somewhat, particularly in the service industries.

“Labour market pressures have eased, but labour force participation remains high and employment is increasing. Continued employment growth will contribute to a gradual decline in unemployment,” says Thomas von Brasch.

According to the forecasts, labour force participation will remain high in the years ahead, while continued employment growth will contribute to a gradual decline in LFS unemployment to just over 4 per cent in 2029.

High energy prices keeping inflation elevated among Norway’s trading partners

The conflict in the Middle East has led to higher energy prices. This is contributing to keeping inflation and interest rates elevated, particularly in Europe.

“Higher energy prices are increasing costs for households and businesses in Norway’s trading partners. Even as inflation in the euro area declines, it will take time to return towards the target,” says Roger Hammersland, researcher at Statistics Norway.

Inflation in the euro area is projected at 3.2 per cent in 2026 and 2.5 per cent in 2027. Thereafter, inflation will gradually approach the European Central Bank’s 2 per cent target.

GDP growth among Norway’s trading partners has averaged around 2 per cent annually since 2005. Growth is projected at 1.9 per cent in 2026 and 2027. Weaker growth in the United States and China contribute to a slowdown to 1.7 per cent in 2028 and 2029, despite prospects of somewhat stronger growth in the euro area.

The analyses in the report are based on information as of Thursday, 10 September 2026.