Economic trends for Norway and abroad

Boom intensifies

Published:

The boom in the Norwegian economy has intensified. GNP growth in Norway in the first half of 2006 was almost 4 per cent in terms of annual growth. Unemployment is now almost as low as during the peak in the economy at the end of the 1990s. Despite the high rate of economic growth, inflation is extremely low. Wage growth and price growth, however, are set to rise.

High international growth and low interest rates are two of the factors behind the 3-year economic recovery in Norway. High growth has been experienced in both the demand from the mainland economy, oil investments and the export of goods and services from Mainland Norway. This has contributed to growth in most industries. In response to the activity growth, Norges Bank increased the key interest rates by 1.25 percentage points during the course of a year. We anticipate that the key interest rates will be further increased by 0.5 percentage points and that the money market interest rate will thus reach around 3.75 per cent at the end of the year.

As in the past, we have based our assumptions on a moderate economic downturn in the USA in 2007 and 2008, and on the development in the EU also being moderate next year. This will contribute to a poorer future export development. We also anticipate that oil investments will, in real terms, fall slightly from this year to next. Coupled with slightly higher interest rates, we believe that this will contribute to the growth in the Norwegian economy being somewhat muted in the future. Unemployment, however, is expected to remain at roughly the same low level as today.

Considering the activity level in the Norwegian economy and the increase in energy prices, the growth in wages and consumer prices is very moderate. Wage growth this year is estimated at 4 per cent, but high profitability in trade and industry and relatively great pressure in the labour market are expected to take the wage growth up to 5 per cent next year.

The low growth in the Consumer Price Index adjusted for taxation changes and excluding energy goods (CPI-ATE) in August this year has not been seen since 2004. While the prices of oil-related products may have peaked, we are now facing strong growth in household electricity prices this autumn. The total CPI will increase considerably in the months to come, and is likely to exceed 3 per cent before Christmas. Electricity prices, however, are expected to fall somewhat during next spring, whereby the year average for the CPI could fall to 1.5 per cent in 2007, compared with 2.4 per cent this year. Combined with a weaker NOK, slightly higher wage growth and lower productivity growth can contribute to the underlying price growth (measured by the CPI-ATE) increasing from an average of roughly 0.8 per cent this year to around 1.5-2.0 per cent from 2007 to 2009.

Main economic indicators 1997-2009. Accounts and forecasts. Percentage change from previous year unless otherwise
noted
 
  1997 1998 1999 2000 2001 2002 2003 2004* 2005* Forecasts
  2006 2007 2008 2009
 
Demand and output                          
Consumption in households etc.       3,2       2,7       3,3       3,9       1,8       3,0       2,9       4,7       3,4       3,5       3,7       3,0       3,7
General government consumption 2.5 3.3 3.2 1.3 5.8 3.7 1.3 2.2 1.5 2.5 2.4 3.9 3.7
Gross fixed investment 15.5 13.1 -5.6 -3.6 -0.7 -1.0 0.2 8.1 10.9 7.7 -0.1 0.2 0.0
Extraction and transport via pipelines 24.9 22.2 -13.1 -23.0 -4.1 -5.3 16.1 7.8 15.6 5.2 -1.8 -0.7 0.0
mainland Norway 11.8 8.6 -0.1 -1.2 4.3 2.5 -3.7 7.8 8.8 7.0 0.5 0.6 0.4
Industries 9.5 8.9 -1.5 0.1 2.6 4.6 -11.7 8.0 9.8 4.6 3.4 -0.2 -1.3
Housing 12.1 7.8 3.0 5.6 8.2 -0.6 2.0 12.3 14.5 5.8 -0.2 0.0 0.9
General government 18.0 8.6 0.5 -11.4 4.2 1.0 10.5 1.9 -0.8 14.7 -4.8 3.6 3.7
Demand from Mainland Norway 1 4.5 3.9 2.6 2.3 3.2 3.1 1.4 4.5 3.8 3.9 2.8 2.8 3.1
Stockbuilding 2 0.8 0.4 -0.5 0.8 -1.2 -0.2 -0.3 1.1 0.2 0.2 0.0 0.0 0.0
Exports 7.7 0.6 2.8 4.0 5.0 -0.8 0.2 0.6 0.7 1.5 4.7 2.8 -0.1
Crude oil and natural gas 4.1 -5.8 0.4 4.1 8.8 1.9 -0.7 -0.7 -4.1 -4.1 9.1 4.3 -2.7
Traditional goods 7.6 5.4 2.2 5.1 1.5 0.4 4.4 3.4 5.8 5.0 1.9 1.9 2.4
Imports 12.4 8.5 -1.8 2.7 0.9 0.7 1.1 8.9 7.4 8.2 3.7 2.0 3.7
Traditional goods 8.5 9.0 -1.9 3.8 3.6 3.4 5.1 10.2 8.3 7.7 3.4 2.2 3.5
Gross domestic product 5.2 2.6 2.1 2.8 2.7 1.1 1.1 3.1 2.3 2.1 2.9 2.8 1.4
Mainland Norway 4.9 4.1 2.7 2.5 2.1 1.4 1.4 3.8 3.7 3.2 2.1 2.3 2.2
Manufacturing 3.6 -0.7 0.1 -0.8 -0.1 -0.1 2.9 4.7 2.4 3.2 0.7 -0.2 0.2
Labour market                          
Total hours worked, Mainland Norway 2.5 2.3 0.6 -0.7 -1.2 -1.2 -1.7 2.0 0.9 1.8 1.1 1.1 0.8
Employed persons 2.9 2.5 0.8 0.4 0.2 0.0 -1.1 0.4 0.7 2.5 1.0 0.6 1.0
Labor force 3 2.1 1.6 0.8 0.7 0.3 0.4 -0.5 0.4 0.8 1.3 1.0 0.8 0.8
Participation rate (level) 4 72.7 73.6 73.8 74.0 73.9 73.8 73.0 72.8 72.7 72.9 72.9 72.7 72.6
Unemployment rate (level) 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.5 4.6 3.4 3.3 3.5 3.3
Prices and wages                          
Wages per standard man-year 4.8 6.6 5.3 4.5 5.1 5.3 3.9 4.3 3.6 4.0 5.0 4.5 3.5
Consumer price index (CPI) 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.4 1.6 2.4 1.5 1.1 1.7
CPI-ATE 5 .. .. .. .. 2.6 2.3 1.1 0.3 1.0 0.8 1.7 1.6 1.8
Export prices, traditional goods -0.6 2.0 -0.4 9.9 -1.6 -8.9 -2.3 8.4 3.5 10.9 -3.2 -6.9 2.8
Import prices, traditional goods -1.2 1.1 -2.9 5.1 -0.7 -7.5 -0.3 4.5 0.4 2.3 -0.9 -2.3 1.3
Housing prices 6 10.9 9.7 9.4 14.1 7.2 4.0 1.6 10.1 7.9 12.8 5.1 2.9 2.8
Income, interest rates and excange rate                          
Household real income 3.8 5.6 2.7 3.5 -0.2 7.3 4.3 4.7 6.7 -5.7 5.5 4.9 3.1
Household saving ratio (level) 2.9 5.9 5.6 5.2 4.2 9.0 9.7 9.8 12.6 4.3 6.2 7.9 7.4
Money market rate (level) 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.2 3.1 3.8 3.8 3.8
Lending rate, banks (level) 7 5.9 7.9 8.1 8.2 8.8 8.5 6.0 4.1 3.9 4.3 4.9 4.9 4.9
Real after-tax lending rate, banks (level) 1.7 3.1 3.7 2.7 3.3 4.8 2.2 2.5 1.3 0.7 2.0 2.5 1.9
Importweighted krone exchange rate (44 countries) 8 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 3.0 -3.9 0.1 0.3 0.0 0.0
Current account                          
Current balance (bill. NOK) 70.5 0.5 66.4  228.9  235.2  193.9  204.3  233.0  316.5  390.0  368.8  321.3  295.3
Current balance (per cent of GDP) 6.3 0.0 5.4 15.6 15.4 12.8 13.0 13.6 16.6 18.6 17.2 14.9 13.4
International indicators                          
Exports markets indicator 9.3 8.5 6.7 11.6 0.7 1.2 3.0 7.0 6.2 7.9 4.8 1.6 2.9
Consumer price index, euro-area 1.6 1.1 1.1 2.3 2.1 2.3 2.1 2.1 2.2 2.3 2.0 1.8 1.8
3 mths. interest rate, euro 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.1 2.2 3.0 3.5 3.5 3.5
Crude oil price NOK (level) 9  135 96  142  252  219  197  205  257  351  423  360  312  312
 
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.
6   Freeholder.
7   Households' borrowing rate in private financial institutions. Yearly average.
8   Increasing index implies depreciation.
9   Average spot price Brent Blend.
Source:  Statistics Norway. The cut-off date for information was 12 September 2006. Published 14 September 2006.