Economic trends for Norway and abroad

Economic upswing – low price growth

Published:

The Norwegian economy is recovering. Production growth is strong and the labour market is showing signs of improvement. The upswing is expected to be strong throughout 2004 but will be more moderate in 2005 and 2006. Inflation is expected to remain low despite the increased economic activity.

Increased oil investments and aggressive interest cuts are the main driving forces behind the upturn in the Norwegian economy. The interest cuts led to a marked increase in household consumption in the second and third quarter. The weakening of the NOK that followed in the wake of the interest cuts has, to some extent, reversed the effects of the strong NOK in 2002. These impulses are expected to remain for some time ahead. Furthermore, the international recovery that now seems evident will strengthen growth in the Norwegian economy in the next two years. The impulses from the fiscal policy are expected to be moderate.

Mainland production growth is estimated at 3.6 per cent in 2004, 2.9 per cent in 2005 and 2.6 per cent in 2006. The growth in household consumption will be particularly strong at 5 per cent in 2004 and 4.5 in 2005 and 2006. Unemployment is expected to fall from 4.5 per cent in 2003 to 3.9 per cent in 2006.

Low inflation

Despite the evident economic upswing, inflation is expected to remain low. This seems to be a common feature for industrialised countries and should be viewed in conjunction with increased imports of goods and services from low-cost countries. On Norway's part, lower wage growth, resulting from lower profitability and the recent high unemployment rate, also contributes to this picture. It may therefore seem difficult to reach the inflation target of 2.5 per cent in the next three years unless further interest cuts lead to a marked weakening of the NOK. A weaker NOK will contribute positively to industries exposed to foreign competition and will result in faster employment growth. The combination of an interest rate that is too low and a consumer-driven upswing may, on the other hand, create imbalances in the economy that may become difficult to control in the longer run.

On this background, no further interest cuts are expected, but at the end of next year interest rates are expected to go up in parallel with increased rates internationally. This does however mean that the rate increase is postponed and becomes weaker than previously expected. Based on a value of the NOK at 8.2 against the euro, this will lead to consumer price growth of approximately 1.5 per cent in 2004 and 2 per cent in 2005 and 2006.

Main economic indicators 1996-2006. Accounts and forecasts. Percentage change from previous year unless
otherwise noted
 
  1996     1997     1998     1999     2000     2001*     2002* Forecasts
  2003 2004 2005 2006
 
Demand and output                      
Consumption in households and non-profit organizations 6.5 3.2 2.7 3.3 3.9 2.6 3.6 3.2 5.1 4.4 4.3
General government consumption 3.1 2.5 3.3 3.2 1.3 2.7 3.2 1.9 2.1 1.7 1.4
Gross fixed investment 10.3 15.5 13.1 -5.6 -3.6 -4.2 -3.6 -1.2 1.8 3.2 3.1
Extraction and transport via pipelines -5.7 24.9 22.2 -13.1 -23.0 -1.0 -4.6 17.7 4.4 1.0 -0.3
mainland Norway 11.5 11.8 8.6 -0.1 -1.2 0.7 -4.6 -5.1 0.3 4.8 4.5
Firms 18.1 9.4 8.9 -1.6 0.1 -1.4 -6.4 -8.8 0.3 4.3 5.1
Housing 2.9 12.1 7.8 3.0 5.6 3.7 -4.2 -7.3 -1.4 8.6 5.5
General government 5.0 18.0 8.6 0.5 -11.4 2.9 0.0 6.8 2.0 2.0 2.0
Demand from mainland Norway 1 6.5 4.5 3.9 2.6 2.3 2.3 2.1 1.5 3.6 3.7 3.6
Stockbuilding 2 -1.8 0.7 0.4 -0.5 0.8 -1.1 0.4 -0.5 0.0 0.0 0.0
Exports 10.2 7.7 0.6 2.8 4.0 4.1 -0.5 -1.1 2.2 1.4 1.2
Crude oil and natural gas 13.7 2.9 -4.4 -0.8 5.0 5.2 0.2 -1.4 0.7 -0.7 -0.4
Traditional goods 10.5 8.6 3.5 4.0 2.5 3.7 1.3 0.7 4.9 3.4 2.1
Imports 8.8 12.4 8.5 -1.8 2.7 0.9 1.7 1.9 4.2 4.3 4.4
Traditional goods 10.5 8.4 9.2 -1.3 2.7 2.9 4.7 2.9 3.9 4.6 4.7
Gross domestic product 5.3 5.2 2.6 2.1 2.8 1.9 1.0 0.0 2.8 2.2 2.0
Mainland Norway 4.2 4.9 4.1 2.7 2.5 1.7 1.3 0.6 3.6 2.9 2.6
Manufacturing 3.1 3.6 -0.7 0.1 -0.8 0.5 -0.7 -2.8 4.2 2.4 0.5
Labour market                      
Total hours worked, Mainland Norway 1.6 2.5 2.3 0.6 -0.7 -1.0 -1.0 -1.1 1.1 0.3 0.3
Employed persons 2.0 2.9 2.5 0.8 0.4 0.5 0.2 -0.8 0.2 0.7 0.9
Labor force 3 2.0 2.1 1.6 0.8 0.7 0.6 0.6 -0.2 0.1 0.5 0.6
Participation rate (level) 4 71.4 72.7 73.6 73.8 74.0 74.1 74.1 73.4 72.9 72.7 72.5
Unemployment rate (level) 4.8 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.4 4.2 3.9
Prices and wages                      
Wages per standard man-year 4.4 4.8 6.5 5.4 4.5 5.0 5.4 4.2 4.2 4.1 4.1
Consumer price index (CPI) 1.2 2.6 2.3 2.3 3.1 3.0 1.3 2.6 1.3 1.8 1.8
CPI adjusted for tax changes and excluding energy products (CPI-ATE) .. .. .. .. .. 2.6 2.3 1.1 1.5 2.1 2.1
Export prices, traditional goods -1.6 0.0 1.1 0.5 12.6 -2.9 -8.7 -0.6 6.1 1.8 -1.5
Import prices, traditional goods -0.1 -1.2 1.2 -2.6 5.2 -0.2 -8.0 0.9 4.4 0.3 -0.3
Housing prices 5 8.4 10.9 9.7 9.4 14.1 7.2 4.0 3.7 6.3 7.3 7.3
Income, interest and foreign currency                      
Household real income 3.4 3.9 5.7 2.7 3.6 0.5 6.7 1.0 4.9 3.4 3.6
Household saving ratio (level) 2.3 2.9 5.9 5.6 5.2 4.0 7.2 5.0 5.1 4.2 3.7
Money market rate (level) 4.9 3.7 5.8 6.5 6.8 7.2 6.9 4.1 3.0 3.4 3.3
Lending rate, banks (level) 6 7.2 6.0 7.4 8.4 8.1 8.8 8.4 6.7 4.9 5.0 5.0
Real after-tax lending rate, banks (level) 3.8 1.7 2.8 3.3 2.5 2.9 4.4 2.1 2.3 1.8 1.8
Importweighted krone exchange rate (44 countries) 7 -0.4 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 2.8 -0.1 0.4
Current account                      
Current balance (NOK billion) 70.7 70.5 0.5 66.4  228.9  238.5  200.6  197.2  172.4  163.5  155.5
Current balance (per cent of GDP) 6.9 6.3 0.0 5.4 15.6 15.6 13.2 12.7 10.8 9.9 9.0
International indicators                      
Exports markets indicator 4.7 8.3 10.3 6.7 11.3 0.2 0.2 4.0 6.9 5.2 3.4
Consumer price index, euro-area 2.1 2.0 1.5 1.2 2.3 2.1 2.3 2.1 1.6 1.6 1.6
3 mths. interest rate, euro 4.4 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.2 2.6 2.5
Crude oil price NOK (level) 8  133  135 96  141  252  220  197  204  186  180  183
 
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 sailors in foreign shipping.
4   Unemployed (Labour Force Survey) and employment (NA) exclusive of sailors in foreign shipping as a share of the population.
5   Freeholder.
6   Households' borrowing rate in private financial institutions.
7   Increasing index implies depreciation.
8   Average spot price Brent Blend.
*   Preliminary figures.
Source:  Statistics Norway. The cut-off date for information was 9 December 2003. Published 11 December 2003.