Economic trends for Norway and abroad

Low inflation and unemployment

Published:

The boom in the Norwegian economy continues. Production and employment have shown clear growth, and unemployment has fallen. Simultaneous to this, no significant indications have been seen of increased inflation or wage growth. However, the combination of slightly higher interest rates, a major reduction in the growth impetus from oil investments and a gradual poorer development in Norwegian export markets is expected to curb the future production growth.

Extremely low interest rates, strong growth in oil investments, fairly high growth in traditional Norwegian export markets, and an absence of clear growth-restricting impulses, have all contributed to a 3-year economic upswing in Norway. After an increase in Norges Bank’s benchmark rates of a total of 1 percentage point in the last 12 months, we anticipate a further increase of a half percentage point during the year. The oil investments are expected to increase further this year, but with a much lower measure of growth than last year. Strong growth over four years has taken the investments close to previous record highs, and we believe that a moderate downturn is just around the corner. The economic growth of our trading partners is currently good. We take our basis from a muted future growth, which together with lower prices of oil and other raw materials will contribute to somewhat lower inflation. Thus, the interest rate increases in the USA and Europe may cease.

The activity growth in the Norwegian economy may decline during the remainder of the year, however we estimate that GDP growth in Norway will be as high as 2.7 per cent this year compared with 3.4 per cent last year. Given the development of crucial driving forces as described above, we believe that the key interest rates could be stable during 2007-9. The activity growth in the mainland economy will thus fall further in 2007 and then remain roughly at its long-term trend. We anticipate that unemployment (LFS) will fall to an average of 3.8 per cent in 2006, and that it will remain at about this level in the years to come.

Low Norwegian cost increases have contributed to low inflation. Conditions indicate that future wage growth will remain stable, but productivity growth may decline somewhat in line with the slowdown of the production growth. The NOK strengthened during the spring. We believe that the oil price will remain high, but that it will fall next year to USD 50 per barrel. This could lead to the NOK staying approximately the same as the current level for the rest of the year, but with a moderate decline during 2007 and 2008. Inflation measured by growth in the Consumer Price Index (CPI), excluding energy prices and adjusted for taxation changes, was 1 per cent last year. This figure is expected to remain lower in 2006, but will increase somewhat next year, subsequently moving in the region of 1.5-2.0 per cent. After a substantial increase in the winter, household electricity prices have now started to fall. However, on an annualised basis, conditions may exist for a considerable increase in the energy prices, whereby the growth in the CPI could reach 2.1 this year.

Main economic indicators. Accounts and forecasts. 1997-2009. 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 3.7 3.4 3.1 3.5
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 3.8 3.5
Gross fixed investment 15.5 13.1 -5.6 -3.6 -0.7 -1.0 0.2 8.1 10.9 8.7 -1.7 -0.4 0.2
Extraction and transport via pipelines 24.9 22.2 -13.1 -23.0 -4.1 -5.3 16.1 7.8 15.6 8.1 -8.0 -0.7 0.0
Mainland Norway 11.8 8.6 -0.1 -1.2 4.3 2.5 -3.7 7.8 8.8 7.6 0.1 -0.2 0.7
Industries 9.5 8.9 -1.5 0.1 2.6 4.6 -11.7 8.0 9.8 6.5 3.5 -1.3 -0.5
Housing 12.1 7.8 3.0 5.6 8.2 -0.6 2.0 12.3 14.5 4.6 -0.9 -1.0 0.0
General government 18.0 8.6 0.5 -11.4 4.2 1.0 10.5 1.9 -0.8 14.6 -5.9 3.6 4.5
Demand from Mainland Norway 1 4.5 3.9 2.6 2.3 3.2 3.1 1.4 4.5 3.8 4.0 2.6 2.7 3.0
Stockbuilding 2 0.8 0.4 -0.5 0.8 -1.2 -0.2 -0.3 1.1 0.2 0.0 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 0.5 4.1 2.9 2.0
Crude oil and natural gas 4.1 -5.8 0.4 4.1 8.8 1.9 -0.7 -0.7 -4.1 -2.7 7.5 3.8 1.0
Traditional goods 7.6 5.4 2.2 5.1 1.5 0.4 4.4 3.4 5.8 3.9 2.6 2.4 3.2
Imports 12.4 8.5 -1.8 2.7 0.9 0.7 1.1 8.9 7.4 7.8 2.3 2.8 3.8
Traditional goods 8.5 9.0 -1.9 3.8 3.6 3.4 5.1 10.2 8.3 6.1 2.8 2.4 3.7
Gross domestic product 5.2 2.6 2.1 2.8 2.7 1.1 1.1 3.1 2.3 1.9 2.6 2.5 2.1
Mainland Norway 4.9 4.1 2.7 2.5 2.1 1.4 1.4 3.8 3.7 2.7 1.8 2.3 2.3
Manufacturing 3.6 -0.7 0.1 -0.8 -0.1 -0.1 2.9 4.7 2.4 2.3 -0.2 0.6 1.3
                           
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 1.7 0.9 1.1 0.9
Employed persons 2.9 2.5 0.8 0.4 0.2 0.0 -1.1 0.4 0.7 2.1 0.7 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 0.8 0.7 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 72.8 72.5 72.4
Unemployment rate (level) 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.5 4.6 3.8 3.9 3.9 3.7
                           
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 3.9 4.0 3.7 4.0
Consumer price index (CPI) 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.4 1.6 2.1 1.2 1.5 1.9
CPI-ATE 5 .. .. .. .. 2.6 2.3 1.1 0.3 1.0 0.9 1.6 1.8 1.9
Export prices, traditional goods -0.6 2.0 -0.4 9.9 -1.6 -8.9 -2.3 8.4 3.5 6.0 -3.9 -3.3 0.0
Import prices, traditional goods -1.2 1.1 -2.9 5.1 -0.7 -7.5 -0.3 4.5 0.4 0.3 -1.2 0.7 0.8
Housing prices 6 10.9 9.7 9.4 14.1 7.2 4.0 1.6 10.1 7.9 7.2 3.3 3.4 1.8
                           
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 -4.7 4.3 2.9 2.6
Household saving ratio (level) 2.9 5.9 5.6 5.2 4.2 9.0 9.7 9.8 12.6 5.2 6.4 6.2 5.4
Money market rate (level) 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.2 3.0 3.5 3.5 3.5
Lending rate, banks (level) 7 6.0 7.4 8.4 8.1 8.9 8.5 6.6 4.2 4.0 4.4 5.0 5.1 5.1
Real after-tax lending rate, banks (level) 1.7 3.0 3.7 2.6 3.3 4.8 2.3 2.6 1.3 1.0 2.4 2.1 1.8
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 -1.5 -0.2 1.8 0.2
                           
Current account                          
Current balance, NOK billion) 70.5 0.5 66.4  228.9  235.2  193.9  204.3  233.0  316.5  387.0  405.5  314.4  295.9
Current balance (per cent of GDP) 6.3 0.0 5.4 15.6 15.4 12.8 13.0 13.6 16.6 18.4 18.9 14.8 13.5
                           
International indicators                          
Exports markets indicator 9.4 8.6 7.0 11.7 0.8 1.3 2.6 7.1 5.2 6.4 4.5 2.1 3.2
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 1.9 1.7 1.7
3 months 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  428  370  308  308
 
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 13 June 2006. Published 15 June 2006.