Economic trends for Norway and abroad

Oil and interest rates boost Norwegian economy

Published:

International recovery, increased oil investment and historically low interest rates have given a boost to the Norwegian economy. Continued growth in oil investment and low interest rates are likely to result in a high level of activity growth in Norway for several years to come.

Since the turnaround in the second quarter of last year, GDP for mainland Norway has increased by an annualised 3.4 per cent. Domestic demand has increased by more than that, resulting in a sharp rise in imports. In spite of a possible international slowdown at the end of 2005 and into 2006, the growth in output in Norway will continue, albeit at a slower pace. A further increase in oil investment is expected, and low interest rates will continue to fuel household consumption and housing investment. However, a marked fall in the saving ratio is anticipated, resulting in increased financial vulnerability. In the course of next year it is expected that the recovery will have pulled Norway out of the economic trough of the past few years, which never became very deep. Because a large part of the rising demand is covered by increased imports, the coming period of prosperity is not likely to be very strong.

Increased employment

The early stages of the recovery have seen few signs of rising employment, but the quarterly national accounts show a marked increase for the second quarter of this year. So far, there has only been a marginal fall in unemployment since the peak in the summer of 2003, but with the positive outlook for growth a gradual fall in unemployment from 4.5 per cent last year to 3.8 per cent in 2006 is expected.

Moderate rise in interest rates

The background for the low interest rates is that high productivity growth, moderate growth in wages and direct negative price impulses from imports have contributed to a sharp fall in inflation in Norway. Underlying inflation, as measured by the CPI adjusted for changes in taxes and excluding energy products (CPI-ATE), has been close to zero over the past year. It will probably take some time before the improvement of the labour market translates into increased wage growth. With the prospect of a new international slowdown, international commodity prices are not likely to rise much in the next few years, and a fall in oil prices down towards USD 32.5 is expected. Low prices of imports of manufactured goods from low cost countries such as China are expected to have an effect on import prices from other countries too. On the other hand, the weakening of the Norwegian krone over the past 18 months could have continued positive effects on inflation. A slight rise in interest rates is expected next year, in step with a corresponding rise in the euro zone. However, a rise in interest rates that only takes place in Norway does not seem likely if the inflation target is going to be reached within the three year period that Norges Bank now bases its monetary policy on.

Main economic indicators 1996-2006. Accounts and forecasts. Percentage change from previous year unless
otherwise noted
 
  1996 1997 1998 1999 2000 2001 2002* 2003* Forecasts
  2004 2005 2006
 
Demand and output                      
Consumption in households and non-profit organizations 6.5       3.2       2.7       3.3       3.9       1.8       3.6       3.8       5.0       4.7       5.1
General government consumption 3.1 2.5 3.3 3.2 1.3 5.8 3.1 1.4 3.1 1.7 1.8
Gross fixed investment 10.3 15.5 13.1 -5.6 -3.6 -0.7 -3.4 -3.7 8.4 4.7 4.4
Extraction and transport via pipelines -5.7 24.9 22.2 -13.1 -23.0 -4.1 -3.6 15.8 12.2 6.8 4.0
mainland Norway 11.5 11.8 8.6 -0.1 -1.2 4.3 -2.5 -4.7 5.7 3.5 4.5
Firms 18.3 9.3 8.9 -1.6 0.1 2.5 -3.7 -10.1 5.0 3.3 6.6
Housing 2.9 12.1 7.8 3.0 5.6 8.2 -2.3 -5.2 12.2 6.5 4.3
General government 5.0 18.0 8.6 0.5 -11.4 4.2 0.1 10.1 -0.1 0.3 0.0
Demand from Mainland Norway 1 6.5 4.5 3.9 2.6 2.3 3.2 2.4 1.7 4.6 3.7 4.1
Stockbuilding 2 -1.9 0.8 0.4 -0.5 0.8 -1.2 0.6 -0.3 0.4 0.0 0.0
Exports 10.2 7.7 0.6 2.8 4.0 5.0 0.1 1.2 1.5 3.5 2.2
Crude oil and natural gas 13.5 4.1 -5.8 0.4 4.1 8.8 2.2 -0.2 1.3 3.3 1.8
Traditional goods 10.6 7.6 5.4 2.2 5.1 1.5 1.6 2.6 3.1 4.8 1.4
Imports 8.8 12.4 8.5 -1.8 2.7 0.9 2.3 2.2 7.1 5.1 5.3
Traditional goods 10.3 8.5 9.0 -1.9 3.8 3.6 3.8 4.0 8.8 6.9 6.1
Gross domestic product 5.3 5.2 2.6 2.1 2.8 2.7 1.4 0.4 3.3 3.3 2.8
Mainland Norway 4.2 4.9 4.1 2.7 2.5 2.1 1.7 0.6 3.9 2.9 2.8
Manufacturing 3.1 3.6 -0.7 0.1 -0.8 -0.1 -0.8 -3.8 1.7 2.0 -0.1
Labour market                      
Total hours worked, Mainland Norway 1.6 2.5 2.3 0.6 -0.7 -1.2 -1.0 -1.1 1.3 0.4 0.4
Employed persons 2.0 2.9 2.5 0.8 0.4 0.2 0.3 -0.6 0.3 0.7 1.0
Labor force 3 2.0 2.1 1.6 0.8 0.7 0.3 0.7 0.0 0.1 0.5 0.8
Participation rate (level) 4 71.4 72.7 73.6 73.8 74.0 73.9 73.9 73.5 73.0 72.7 72.7
Unemployment rate (level) 4.8 4.0 3.2 3.2 3.4 3.5 3.9 4.5 4.3 4.0 3.8
Prices and wages                      
Wages per standard man-year 4.4 4.8 6.6 5.3 4.5 5.1 5.3 3.9 3.8 3.7 4.2
Consumer price index (CPI) 1.2 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.4 1.1 1.6
CPI adjusted for tax changes and excluding energy products (CPI-ATE) .. .. .. .. .. 2.6 2.3 1.1 0.2 1.3 2.0
Export prices, traditional goods -2.5 -0.6 2.0 -0.4 9.9 -1.6 -8.6 -1.2 6.8 1.1 -1.8
Import prices, traditional goods -0.1 -1.2 1.1 -2.9 5.1 -0.7 -7.4 0.7 3.9 0.4 -0.7
Housing prices 5 8.4 10.9 9.7 9.4 14.1 7.2 4.0 1.6 9.0 5.5 3.4
Income, interest rates and excange rate                      
Household real income 3.8 4.0 5.9 2.8 3.7 -0.2 8.8 2.1 5.5 3.0 3.1
Household saving ratio (level) 2.3 2.9 5.9 5.6 5.2 4.2 9.4 7.8 7.7 6.2 4.4
Money market rate (level) 4.9 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.4 2.3
Lending rate, banks (level) 6 7.2 6.0 7.4 8.4 8.1 8.9 8.5 6.6 4.2 4.4 4.4
Real after-tax lending rate, banks (level) 3.9 1.7 3.0 3.7 2.6 3.3 4.8 2.2 2.6 2.0 1.5
Importweighted krone exchange rate (44 countries) 7 -0.4 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 3.8 -0.1 -0.1
Current account                      
Current balance (NOK bill.) 70.7 70.5 0.5 66.4  228.9  235.2  196.1  201.2  249.2  253.3  241.5
Current balance (per cent of GDP) 6.9 6.3 0.0 5.4 15.6 15.4 12.9 12.9 14.7 14.3 13.1
International indicators                      
Exports markets indicator 7.3 9.8 7.8 7.5 11.8 -1.2 2.4 3.9 4.8 5.1 2.8
Consumer price index, euro-area 2.1 1.6 1.1 1.1 2.3 2.1 2.3 2.1 2.1 1.8 1.7
3 mths. interest rate, euro 4.4 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.1 2.4 2.3
Crude oil price NOK (level) 8  133  135 96  142  252  219  197  205  246  225  226
 
Source:  Statistics Norway. The cut-off date for information was 14 September 2004. Published 16 September 2004.