Economic Survey 2-2005

The Norwegian economy is now in an expansionary period after an upturn lasting about two years. Quarterly national accounts figures for the first quarter show that mainland output growth is well above trend in the first quarter of 2005, while a number of production disruptions in the petroleum sector have contributed to clearly weaker overall growth in GDP. The outlook for the rest of the year indicates that the upturn will continue to end-2005. A sharp increase in petroleum investment, a very expansionary monetary policy, positive fiscal impulses and an international upturn, albeit weak, have contributed to the upturn in Norway. Consumer price inflation was very low at the beginning of 2005, but now appears to be showing signs of edging up in line with previous projections. The recent appreciation of the krone, however, has generated substantial uncertainty around the outlook for inflation. Should the current exchange rate remain high for a long period, it can virtually be ruled out that the inflation target will be reached, even within a three-year horizon. In spite of a marked upturn, employment growth has been moderate and unemployment has shown only a modest reduction. There is little indication of any general labour market pressures. This year's wage settlement has been completed without any conflicts and with moderate nominal pay increases. Nonetheless, wage developments imply that real wage growth will be high in 2005.