Economic Survey 2-2006

The cyclical upturn in the Norwegian economy is continuing with growth slightly higher than trend-growth, increasing employment and a fall in unemployment. Underlying consumer price inflation is low and even falling, although higher energy prices and indirect tax increases brought the overall rise in consumer prices to 2 per cent in the first quarter. Fiscal policy has not generated any significant new impulses to the Norwegian economy in 2006, while monetary policy has been gradually tightened. However, the interest rate level is still low both in nominal terms and not least in real terms. The krone exchange rate has appreciated considerably and is now amplifying the mild contractionary impulses stemming from the interest rate increases. Wage settlements have so far remained within the limits that have been widely expected. Total wage growth is set to be about 4 per cent in 2006. Against this background, it is not likely with a nearterm increase in inflation unless energy prices should rise further from the current high level or the krone should depreciate markedly. With approximately unchanged or slightly lower energy prices ahead, inflation in Norway will soon fall below 2 per cent. Several of the driving forces behind the cyclical upturn in Norway over the past three years are expected to bring down output growth to a more moderate level through 2006 than the level prevailing in the two preceding years.