Economic Survey 3-2001

The fear of a demand-driven increase in inflation has so far induced Norges Bank to maintain high interest rates. Changes in figures from the quarterly national accounts (QNA) in the first half of 2001 show no strong demand impulses. The level of activity in the mainland economy has been noticeably reduced and is now slightly below trend. Thus, it may be argued that the Norwegian economy is now experiencing a recession even though a precise specification of this is difficult. According to our estimates, however, growth as early as the turn of the year will be slightly higher than trend mainland GDP growth. For practical purposes we can therefore not characterize the situation in the Norwegian economy as an actual recession. Inflation in Norway is approximately on a par with the level abroad and is expected to remain moderate and lower in the projection period than in previous years. This will provide a basis for a slight decline in interest rates through 2002. However, domestic demand is expected to expand in the period ahead. The prospect of slightly stronger pressures in the Norwegian economy towards the end of the projection period and a further increase in the use of petroleum revenues in the following years are factors that may contribute to a relatively modest reduction in interest rates in Norway.