Faster economic growth ahead

Higher production and demand

Preliminary figures from the quarterly national accounts (QNA) show a seasonally adjusted upswing of 0.5 per cent in Mainland Norway's gross domestic product from fourth quarter last year to first quarter this year. The relatively strong growth in demand from Mainland Norway throughout 1999 also appears to have continued into this year, with consumption and investments both serving as significant stimulants. Exports of traditional goods and investments in oil operations did, however, decline slightly compared with the level in fourth quarter last year.

Employment seems to have changed little from fourth quarter last year to first quarter this year, and is on a par with the close of 1998. The labour force has, however, increased somewhat faster than employment in the last year, and unemployment is now about ½ a percentage point higher than at the end of 1998/start of 1999. There are still signs of geographic and sector imbalances in the labour market, with a tight labour market prevailing in most service industries and declining employment in oil-related industries in Western Norway.

The consumer price index increased by 2.8 per cent from January to April last year to the same period this year. Measured on a 12-month basis, inflation was, however, clearly lower in March-April than in the two preceding months, but was almost one percentage point higher than in the EU.

Higher growth than last year

All things considered, several factors will cause the economy to grow somewhat faster this year compared with last year. Economic expansion among Norway's main trading partners indicates somewhat higher increases in exports of traditional goods this year compared with last year. The decline in real interest rates from last year to this year may give a small boost to household spending. In addition, it looks like the upswing in housing investments will put the plus back into investments in Mainland Norway after declining from 1998 to 1999. The growth in demand will, however, be tempered somewhat by further declines in oil investments. The growth in household spending could edge downwards next year in the wake of a jump in interest rates. With a virtual flattening of oil investments the growth in Mainland Norway's gross domestic product could nevertheless be about the same as this year. This means that growth will still be relatively moderate.

Labour market still tight

The agreed increase in the number of vacation days over the next few years will not in isolation increase demand for labour at a time of few available resources. The pressure on the labour market could nonetheless be dampened moderately as the result of higher productivity gains compared with previous years. A high investment level in the second half of the 1990s, a high level of education and gradually increasing experience of the many new persons who have entered the labour market are driving this trend. Employment growth could consequently be moderate both this and next year. With a further small increase in the labour force this could produce a slight increase in unemployment. The situation in the labour market will probably remain so tight that further increases in demand could quickly translate into higher pressure on wages. The same could happen if productivity trends or growth in the labour force are weaker than expected.

Lower inflation next year

This year's pay settlement indicates that wage growth per normal full-time equivalent will be around four per cent both this and next year. In addition, the business community will incur additional costs relating to the expansion of vacation days over the next two years. The upswing in the price of oil from last year to this year and a somewhat weaker krone will push the inflation rate up slightly over last year, and will be almost a percentage point higher than in the euro area. Somewhat lower oil prices and a strengthening of the krone in relation to the currencies of our trading partners indicate clearly lower inflation next year.

Huge balance of payments surplus

Even with a considerable future decline in the price of oil, surpluses in the current account and in the national accounts will be very large in both 2000 and 2001. This must be viewed in light of oil operations which are now in a harvesting phase.