Economic trends for Norway and abroad

Healthy growth, low inflation and falling unemployment

Published:

The current cyclical upturn in the Norwegian economy will continue in the next years. The level of unemployment, which reached 4.7 per cent last summer, will gradually fall to 3.8 per cent in 2006. Consumer price growth will pick up, but stay below the inflation target.

An expansionary monetary policy is the main driving force behind the cyclical upturn, but the moderate international upturn also fuels the Norwegian economy. In the final three quarters of 2003 the growth in seasonally adjusted GDP for mainland Norway equalled an annualised growth rate of 3.6 per cent.

In addition to increasing household demand, the interest cuts have resulted in a weaker NOK. Though the weakening of the NOK has not yet translated into increased consumer price growth, inflation is expected to reach almost 2 per cent towards the end of 2004 and 2.5 per cent in 2006. The money market rate is expected to approach 2.5 per cent next winter. With the prospect of moderate inflation impulses, the interest rate is expected to stay low in the next few years.

Low real rate of interest fuels household consumption

A low real rate of interest after tax will contribute to a relatively steep growth in household consumption and housing investments, in the range of 4-5 per cent per year. Strong consumption growth relative to income growth contributes to a fall in the household savings rate from 7.5 per cent in 2003 to 2.2 per cent in 2006, a rate which was last observed during the cyclical upturn of 1996-97. Household net financial investments will fall even more and may become negative in 2005 and 2006, though still considerably higher as a share of disposable income than was the case at the end of the 1980s.

Expected growth in GDP for mainland Norway

Growth in consumption and housing investments, together with increased exports in 2004 and non-residential investments in 2005, will lead to GDP growth for mainland Norway at 3.6 and 2.8 per cent in 2004 and 2005 – growth rates which are well above the trend growth. In 2006, it is expected that an international cyclical slow-down will contribute to reduced export growth while at the same time domestic demand will level out to some extent. Consequently, growth in the mainland economy will slow down to 2.3 per cent, in line with estimated trend growth. In the next years growth will mainly take place in the service industries, as manufacturing will still face cost problems compared to competitors abroad.

Unemployment will drop

As the production growth gains a foothold, employment growth is expected to reach approximately 1 per cent, compared with almost zero growth this year. Consequently, unemployment will fall from 4.4 per cent in 2004 to 4.0 and 3.8 per cent in 2005 and 2006. The growth in wages per man-year is expected to be almost 4 per cent throughout the period. The production gap – the difference between actual and estimated trend level for GDP for mainland Norway – is expected to be bridged in 2004, returning the Norwegian economy to a more neutral cyclical position in 2005 and 2006.

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 3.7 5.2 5.1 4.2
General government consumption 3.1 2.5 3.3 3.2 1.3 5.8 3.1 1.3 2.4 1.8 1.6
Gross fixed investment 10.3 15.5 13.1 -5.6 -3.6 -0.7 -3.4 -2.5 3.4 2.9 1.5
Extraction and transport via pipelines -5.7 24.9 22.2 -13.1 -23.0 -4.1 -3.6 15.8 3.8 2.8 -4.1
mainland Norway 11.5 11.8 8.6 -0.1 -1.2 4.3 -2.5 -4.9 2.2 3.7 3.4
Firms 18.1 9.4 8.9 -1.6 0.1 2.5 -3.7 -8.3 0.5 4.2 3.9
Housing 2.9 12.1 7.8 3.0 5.6 8.2 -2.3 -4.3 5.1 4.3 3.8
General government 5.0 18.0 8.6 0.5 -11.4 4.2 0.1 2.9 2.6 2.0 2.0
Demand from Mainland Norway 1 6.5 4.5 3.9 2.6 2.3 3.2 2.4 1.6 4.0 4.0 3.4
Stockbuilding 2 -1.9 0.8 0.4 -0.5 0.8 -1.0 0.4 -0.7 0.0 0.0 0.0
Exports 10.2 7.7 0.6 2.8 4.0 5.0 0.1 0.1 1.9 1.8 1.6
Crude oil and natural gas 13.5 4.1 -5.8 0.4 4.1 8.8 2.2 -0.5 0.3 0.2 0.6
Traditional goods 10.6 7.6 5.4 2.2 5.1 1.5 1.6 2.5 6.1 3.8 2.7
Imports 8.8 12.4 8.5 -1.8 2.7 0.9 2.3 1.8 5.1 5.9 4.0
Traditional goods 10.3 8.5 9.0 -1.9 3.8 3.6 3.8 4.1 5.2 6.3 4.8
Gross domestic product 5.3 5.2 2.6 2.1 2.8 2.7 1.4 0.3 2.8 2.3 2.0
Mainland Norway 4.2 4.9 4.1 2.7 2.5 2.1 1.7 0.7 3.6 2.8 2.3
Manufacturing 3.1 3.6 -0.7 0.1 -0.8 -0.1 -0.8 -3.6 2.9 0.9 -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 1.0 0.5 0.4
Employed persons 2.0 2.9 2.5 0.8 0.4 0.2 0.3 -0.6 0.2 0.9 1.0
Labor force 3 2.0 2.1 1.6 0.8 0.7 0.3 0.7 0.0 0.0 0.5 0.9
Participation rate (level) 4 71.4 72.7 73.6 73.8 74.0 73.9 73.9 73.4 72.9 72.7 72.7
Unemployment rate (level) 4.8 4.0 3.2 3.2 3.4 3.5 3.9 4.5 4.4 4.0 3.8
Prices and wages                      
Wages per standard man-year 4.4 4.8 6.5 5.4 4.5 5.1 5.3 3.8 3.7 3.8 4.0
Consumer price index (CPI) 1.2 2.6 2.3 2.3 3.1 3.0 1.3 2.5 0.7 1.7 2.3
CPI adjusted for tax changes and excluding energy products (CPI-ATE) .. .. .. .. .. 2.6 2.3 1.1 1.0 1.9 2.3
Export prices, traditional goods -2.5 -0.6 2.1 -0.5 10.0 -1.6 -8.6 -1.1 5.6 0.3 0.2
Import prices, traditional goods -0.1 -1.3 1.2 -2.9 5.1 -0.7 -7.4 0.6 3.6 0.0 0.9
Housing prices 5 8.4 10.9 9.7 9.4 14.1 7.2 4.0 1.6 4.8 4.1 4.6
Income, interest rates and excange rate                      
Household real income 3.4 3.8 5.7 2.8 3.6 -0.2 8.8 1.7 3.7 2.6 2.9
Household saving ratio (level) 2.3 2.9 5.9 5.6 5.2 4.2 9.4 7.5 5.7 3.4 2.2
Money market rate (level) 4.9 3.7 5.8 6.5 6.8 7.2 6.9 4.1 1.9 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 4.3 4.7 4.7
Real after-tax lending rate, banks (level) 3.8 1.7 2.8 3.3 2.4 2.9 4.4 1.7 2.4 1.7 1.1
Importweighted krone exchange rate (44 countries) 7 -0.4 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 5.9 -0.9 0.3
Current account                      
Current balance (bill. NOK) 70.7 70.5 0.5 66.4  228.9  235.2  196.1  202.7  200.3  192.4  192.6
Current balance (per cent of GDP) 6.9 6.3 0.0 5.4 15.6 15.4 12.9 12.9 12.3 11.3 10.9
International indicators                      
Exports markets indicator 4.7 8.3 10.3 6.7 11.3 0.1 0.2 3.1 6.2 5.3 3.4
Consumer price index, euro-area 2.1 2.0 1.5 1.2 2.1 2.4 2.3 2.1 1.6 1.5 1.5
3 mths. interest rate, euro 4.4 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.2 2.5 2.3
Crude oil price NOK (level) 8  133  135 96  142  252  219  197  205  201  196  200
 
1   Consumption in households and non-profit organizations + general government consumption + gross fixed capital formation in mainland Norway.
2   Change in stockbuilding. Per cent of GDP.
3   Unemployed (Labour Force Survey) and employment (NA) exclusive of foreigners in foreign shipping.
4   Unemployed (Labour Force Survey) and employment (NA) exclusive of foreigners in foreign shipping as a share of the average population.
5   Freeholder.
6   Households' borrowing rate in private financial institutions. Yearly average.
7   Increasing index implies depreciation.
8   Average spot price Brent Blend.
*   Preliminary figures.
Source:  Statistics Norway. The cut-off date for information was 9 March 2004. Published 11 March 2004.