Economic trends for Norway and abroad

Low interest rates stimulate Norwegian economy

Published:

Norwegian economy probably passed a cyclical trough during the 2. quarter this year. The next two years will be marked by a moderate cyclical upswing. In the short term unemployment will continue to rise – but is expected to pass a peak early in 2004.

The coming economic upswing will first and foremost be urged on by an upswing in demand from households – the consumer growth for 2004 is estimated to be as much as 5 per cent. This is a reflection of the change of monetary policy in an expansive direction throughout 2003. Demand impulses from the fiscal policy will most likely be modest. In any case this goes for the contribution from production and employment in public sector. An expected upswing in international economy will contribute positively, but it is also expected to be relatively weak. Oil investments may offer some contributions to future growth, but this is as usual highly uncertain.

Lower interest rates – weaker NOK

The changing of the monetary policy must be looked at in connection with the marked strengthening of the NOK throughout 2001 and 2002. The strengthening of the NOK has contributed considerably to the fact that the underlying rate of inflation has fallen markedly throughout 2003, and has clearly come down below the inflation target. Many things indicate that both the monetary policy argumentation and the subsequent increase in interest rates last year supported long-term expectations of high interest rates in Norway relative to foreign countries, and with that contributed to the strong NOK. Correspondingly – the marked change in monetary policy has possibly contributed considerably to the clear weakening of the NOK throughout 2003.

Inflation will increase slightly

The weakening of the NOK will contribute to increased import prices. The effect on consumer prices will, however, in the short run be limited by a reduction in profit margins in the wholesale and retail trade sector – after a considerable increase in the period with a large drop in import prices. The change in economic trends points in the direction of a relatively strong growth in productivity, and the increase in employment is therefore expected to be modest in days ahead. Even if unemployment gradually will somewhat decline, unemployment will continue to be on a relatively high level – a little less than 4 ½ per cent. The growth in wages will therefore be moderate. Together with growth in productivity this will contribute to the growth in prices remaining below the inflation target.

Modest increase in interest rates next year

Interest rates are assumed to increase somewhat in the last part of 2004 and in 2005, along with a corresponding expected increase in interest rates in the Euro Area, and thereby keeping the rate of exchange for the NOK stable. This implies a more neutral monetary policy – adapted a continued weak – but nevertheless close to a balanced situation for economic cycles in 2005.

Main economic indicators 1996-2005. Accounts and forecasts. Percentage change from previous year unless
otherwise noted
 
      1996     1997     1998     1999     2000     2001*     2002* Forcasts
  2003 2004 2005
 
Demand and output                    
Consumption in households and non-profit organizations 6.5 3.2 2.7 3.3 3.9 2.6 3.6 3.3 5.0 3.4
General government consumption 3.1 2.5 3.3 3.2 1.3 2.7 3.2 1.4 1.4 0.9
Gross fixed investment 10.3 15.5 13.1 -5.6 -3.6 -4.2 -3.6 0.8 2.9 1.1
Extraction and transport via pipelines -5.7 24.9 22.2 -13.1 -23.0 -1.0 -4.6 16.4 7.0 0.0
Mainland Norway 11.5 11.8 8.6 -0.1 -1.2 0.7 -4.6 -1.8 0.5 2.3
Firms 18.1 9.4 8.9 -1.6 0.1 -1.4 -6.4 -2.0 -0.3 2.5
Housing 2.9 12.1 7.8 3.0 5.6 3.7 -4.2 -5.1 2.5 3.9
General government 5.0 18.0 8.6 0.5 -11.4 2.9 0.0 2.6 0.3 0.3
Demand from mainland Norway 1 6.5 4.5 3.9 2.6 2.3 2.3 2.1 2.0 3.4 2.6
Stockbuilding 2 -1.8 0.7 0.4 -0.5 0.8 -1.1 0.4 -0.5 0.0 0.0
Exports 10.2 7.7 0.6 2.8 4.0 4.1 -0.5 -1.4 2.4 1.4
Crude oil and natural gas 13.7 2.9 -4.4 -0.8 5.0 5.2 0.2 -1.9 1.3 -1.3
Traditional goods 10.5 8.6 3.5 4.0 2.5 3.7 1.3 0.4 3.3 4.2
Imports 8.8 12.4 8.5 -1.8 2.7 0.9 1.7 3.0 3.7 3.1
Traditional goods 10.5 8.4 9.2 -1.3 2.7 2.9 4.7 3.1 3.7 3.7
Gross domestic product 5.3 5.2 2.6 2.1 2.8 1.9 1.0 -0.1 3.0 1.6
Mainland Norway 4.2 4.9 4.1 2.7 2.5 1.7 1.3 0.4 3.3 2.3
Manufacturing 3.1 3.6 -0.7 0.1 -0.8 0.5 -0.7 -2.9 4.2 1.5
Labour market                    
Total hours worked, Mainland Norway 1.6 2.5 2.3 0.6 -0.7 -1.0 -1.0 -0.4 0.9 -0.1
Employed persons 2.0 2.9 2.5 0.8 0.4 0.5 0.2 -0.7 0.0 0.4
Labour force 2.0 2.1 1.6 0.8 0.7 0.6 0.6 -0.1 0.1 0.2
Participation rate (level) 3 71.4 72.7 73.6 73.8 74.0 74.1 74.1 73.5 73.0 72.6
Unemployment rate (level) 4.8 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.6 4.4
Prices and wages                    
Wages per standard man-year 4.4 4.8 6.5 5.4 4.5 5.0 5.4 4.4 4.1 3.9
Consumer price index (CPI) 1.2 2.6 2.3 2.3 3.1 3.0 1.3 2.7 1.0 1.9
CPI adjusted for tax changes and excluding energy products (CPI-ATE) .. .. .. .. .. 2.6 2.3 1.2 1.4 2.1
Export prices, traditional goods -1.6 0.0 1.1 0.5 12.6 -2.9 -8.7 0.7 7.2 1.8
Import prices, traditional goods -0.1 -1.2 1.2 -2.6 5.2 -0.2 -8.0 2.2 4.0 0.6
Housing prices 4 8.4 10.9 9.7 9.4 14.1 7.2 4.0 3.5 6.8 2.5
                     
Household real income 3.4 3.9 5.7 2.7 3.6 0.5 6.7 1.2 5.1 3.3
Household saving ratio (level) 2.3 2.9 5.9 5.6 5.2 4.0 7.2 5.2 5.4 5.4
Money market rate (level) 4.9 3.7 5.8 6.5 6.8 7.2 6.9 4.1 3.1 4.3
Lending rate, banks (level) 5 7.2 6.0 7.4 8.4 8.1 8.9 8.5 6.4 4.7 5.8
Lending rate, banks (level) 3.8 1.7 2.8 3.4 2.6 3.0 4.5 1.9 2.4 2.3
Importweighted krone exchange rate (44 countries) 6 -0.4 -0.4 2.5 -1.2 2.9 -3.1 -8.5 2.0 3.4 0.0
Current account                    
Current balance (bill. NOK) 70.7 70.5 0.5 66.4  228.9  238.5  200.6  167.1  156.0  165.0
Current balance (per cent of GDP) 6.9 6.3 0.0 5.4 15.6 15.6 13.2 10.8 9.8 10.0
International indicators                    
Exports markets indicator 4.7 8.3 10.3 6.7 11.3 0.2 0.2 3.0 5.6 6.5
Consumer price index, euro-area 2.1 2.0 1.5 1.2 2.3 2.1 2.3 2.0 2.0 2.0
3 months' interest rate, euro 4.4 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.4 3.5
Crude oil price NOK (level) 7  133.0  135.0 96.0  141.0  252.0  220.0  197.0  202.0  180.0  180.0
 
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) as a share of the population.
4   Freeholder.
5   Households' borrowing rate in private financial institutions.
6   Increasing index implies depreciation.
7   Average spot price Brent Blend.
*   Preliminary figures.