Protracted moderate upturn

A weak international growth outlook will also curb growth in Norway. Business investments in the mainland economy are therefore expected to make a considerably smaller contribution to the upturn than has been the case in the past. Growth in domestic demand will gradually be reduced, but this will, to some extent, be offset by a slight upturn in international growth.

Bleak international prospects

International growth is very weak and is still marked by the repercussions of the financial crisis and central government’s financial problems in many countries. The boost from a number of large emerging economies has also been reduced. From a very low level, we assume that growth among our trading partners will carefully pick up from next year. Not until 2015 will growth have reached a sufficient level to increase capacity utilisation and dampen unemployment. Impaired cost-related competitive power in Norway and poor international growth will lead to very moderate growth in Norwegian exports excluding petroleum, but developments in exports will pick up slightly going forward. The traditional export of goods is not expected to surpass the pre-financial crisis peak until 2015.

Low interest rates

Low international interest rates and a strong krone have contributed to a low base rate in Norway. The money market rate has now dropped to almost 2.0 per cent, where it is roughly expected to stay in the year ahead. From summer 2013, the base rate is expected to gradually increase, and the money market rate will increase to 4.3 per cent at the end of 2015. Interest on loans is then estimated at just over 5 per cent.

High real wage growth and low inflation

At 4.2 per cent, annual salary increases in 2012 are expected to be the same as last year. Widespread weak profitability in the internationally-exposed manufacturing industry is expected to lead to somewhat lower wage growth in 2013. Improvements in global economies and a slight fall in unemployment will subsequently contribute to a somewhat higher wage growth. High immigration levels in Norway are likely to have played a role in curbing inflation in some consumer-oriented industries and together with a strong krone this has contributed to low inflation. The annual average for the consumer price index is expected to increase by just 0.9 in 2012 –an assumption that is partly based on the fall in electricity prices experienced so far this year. The anti-inflationary effects of a stronger krone will gradually be exhausted. When price impulses from abroad gradually pick up and wage growth increases slightly, inflation will also gradually go up. In 2015, this may be strengthened by a slightly weaker krone, and we then expect inflation to be almost 2.5 per cent. Real wage growth will, nevertheless, remain relatively high in the years ahead, albeit slightly lower than in 2012.

High income growth in households pushing consumption up

High growth in real wages, employment and transfers are leading to a clear increase in households’ real incomes in 2012. A substantial part of income goes towards savings, and according to projections, these savings will make up more than 9 per cent of disposable income. However, there is still room for clear growth in consumption this year. Average interest on loans is expected to be lower in 2013 than 2012, and this will contribute to growth in income and consumption. Higher interest rates will thereafter curb income growth. We estimate that the uncertainty surrounding developments in the Norwegian and global economies will gradually be reduced. This will lead to a slightly lower savings rate for households, whereby consumption growth will remain stable despite a fall in income growth.

Continued high growth in housing prices

In the second quarter of 2012, housing prices were 23 per cent higher than before the financial crisis. The price growth is primarily a result of the large increase in the population, high growth in household income and low interest rates. Price developments in the resale of houses have led to a substantial increase in house building, and following a small break in growth in the first quarter of 2012, housing investments experienced strong growth in the second quarter. The prospect of a long period with low interest rates and high income growth means that growth in housing prices is likely to continue at around the same pace. Housing investments will also continue to rise, but the increase will be curbed at a later stage in the business cycle as a result of higher interest rates and increased building costs.

Strong cyclical impulses from the petroleum sector

Investments in the petroleum sector increased by more than 13 per cent in 2011, with the same level of growth expected this year. These investments are likely to remain high in the years ahead, but with much lower growth rates. Projections show that growth in the petroleum industry’s demand pushed up growth in mainland Norway’s GDP by 0.5 percentage points in 2011 and that the effects in 2012 and 2013 will be of the same magnitude.

Moderate expansive fiscal policy

Growth in public demand appears to be relatively modest this year. High growth in the transfers, however, means that the fiscal policy will nevertheless be roughly neutral. In the years ahead, slightly higher growth is expected in public demand and continued high growth in the transfers. The fiscal policy can thus be characterised as moderately expansive. Even with an assumed fall in the oil price going forward, central government’s oil revenues are considerable. The Government Pension Fund Global is therefore growing, and the assumed fiscal policy may mean a fall in the structural non-oil public deficit to almost 2.5 per cent of the Fund’s value in 2015.

Growth in employment and low unemployment

Employment has risen by almost 100 000 persons from the second quarter of 2010 to the corresponding quarter in 2012. The labour force has increased almost as much, so the fall in unemployment has been more moderate, from 3.6 per cent in 2010 to an estimated 3.1 per cent in 2012. The upturn in the economy will mean a continued increase in employment, but at a slightly slower rate. The large increase in population and the growing labour force participation is, however, expected to lead to the labour force increasing slightly more than the employment in the year ahead. Unemployment may therefore rise to 3.3 per cent next year, followed by a slight fall.