Economic trends for Norway and abroad

Strong growth in the Norwegian economy

Published:

The high growth in the Norwegian economy has continued, and conditions indicate that the GDP in Mainland Norway will grow by more than 4 per cent in 2006 for the third year in a row. Strong employment growth has significantly reduced the unemployment, almost to the level experienced during the peak in the economy at the end of the 1990s. The utilisation of capacity is now very high, which combined with the slower international growth and higher Norwegian interest rates means that we anticipate a slowdown in future growth. A more expansive fiscal policy and an increase in oil investments will, however, mean that growth will continue to be relatively high and that unemployment will fall further.

High international growth, increased oil investments, low interest rates and a somewhat more expansive fiscal policy are all key factors behind more than three years of economic recovery in Norway. The majority of industries in Norway have experienced a strong development. In response to the activity growth, Norges Bank increased the key interest rate by 1.75 percentage points during the course of one and a half years; most recently on 13 December by 0.25 percentage points.

Our growth outlook has been revised upwards in relation to our last report on economic trends. Greater demand from the petroleum sector and public sector are two of the reasons for this. Combined with other factors, this leads us to believe that Norges Bank will raise the interest rate more than we previously anticipated. We expect the key interest rate to be increased by a further 0.5 percentage points and that the money market interest rate will thus reach around 4.25 per cent from the second half of 2007, but it will remain at this level for some time. As in the past, we have based our assumptions on a moderate economic downturn in the USA in 2007 and 2008, and on the development in the EU also being moderate next year. We assume that the combination of a reduction in international interest rates and increasing Norwegian interest rates will lead to a strengthening of the NOK, even though a lower oil price is pulling in the opposite direction. The interest rate increase will contribute to a suppression of activity growth. The ensuing strengthening of the NOK in particular will play a role in inflation not reaching Norges Bank’s target of 2.5 per cent within our analysis perspective.

Despite several years of economic recovery, inflation and wage growth have so far been moderate. The tightening of the labour market is expected to contribute to an increase in wage growth. An expected fall in energy prices will nevertheless contribute to the Consumer Price Index as a whole experiencing very modest growth next year. Real wage growth will thus reach 4.5 per cent in 2007, according to our calculations. A growth rate of this magnitude has not been seen since the first half of the 1970s. Subsequently, we believe that the international development and strengthening of the NOK will lead to both nominal and real wage growth being somewhat suppressed.

Main economic indicators 1997-2009. Accounts and forecasts. Percentage change from previous year unless otherwise noted
 
        1997       1998       1999       2000       2001       2002       2003       2004       2005* Forecasts
      2006     2007     2008     2009
 
Demand and output                          
Consumption in households etc. 3.1 2.8 3.7 4.2 2.1 3.1 2.8 5.6 3.3 4.1 3.6 3.2 3.4
General government consumption 3.3 3.4 3.1 1.9 4.6 3.1 1.7 1.5 1.8 1.9 2.9 3.8 3.7
Gross fixed investment 15.8 13.6 -5.4 -3.5 -1.1 -1.1 0.2 10.2 11.2 9.2 4.2 3.0 4.4
Extraction and transport via pipelines 24.8 22.2 -13.0 -22.9 -4.6 -5.4 15.9 10.2 19.3 6.7 5.0 4.6 7.0
mainland Norway 12.2 9.4 0.2 -1.4 3.9 2.3 -3.6 9.3 9.2 8.3 4.7 2.8 4.2
Industries 10.1 10.4 -1.0 -0.4 2.5 4.0 -11.6 8.4 10.3 11.0 7.6 4.5 5.7
Housing 12.1 7.7 3.0 5.6 8.1 -0.7 1.9 16.3 14.5 5.6 -0.7 -0.6 1.9
General government 18.0 8.5 0.4 -11.2 2.7 1.7 10.4 2.5 -0.4 6.4 6.2 3.4 3.6
Demand from Mainland Norway 1 4.7 4.2 2.9 2.6 3.0 3.0 1.4 5.0 3.9 4.2 3.6 3.2 3.6
Stockbuilding 2 1.0 0.4 -1.0 1.2 -1.3 0.1 -0.2 1.2 0.5 0.8 0.0 0.0 0.0
Exports 7.8 0.7 2.8 3.2 4.3 -0.3 -0.2 1.1 0.6 0.6 4.6 3.8 0.7
Crude oil and natural gas 4.1 -5.8 0.4 3.8 6.6 2.4 -0.6 -0.5 -5.0 -5.2 6.3 6.2 -2.2
Traditional goods 7.5 5.5 2.3 3.3 1.8 0.6 2.9 3.4 5.2 5.6 1.8 1.3 2.4
Imports 12.5 8.8 -1.6 2.0 1.7 1.0 1.4 8.8 8.6 8.6 6.0 4.2 4.5
Traditional goods 8.5 9.3 -1.9 2.5 4.5 3.0 5.2 10.9 8.2 9.4 6.7 3.3 4.5
Gross domestic product 5.4 2.7 2.0 3.3 2.0 1.5 1.0 3.9 2.4 2.5 3.1 3.1 2.0
Mainland Norway 5.2 4.1 2.6 2.9 2.0 1.4 1.3 4.4 4.1 4.2 2.4 2.4 2.8
Manufacturing 4.4 -0.9 0.1 -0.6 -0.5 -0.4 3.0 5.7 2.2 4.1 2.6 -0.8 -0.1
Labour market                          
Total hours worked, Mainland Norway 2.5 2.5 0.8 -0.7 -0.9 -0.9 -2.1 1.7 1.2 2.1 1.7 1.3 1.0
Employed persons 2.9 2.7 0.9 0.6 0.4 0.4 -1.0 0.5 1.0 2.9 1.7 0.9 1.5
Labor force 3 2.1 1.7 0.9 0.9 0.5 0.7 -0.4 0.5 1.1 1.7 1.3 0.9 1.2
Participation rate (level) 4 72.9 73.9 74.2 74.4 74.5 74.6 73.8 73.6 73.8 74.3 74.5 74.4 74.6
Unemployment rate (level) 4.0 3.2 3.2 3.4 3.6 3.9 4.5 4.5 4.6 3.5 3.0 3.0 2.7
Prices and wages                          
Wages per standard man-year 4.8 6.5 5.4 4.6 5.3 5.4 3.7 4.6 3.7 4.0 5.3 4.1 4.8
Consumer price index (CPI) 2.6 2.2 2.3 3.1 3.0 1.3 2.5 0.4 1.6 2.3 0.8 1.5 1.7
CPI-ATE 5 .. .. .. .. 2.6 2.3 1.1 0.3 1.0 0.8 1.4 1.4 1.7
Export prices, traditional goods -0.5 1.9 -0.5 11.8 -1.8 -9.1 -0.9 8.5 4.0 11.3 -4.5 -6.6 -1.4
Import prices, traditional goods -1.3 0.7 -2.9 6.5 -1.6 -7.2 -0.4 4.0 0.4 3.2 -0.9 -4.7 -2.0
Housing prices 6 10.9 9.7 9.4 14.1 7.1 4.0 1.6 10.1 7.9 12.4 6.4 3.7 4.7
Income, interest rates and excange rate                          
Household real income 7 3.4 5.1 2.3 3.3 -0.8 8.3 4.1 4.8 4.7 -3.8 6.2 4.5 3.8
Household saving ratio (level) 8 2.9 5.9 5.6 5.2 4.2 9.0 9.7 7.6 8.6 0.9 3.4 4.6 4.9
Money market rate (level) 3.7 5.8 6.5 6.8 7.2 6.9 4.1 2.0 2.2 3.1 4.1 4.3 4.3
Lending rate, banks (level) 9 5.9 7.9 8.1 8.2 8.8 8.5 6.0 4.1 3.9 4.3 5.1 5.5 5.5
Real after-tax lending rate, banks (level) 1.7 3.1 3.7 2.7 3.3 4.8 2.2 2.5 1.3 0.8 2.9 2.5 2.3
Importweighted krone exchange rate (44 countries) 10 -0.4 2.5 -1.2 2.9 -3.1 -8.5 1.3 3.0 -3.9 0.5 -0.3 -2.7 -0.6
Current account                          
Current balance (bill. NOK) 70.3 -3.6 69.5  222.4  247.5  192.3  195.9  221.6  300.8  366.9  415.0  371.4  343.9
Current balance (per cent of GDP) 6.3 -0.3 5.6 15.0 16.1 12.6 12.3 12.7 15.5 17.0 18.7 16.5 14.9
International indicators                          
Exports markets indicator 9.3 8.5 6.7 11.6 0.7 1.2 3.0 7.0 6.3 8.0 5.1 2.3 3.4
Consumer price index, euro-area 1.6 1.1 1.1 2.1 2.3 2.3 2.1 2.1 2.2 2.2 2.1 1.5 1.5
3 mths. interest rate, euro 4.2 4.2 2.9 4.4 4.2 3.3 2.3 2.1 2.2 3.1 3.7 3.3 3.3
Crude oil price NOK (level) 11  135 96  142  252  219  197  205  257  351  415  355  301  299
 
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   CPI adjusted for tax changes and excluding energy products.
6   Freeholder.
7   Old figures before 2005. They are not consistent with revised national account figures for the real economi.
8   Old figures before 2004. They are not consistent with revised national account figures for the real economi.
9   Households' borrowing rate in private financial institutions. Yearly average.
10   Increasing index implies depreciation.
11   Average spot price Brent Blend.
Source:  Statistics Norway. The cut-off date for information was 12 December 2006. Published 14 December 2006.