Economic trends for Norway and abroad

The decline reverses

Published:

The combination of an approximately economic cyclical-neutral fiscal policy and a contractive monetary policy together with a decline in petroleum investments since 1998 have helped to reduce the pressure in the Norwegian economy. This could indicate an increase in economic growth over the next two years. According to our estimates the rate of inflation will be well within the Bank of Norway's target zone for price inflation in 2001 and the next two years.

The figures from the quarterly national accounts (QNA) in the first half of this year show no strong demand impulses. The level of activity in the Mainland economy is estimated to be slightly below the long-term trend, although we would not characterize the situation in the Norwegian economy as an actual recession, but rather as a cyclical balanced position. According to our estimates, growth at the close of the year will already be somewhat higher than the trend growth.

Major driving forces in the nascent upturn in the Norwegian economy are new investment impulses from the manufacturing, petroleum and house building sectors. In addition, the use of the returns from the Petroleum Fund will spark public purchases of goods and services, along with tax relief in the years to come. In our estimates we have not assumed any active tightening of monetary policy to counteract these impulses, since inflation is staying clearly within the target zone.

It is the fear of a demand-driven increase in inflation, which so far has made Bank of Norway keep interest rates high. Inflation in Norway is now approximately on a par with other countries and it is expected to remain moderate and lower in the forecast period than in previous years. This provides a basis for a small decline in interest rates throughout 2002. The prospect of somewhat higher pressure on the Norwegian economy towards the end of the calculation period and further increases in the use of petroleum revenues in subsequent years, are factors that may cause the decline in interest rates in Norway to be relatively modest. The money market interest rate in Norway is consequently expected to remain high in the years to come compared with international nominal and real rates.

The American economy peaked in the first half of 2000 and is now in the midst of a growth recession. Production growth is clearly below the trend and prognoses are being continually revised. The downturn in the United States has spread to other parts of the world economy. Although most, including Statistics Norway, currently view the recession as part of a normal economic cycle, there is fear that the decline may deepen.

Although the Norwegian economy is affected by the international downturn, the impulses are moderate. OPEC is keeping the price of oil up and Norways traditionally internationally oriented businesses and industries account for a relatively modest share of the nations economy. In addition, Norways ICT sector is of a smaller scale than in several of our neighbouring countries. Consequently, the effects of the sharp decline in the ICT industry abroad have not had much of an impact here.

Main economic indicators 2000-2003. Accounts and forecasts.
Percentage change from previous year unless otherwise noted
 
  Accounts Forecasts
     2000    2001    2002    2003
 
Demand and output        
Consumption in households and non-profit organizations 2,4 2,0 3,2 2,8
General government consumption 1,4 1,9 2,5 2,6
Gross fixed investment -1,1 -4,8 5,1 3,5
Petroleum activities -17,1 -8,8 4,6 -0,1
mainland Norway 1,4 -1,0 4,6 4,6
Firms 1,8 -3,5 3,8 4,3
Housing 12,2 9,5 8,3 7,7
General government -7,9 -2,1 3,1 2,6
Demand from mainland Norway 1 1,9 1,4 3,3 3,1
Stockbuilding 2 0,8 -0,6 0,0 0,0
Exports 2,7 5,0 3,0 3,1
Crude oil and natural gas 6,4 5,3 1,8 -0,1
Traditional goods 2,1 4,7 3,5 5,0
Imports 2,5 0,8 5,5 5,5
Traditional goods 1,7 4,1 6,3 6,3
Gross domestic product 2,3 1,6 2,5 2,0
Mainland Norway 1,8 1,2 2,6 2,5
Labour market        
Employed persons 0,5 0,6 0,8 0,9
Unemployment rate (level) 3,4 3,4 3,4 3,2
Prices and wages        
Wages per standard man-year 4,3 4,6 4,4 4,0
Consumer price index 3,1 3,2 1,7 2,3
Consumer price index excluding energy products 2,3 2,5 2,0 2,4
Export prices, traditional goods 13,8 -0,3 -2,8 2,8
Import prices, traditional goods 6,0 2,7 0,6 2,1
Housing prices 14,0 4,9 9,3 7,1
Balance of payment        
Current balance (bill. NOK) 203,6 207,8 170,8 153,3
Current balance (per cent of GDP) 14,3 14,1 11,3 9,8
Memorandum items:        
Household saving ratio (level) 7,7 8,4 9,3 9,8
Money market rate (level) 6,6 7,2 6,5 6,4
Implicit borrowing rate (level) 3 8,2 9,0 8,4 8,1
Crude oil price NOK (level) 4 252,0 233,5 218,9 212,7
Exports markets indicator 10,3 4,6 5,4 7,2
Importweighted krone exchange rate (44 countries) 5 2,5 -2,5 0,3 -0,1
 
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   Households' borrowing rate in private financial institutions.
4   Average spot price Brent Blend.
5   Increasing index implies depreciation.
Source:  Statistics Norway. The cut-off date for information was 4 September 2001. Published 6 September 2001.