Weak economic trends

The Norwegian economy is first expected to enter a clear economic upturn in 2016, helped considerably by growing international demand. Unemployment may consequently fall slightly in 2017.

Signs of improvements internationally

The economic growth of Norway's trading partners remains very low, despite picking up somewhat last year. Among Norway's main trading partners, this was most evident in the USA, UK and Sweden. The Danish economy has barely grown in three years. In the euro area, the GDP is also now growing, albeit weakly, after a long period of decline. Unemployment levels are very high, but there are signs of improvement in several countries. The continuing restrictive fiscal policy in much of the OECD area means that growth will only increase slowly, and we do not envisage an upturn in the economy among Norway's trading partners as a whole until 2015, and even later in the euro area. This will contribute to keeping interest rates low going forward, even though the interest rates should increase somewhat in 2016 and 2017.

Increase in exports

Weak developments internationally combined with a relatively high cost level in Norway have contributed to low growth in traditional exports in the last two years. The improvement in cost competitiveness as a result of the weakening of the krone, which started in February last year, will help reduce the loss of market shares. Increased growth in export markets will pull Norwegian exports up going forward, particularly from 2016 when global growth will take more of a hold. However, we assume that the strengthening of the krone that began in early February will continue, and will again play a role in curbing the activity in the internationally-exposed industries further ahead.

Petroleum investments almost at peak

Petroleum investments increased by as much as 18 per cent last year, thereby making up a third of the growth in mainland Norway’s GDP. We expect that the oil price will gradually fall to around 95 US dollars at the end of 2015, and then remain unchanged in real terms. In the projections we assume that the investment peak was reached last year. Measured on an annual basis as a share of mainland Norway’s GDP, we expect petroleum investments in 2014 to amount to just over 9 per cent of mainland Norway’s GDP, which will be the highest share ever. We assume that investments will remain fairly stable over the next few years, with a slight decline in 2017.

Moderate expansive fiscal policy

The fiscal policy is likely to be more expansionary this year than last year. Also going forward, we expect a continued growth in demand from the public sector broadly in line with the trend growth in the economy. The development in the number of old age pensioners will contribute to a clear growth in benefits. Together with new tax concessions of about the same scope as in 2014, fiscal policy may contribute somewhat to increasing activity growth in the mainland economy going forward.

Saving behaviour affects growth

The development of household consumption has been very weak in recent months, and since the financial crisis has seen a weaker development relative to the development in income, wealth and interest rates than previously observed. Consumption increased by 2.1 per cent in 2013. The savings rate, which has increased markedly since 2010, rose by a further 0.4 percentage points. The growth in households’ real disposable income is expected to be slightly lower this year than last year, partly due to weak employment growth and higher consumer prices due to the weaker krone. Savings are expected to increase further going forward, but because income growth is also increasing considerably, consumption could rise to around 3.5 per cent in the years 2015-17. The increased consumption growth is a key factor behind the projected increase in activity growth in the mainland economy for the next year, and particularly from 2016.

Relatively low mortgage rates in the long term

Norwegian interest rates saw very few movements last year. The three-month money market rate has remained close to 1.7 per cent. Typical mortgage interest rates are far above the money market rate and have risen slightly, while deposit rates have fallen slightly. We expect the money market rate to remain more or less unchanged until a modest increase starting late 2015. At the end of 2017, we expect the money market rate to increase by just over one percentage point from the current level. As banks gradually meet new and stricter equity requirements by a wide margin, we expect the premium on money market interest rates to be reduced. Mortgage rates in private financial institutions may therefore remain roughly constant throughout 2017.

Moderate growth in house prices from 2015

High growth in incomes and the population, coupled with lower interest rates, explains the considerable increase in house price trends over the last 20 years. Both in the major downturn in the early 2000s and in the wake of the financial crisis, real house prices fell on an annual basis. During the second half of 2013, however, house prices fell without any apparent correlation to developments in interest rates and income. Stricter equity requirements may have led to a more restrictive lending practice by banks and, together with the increase in interest rates in some banks, contributed to the trend. More pessimistic expectations by households, based partly on the international economic trend, are also likely to have played a role. The fall in house prices has not, however, continued into the first two months of 2014. We now expect house prices to remain fairly stable throughout 2014, giving an annual average that is barely 1 per cent lower than last year. Increased income growth and continued low interest rates will push house prices up by about 2.5 per cent annually in the years 2015-17.

Higher inflation in 2014

The depreciation of the krone throughout most of last year has pushed up inflation. Consumer price index (CPI) growth was down to 0.8 per cent in 2012 and 2.1 per cent last year. Despite the drop in electricity prices and expectations of a stronger krone going forward, we expect CPI growth of 2.3 per cent this year. Inflation is expected to fall to between 1.5 and 2.0 per cent over the next two years.