Highest real wage growth in over ten years

In recent years, economic activity in Norway has been abnormally low. Multiple interest rate hikes, high inflation and low international demand have subdued economic activity. Unemployment has risen concurrently from a low level of 3.2 per cent in 2022 as measured by the Labour Force Survey, and is currently close to the average of the 2010s.

‘Trends are now pointing upwards in many areas. Economic activity in Norway is likely to pick up, driven by increased real wage growth, high activity in public administration, and a turning point in housing investment’, says Statistics Norway’s head of research, Thomas von Brasch.

Between 2015 and 2023, real wage growth in Norway was minimal, but strong profitability in several industries and declining inflation will result in real wage growth from 2024.

‘This year we are expecting the highest real wage growth in over ten years. This means that most people will have more disposable income’, says Thomas von Brasch.

According to the forecasts, real wage growth will be 1.9 per cent this year and will remain around 1.5 per cent for the following three years.

Decline in inflation will slow

The Norwegian krone is still weak in a historical perspective, and has depreciated by around 3 per cent since Statistics Norway’s last report in June. Inflation is set to remain above the 2 per cent target inflation rate, partly due to the recent weakening of the krone.

‘We expect inflation to continue falling, but at a slower pace than over the past year’, says Thomas von Brasch.

According to the forecasts, price growth measured by the Consumer Price Index (CPI) will drop from 5.5 per cent in 2023 to 3.4 per cent in 2024, then down to 2.5 per cent in 2027.

No interest rate cut until next year

In December last year, Norges Bank raised the key policy rate to 4.5 per cent, where it has remained.

‘Norges Bank will likely try to avoid a further weakening of the krone. The central bank will probably wait to cut the interest rate until other central banks have significantly reduced theirs. The recent weakening of the krone means that the key policy rate will not be cut until the beginning of next year’, says Thomas von Brasch.

In the projection path, the money market interest rate will fall from the current level of 4.7 per cent to around 3.5 per cent in 2026 and 2027.

Clear upturn in the Norwegian economy

Strong profitability in the industrial sector is driving wage and income growth, which stimulates household consumption. Consumption will also be stimulated by falling inflation and the expected decrease in interest rates at the start of 2025. The decline in housing investment is likely to reverse and turn into growth soon. The value of the sovereign wealth fund and fiscal space have increased, which will contribute to marked growth in public consumption and investment in the coming years.

‘We expect mainland GDP in Norway to reach what we consider a cyclically neutral situation from 2026’, says Thomas von Brasch.

In the 4th quarter of 2023, housing investment was a full 21 per cent lower than in the same quarter the previous year. The decline continued in the first half of this year, with a fall of almost 10 per cent. The last comparable decline in investment was during the housing crisis in the 1990s.

‘The latest figures for new house sales and the clear rise in house prices suggest we are now at a turning point for housing investment’, says Thomas von Brasch.

According to the Norwegian Home Builders’ Association, 30 per cent more homes were sold in June this year than in the same month last year. Statistics Norway’s forecasts show that annual housing investment will turn around from a decline of just over 15 per cent this year to growth of around 5 per cent in 2025.

Weak global growth

The world economy is growing, but growth is weak in a historical perspective.

‘Economic growth among our trading partners is expected to remain weak in the coming years’, says Statistics Norway researcher Roger Hammersland.

GDP growth among Norway’s trading partners, which has shown average annual growth of just under 2 per cent since 2005, is expected to be 1.3 per cent this year, gradually increasing to just over 2 per cent in 2027.