Norway has seen virtually no real wage growth in the period 2015–2023. Last year, nominal wage growth was 5.2 per cent, while prices rose by 5.5 per cent, measured by the CPI. This implies a slight reduction in real wages. Profitability in the wage-leading tradable sector is a core element of the negotiations on the framework for this year’s wage settlement.
‘Profitability has increased in certain industries, allowing for real wage growth both this year and in the years ahead’, says Statistics Norway’s head of research, Thomas von Brasch.
Statistics Norway estimates that annual real wage growth will be around 1.5 per cent on average for the years 2024–2027.
‘After several years of no real wage growth, better times are ahead. The increased purchasing power will boost activity, and we will see the end of the economic downturn in Norway in 2026’, says Thomas von Brasch.
According to preliminary national accounts, the labour cost share, which is the percentage of total economic output that goes to labour, was 71.6 per cent for industry in 2023. This is significantly lower than the average of 82.2 per cent for the period 2009–2021.
Inflation is on the way down
Consumer price growth in recent years has been high in a historical perspective. Not since the 1980s has such high price growth been seen. Annual growth in the CPI ended at 5.5 per cent in 2023. Price growth was thus slightly lower than in 2022, when the CPI rose by 5.8 per cent. The 12-month growth in the CPI has further decreased from 4.8 per cent in December last year to 4.5 per cent in February this year.
‘Inflation is expected to approach 3 per cent by the end of the year. This is well below the peak of 7.5 per cent in October 2022, but still well above the target inflation rate of 2 per cent’, says Thomas von Brasch.
A stronger krone exchange rate and lower future prices for energy products than assumed in December have contributed to a downward revision of the inflation forecast for 2024 by 0.5 percentage points.
Norges Bank is waiting for other central banks before cutting interest rates
The key policy rate was raised from 0 per cent in September 2021 to 4.5 per cent in December last year. This is the highest since the 4.5 per cent rate in 2008. Norges Bank has indicated that the key policy rate is likely to remain at the current level for quite some time.
‘We expect the key policy rate to remain at 4.5 per cent until the second half of this year, before gradually being reduced, but slightly later than for our trading partners. In 2027, the rate is expected to approach 3 per cent’, says Thomas von Brasch.
Interest rates for revolving credit mortgages, estimated at 6 per cent in 2024, will then fall by almost 1.5 percentage points until 2027.
Unemployment still increasing
One year ago, unemployment, measured by the Labour Force Survey (LFS), was just over 3 per cent. It continued to increase throughout 2023, and in January 2024 was 3.9 per cent, which is on a par with the average for the 2010s. In 2022 and 2023, around 65 000 Ukrainian citizens immigrated to Norway. According to the medium scenario of the Norwegian Directorate of Immigration (UDI) of 6 March this year, a further 20 000 to 40 000 Ukrainians could arrive in 2024.
‘We expect the immigration of asylum seekers from Ukraine to increase both the labour force and unemployment going forward, but the extent of the increase is uncertain, both in terms of how many will come to Norway and how many will eventually return’, says Thomas von Brasch.
There was a particularly sharp decline in housing investment last year. Throughout 2023, investment fell by 21 per cent. This is the sharpest decline recorded over such a short period of time since the quarterly national accounts began in 1978. The abrupt halt in housing construction will push up unemployment in the construction industry.
‘According to our estimates, unemployment will increase from 3.6 per cent last year to 4.1 per cent this year, before rising further to around 4.2 per cent in 2025’, says Thomas von Brasch.
Soft landing for the Norwegian economy
The Norwegian economy showed a weak development last year. There was no growth in economic activity on the mainland as a whole in 2023. With a decline of just over 2 per cent, the construction sector emerged as a major contributor to the slowdown of mainland GDP growth last year. Looking ahead, several factors suggest that economic activity will pick up.
‘Demand from our trading partners is expected to increase, interest rates are likely to decrease gradually from this autumn, and increased real wages will stimulate household demand. In addition, high growth is expected in public consumption and investment, partly as a result of Defence investments. The economic downturn in Norway is therefore expected to end in 2026’, says Thomas von Brasch.
Mainland GDP growth is estimated at around 1 per cent this year. The low estimate is largely due to the further decline in construction activities. In 2026 and 2027, mainland GDP growth is expected to rise to between 2 and 3 per cent.
Economic downturn among our trading partners
Many of our trading partners are still experiencing an economic downturn. The inflation trajectory combined with financial conditions and significant geopolitical uncertainty will impact on economic activity going forward.
‘While growth in the United States continues to outperform expectations, macroeconomic developments in Europe have been weaker than expected. In our forecasts, we still envisage a weak international economic trajectory in the coming years’, says Statistics Norway researcher Roger Hammersland.
The estimates suggest that GDP growth among Norway’s trading partners, which has grown by an average of just under 2 per cent annually since 2005, will be around 1.0 per cent this year, gradually rising to around 2 per cent in 2027. Inflation in the euro area is expected to be around 2.2 per cent this year, down from 5.4 per cent in 2023, decreasing further to 2 per cent in 2027.
