The Norwegian economy was at a standstill throughout 2023, and the weak development continues in 2024. However, several factors suggest that economic activity will pick up soon.
‘Lower interest rates and clear wage growth will see household consumption increase. Economic activity will also pick up as a result of higher public spending and an increase in housing investment’, says Statistics Norway’s head of research, Thomas von Brasch.
Statistics Norway’s forecasts show that activity in the Norwegian economy will pick up markedly in 2025 and be almost cyclically neutral from 2026.
‘The economic standstill in Norway will end soon’, says Thomas von Brasch.
In December 2023, Norges Bank raised the key policy rate to 4.5 per cent. Norges Bank primarily sets this rate to stabilise inflation at around 2 per cent and to ensure financial stability.
‘Lower inflation among our trading partners will push down inflation in Norway. Reduced interest rates internationally will also eventually lead to key policy rate cuts in Norway’, says Thomas von Brasch.
The forecasts assume that the key policy rate will be reduced towards the end of the year. The money market interest rate is expected to fall from 4.7 per cent so far this year to 4.0 per cent in 2025, and then to 3.5 per cent in 2026.
Price growth will slow
Consumer price growth has been particularly high in recent years due to international factors and the depreciation of the krone. Price growth has not been this strong since the 1980s. The growth rate in the Consumer Price Index (CPI) has fallen from 7.5 per cent in October 2022 to 3 per cent in May this year. Going forward, price growth is expected to slow further.
‘The low imported price growth and stable development in energy prices will be significant factors in the gradual decrease in price growth to the target inflation rate in 2026’, says Thomas von Brasch.
Developments in the krone exchange rate have a major impact on inflation, including through import prices measured in Norwegian krone. Considerable uncertainty surrounds exchange rate movements. Research has shown that an unchanged exchange rate represents a good forecast, and in our forecast we have assumed that the rate in the years ahead will remain at the level as in mid-June.
Moderate increase expected in house prices
Households’ expectations in relation to future house prices and potential policy changes are factors that can have a major impact on house prices in the short term. In the longer term, house prices are driven by households’ real disposable income, housing capital, debt and real interest rates. Given the cyclical profile we currently envision, house prices will only grow between 3 and 4 per cent in the years ahead.
‘The ramifications of high growth in consumer prices and high interest rates will markedly dampen the rise in house prices in the years to come’, says Thomas von Brasch.
Real wage growth expected
Virtually no real wage growth was seen in Norway between 2015 and 2023. Last year, nominal wage growth was 5.2 per cent, resulting in a small reduction in real wages. Following mediation by the National Mediator of Norway in 2024, the Federation of Norwegian Industries and the United Federation of Trade Unions agreed on a framework for annual wage growth of 5.2 per cent in the industrial sector under the Norwegian Confederation of Business (NHO) umbrella.
‘The labour cost share, which is the percentage of total economic output that goes to labour, dropped considerably last year as a result of strong profitability in certain parts of the wage-leading tradable sector. This low labour cost share is likely to contribute to wage growth remaining high in the years ahead’, says Thomas von Brasch.
According to the forecasts, wage growth will be 5.2 per cent this year, before falling to just under 4 per cent by 2027. With this outlook, the labour cost share will gradually increase and approach the average over the last 20 years. Annual real wage growth will then be close to 1.5 per cent until 2027.
Unemployment will continue to rise slightly
Throughout 2023, unemployment as measured by the Labour Force Survey (LFS) increased from 3.5 per cent at the start of the year to 3.8 per cent at the end of the year. Unemployment has continued to rise in 2024 and was 4 per cent in April, which is close to the average in the 2010s.
The influx of asylum seekers from Ukraine is expected to drive up labour force numbers as well as unemployment going forward. The abrupt halt in housing construction will also push up unemployment in the near future. According to Statistics Norway’s estimates, unemployment is set to rise to 4.1 per cent this year and then to 4.2 per cent in 2025.
International growth is picking up
The global economy is growing, but growth is weak in a historical perspective. The US economy has continued to grow despite its increasingly more intense trade conflict with China. However, growth has slowed recently. After a period of negative growth, the euro area has also started to grow again. Conflicts in the Middle East and the war in Ukraine have not spread to neighbouring countries as yet, and oil prices have been relatively stable.
‘We have decided to upwardly revise our growth forecasts slightly for our trading partners to reflect the prospects for further growth in global trade and improved economic conditions in much of Europe’, 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 1.2 per cent this year, gradually increasing to just over 2 per cent in 2027.
