Trade conflicts will not curb growth in the Norwegian economy

Economic growth in Norway has been modest for the past two years. High inflation and the associated interest rate hikes have contributed to a slowdown in activity. The new Trump administration, the subsequent trade conflicts and increased tariffs, and the escalating security situation have created a more turbulent world. 

‘Despite rising trade tensions, higher tariffs and prospects of a more fragmented global trade landscape, we expect continued high real wage growth, lower interest rates and growing public demand to boost economic activity in Norway in the coming years’, says Statistics Norway’s head of research, Thomas von Brasch. 

The extent to which the Norwegian economy will be impacted by the political shift in the United States partly depends on the intensity and duration of the trade conflicts. The assumption in the forecasts is that trade restrictions will persist throughout the forecast period, up to the end of 2028.

‘Trade conflicts will dampen global value creation but will not prevent clear growth in the Norwegian economy. However, this growth depends on Norway not being directly impacted by measures the EU introduces in response to the US tariff increases’, says Thomas von Brasch.

Growth is driven by domestic factors

According to the forecasts, high income growth and lower interest rates will stimulate household consumption. Meanwhile, the fiscal space will facilitate continued growth in public consumption and investment. A large part of the increase in public investment is due to the focus on defence. Growing demand and rising house prices will eventually lead to a recovery in housing construction. 

‘The fragmentation of global trade is weakening the overall value creation, but the ramifications within our forecast horizon are likely to be limited. Although we have downgraded the forecast for mainland GDP by just over 1 per cent in total from 2025 to 2027, we still expect growth in the Norwegian economy’, says Thomas von Brasch. 

Growth in mainland GDP is expected to rise from 0.6 per cent in 2024 to just over 1 per cent in 2025, and then to around 2 per cent from 2026.

Real wage growth to continue in 2025

Price growth, as measured by the Consumer Price Index (CPI), was historically high in 2022 and 2023 but dropped significantly in 2024. The annual CPI growth ended at 3.1 per cent in 2024, down from 5.5 per cent the previous year. The CPI rose by 3.6 per cent from February 2024 to February 2025, an increase of 1.3 percentage points from January.

‘Marked nominal wage growth, the weakening of the krone in recent years and higher international price growth are likely to keep inflation slightly above the 2 per cent target in the years ahead’, says Thomas von Brasch.

Figures from Statistics Norway show a 5.6 per cent increase in average accrued annual salaries from 2023 to 2024, resulting in a 2.4 per cent increase in real wages during the same period.

‘Last year’s 2.4 per cent real wage growth was the highest since 2012. Strong profitability in the manufacturing sector suggests that real wage growth will remain high this year, likely around 1.5 per cent’, says Thomas von Brasch.

Interest rate cuts will take a bit longer

Since December 2023, the key policy rate has been 4.5 per cent, the highest since December 2008. At the latest monetary policy meeting, Norges Bank indicated that the rate is likely to be reduced in March this year. 

‘The uncertainty we’re currently seeing due to trade conflicts and a more tense security situation can weaken small currencies like the Norwegian krone. To counter a weakening of the krone, it may be necessary to maintain a higher interest rate differential with foreign countries than usual’, says Thomas von Brasch. 

Statistics Norway’s forecast from December assumed five interest rate cuts in 2025, with the key policy rate remaining at 3.25 per cent in 2026 and 2027.

‘Increased uncertainty and higher inflation than expected in February means that interest rate cuts will take a bit longer. Our interest rate forecast includes two cuts this year and three next year. The key policy rate will then fall to 3.25 per cent in 2026’, says Thomas von Brasch. 

According to the forecasts, the lending rate will fall from around 6 per cent at the end of last year to just under 5 per cent in 2027.

Weak growth in the global economy

The Trump administration’s policies are creating uncertainty about the future of the rules-based order for the global economy. 

‘Frequent changes in the rules-based order make long-term planning difficult and create particular risks for cross-border investment and trade. Global growth is expected to be weak in the coming years’, says Statistics Norway researcher Roger Hammersland. 

The export-weighted GDP growth among our trading partners, which has remained at just under 2 per cent annually since 2005, is expected to be around 1.5 per cent this year and next year.

Forecasts are uncertain

Recent years have been marked by substantial changes in both the Norwegian and international economies, which has made forecasting particularly challenging. In 2024, there was a major forecasting error in CPI growth. The analyses indicate that the deviation should be understood in light of the fact that returns on capital in 2022 and 2023 were much higher than originally assumed when the forecast for 2024 was made.

The analyses in the report are based on information as of Wednesday, 12 March 2025.