A new normal for Norway

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The Norwegian economy is booming. COVID-19 restrictions are lifted and we are heading out of the pandemic. Economic growth is strong, unemployment is low. A shortage of labor is leading to mounting pressure. At the same time, the war in Ukraine increases uncertainty in the global economy. The war has already led to higher commodity prices. In particular, prices on electricity, gas and fuel have soared throughout Europe.

Registered unemployment has returned to pre-pandemic levels, and the share of the population working is at its highest level since 2012. Unemployment is now approaching the low level seen during the boom preceding the financial crisis in 2008. The tight labor market puts upward pressure on wages and prices. We must avoid that fiscal policy leads to an overheated economy. That would spur an even faster interest rate tightening than the Norges Bank has already signaled.

“The past years have been challenging for everybody, and some are still facing challenges in their private economy. Now that the Norwegian economy is booming, we must hold back on fiscal spending. If not, the economy could overheat and give even higher inflation and call for even higher interest rates. That would increase costs for households and firms alike, and must be avoided“, says Minister of Finance Trygve Slagsvold Vedum (The Centre Party).

The projections suggest that registered unemployment will remain low at 2,0 per cent in 2023 and that economic activity will be higher than normal. The projections assume that the global economy avoids long-term damage from the war in Ukraine.

The war in Ukraine has contributed to soaring commodity prices, including oil and gas prices. This generates additional income for Norway through exports, but the war has at the same time contributed to a fall in the value of Norway’s sovereign-wealth fund by around NOK 900 billion since the beginning of the year. The decline could become even steeper.

“It is important that economic management is accountable. Uncertainty is unusually high right now. Recent developments have demonstrated how important security and preparedness is for our society. The Governments objective is to propose a Budget Bill that will make everyday life better and safer for ordinary people across the country“, says Minister Vedum.

Higher energy prices lead to higher inflation among our trading partners and domestically. In southern parts of Norway, electricity prices are approaching the record high levels form last December. To aid households with high energy prices, the government will propose to extend the security scheme for electricity throughout March next year.

Table 1 Key figures for the Norwegian economy
Percentage volume change from previous year, unless otherwise stated

 

Bill. NOK1

 

Projections

 

   2021

2021

2022

2023

  Private consumption

1 616.9

5.0

10.4

4.4

  Public consumption

965.8

3.9

0.1

..

  Gross fixed investment

966.4

-0.3

1.4

1.6

  Of which: Petroleum extraction and
pipeline transportation

178.4

-2.8

-8.3

0.4

             Business sector Mainland-Norway

353.5

2.2

6.0

2.6

             Housing

210.6

2.6

2.1

2.9

             Public sector

221.5

-3.1

1.3

..

  Demand from Mainland-Norway2

3 368.4

3.7

5.9

2.8

  Exports

1 722.7

4.8

5.6

5.4

  Of which: Crude oil and natural gas

861.7

2.8

1.9

6.1

             Exports from Mainland-Norway2

718.6

5.0

8.0

5.9

  Imports

1 206.5

2.0

10.8

4.8

  Gross domestic product

4 144.1

3.9

3.6

2.9

  Of which: Mainland-Norway

3 265.3

4.2

3.6

2.5

Other key figures:

 

 

 

 

  Employment, persons

 

1.2

2.5

0.8

  Unemployment rate, LFS (level)

 

4.4

3.5

3.4

  Unemployment level, registered (level)

 

3.1

2.1

2.0

  GDP growth among trading partners3

 

5.2

3.8

2.5

1 Preliminary national accounts in current prices.
2 Excluding inventory changes.
3 Norway’s 25 most important trading partners weighted by respective shares of Norwegian exports, excluding oil and gas.

Sources: Statistics Norway, OECD, national sources, Norwegian Labor and Welfare Administration and Ministry of Finance.