Via IMF (Den Internationale Valutafond)

Radhus in Oslo, capital of Norway. (Photo: Kim Kaminski/Alamy Stock photo)

Radhus in Oslo, capital of Norway. (Photo: Kim Kaminski/Alamy Stock photo)

Norway’s Economic Outlook in Seven Charts

June 12, 2019

Norway’s economy has performed well over the past year, especially compared to its neighbors.  It is enjoying low unemployment and a broadly neutral budget, while its economy continues to grow.  Given its strong momentum, now would be the ideal time for the country to address long-term challenges, suggests the IMF in its latest assessment of the Norwegian economy.  Here are seven charts that tell the story.

  • Growth in many advanced economies has slowed, but Norway’s economy
    continues to expand strongly. The weaker krone is helping exporters, low
    unemployment is boosting incomes, and oil prices remain materially above
    break even levels, supporting investment. Although global trade tensions and
    uncertainty about European growth cloud the horizon, Norway’s outlook
    remains positive.

    Chart 1
  • In good times, it is important to avoid complacency. On fiscal policy:
    in recent years, the budget has been broadly neutral, neither adding nor
    subtracting from economic growth. This marks an improvement from the past,
    when the deficit kept rising even when growth was healthy. However, in the
    current upturn there is a strong case for reducing the deficit. Smaller
    deficits now would generate fiscal buffers to counteract the next slowdown.

    Chart 2
  • Low unemployment and rising wages are pushing inflation higher, leading
    Norway’s central bank, Norges Bank, to hike interest rates twice in the
    last nine months. How fast should the central bank lift rates going
    forward? Raising rates too slowly could lead to high inflation, while
    hiking too aggressively could expose households to sharp increases in
    interest rates. In our view, the tightening projected by Norges Bank
    strikes the right balance between these risks.

    Chart 3
  • House prices had been growing too fast until last year, raising concerns
    about disruptive price falls. Since then, house price gains slowed, and
    valuations now appear less stretched. But Norwegian households still have
    one of the highest debt levels globally, and indebtedness keeps rising. For
    these reasons, mortgage regulations should not be relaxed. Developments in
    commercial real estate should also be monitored, as valuations appear
    stretched, notably in Oslo’s prime segment.
    Chart 4
  • Good times provide the ideal opportunity to address longer-term
    challenges. In the future, oil and gas revenues are expected to drop, as
    reserves are progressively depleted. Simultaneously, pensions and
    health-related costs will continue to climb because of aging. These two
    forces imply that over time Norway’s budget will face increasingly hard
    choices, which will require finding new sources of revenue or savings to
    accommodate new spending.

    Chart 5
  • Sustaining high living standards as the population ages will require
    expanding the labor force as much as possible. Reforming sickness and
    disability benefits is a priority. Compared to other Nordic countries, a
    significantly higher share of Norwegians is on these programs and not
    working. Social partners will soon convene to discuss the reform proposals
    of an expert commission. In the IMF’s view, these recommendations are a good
    starting point for a reform.

    Chart 6
  • As the economy continues to transition away from oil and gas, other
    sectors will have to become more competitive. The weak kroner has helped,
    but this won’t be enough on its own. Continued wage moderation, underpinned
    by a sense of shared trust and responsibility, will also be needed.

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