Should workers in Norway fear job cuts in the near future?

Companies are expected to cut back on employees amid lower investment and declining earnings, a report from the Norwegian Confederation of Enterprise (NHO) has warned.

Pictured are two workers finalising paperwork.
The NHO has said that one in three firms under its umbrella will consider cutting back on staff in the near future. Pictured are two workers finalising paperwork. Photo by Gabrielle Henderson on Unsplash

Norway’s job market over the past two years could be described as relatively healthy, thanks in part to record vacancies and demand for workers in several sectors.

“In Norway, (economic) activity grew at an annual rate of over three percent in the fourth quarter, far above normal cruising speed. At the end of February, only one and a half percent of the workforce was still registered as completely unemployed. The number of unfilled positions has increased further and is now the highest in at least twelve years,” the NHO wrote in a report.

However, the country’s employment outlook took a hit recently, with inflation outgrowing wages last year and a new report indicating that companies across Norway could cut back on staff.

The report from the Norwegian Confederation of Enterprise, published on Tuesday, said that firms expect an economic decline, lower levels of investment and poorer earnings.

“High inflation and increased interest rates will weaken households’ purchasing power and result in lower consumption growth this year. High costs and reduced demand reduce companies’ desire to hire and invest,” Øystein Dørum, chief economist at NHO, said in the report.

The NHO is the largest employer organisation in Norway, representing private-sector firms. It lobbies the government over business interests and negotiations with unions over annual collective bargaining agreements.

Some one in three firms has told the employer organisation that they will downsize in the near future. Furthermore, only one in six companies will increase the number of staff on their books.

Growth in the number of available positions and the number of people in work would also slow following several record years.

Towards the end of March, the NHO will discuss private-sector wage rises with the Norwegian Confederation of Trade Unions (LO).  The NHO expects wages to increase by a decent margin, although a rise in real wages looked marginal, given how inflation estimates for the rest of 2023.

READ MORE: Which industries in Norway have the most vacancies, and what do they pay?

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Historically weak krone to lead to higher interest rates

The weak krone against most major currencies means that Norway’s central bank will likely raise interest rates to 3.75 percent and beyond this year,

Historically weak krone to lead to higher interest rates

A struggling krone means it will take longer for inflation to fall in line with the two percent target set by Norges Bank, Statistics Norway (SSB) has forecast.

“The record weak krone exchange rate is putting parts of the economic policy in Norway to the test,” SSB researcher Thomas Von Brasch said of the krone.

“We estimate that the central bank will raise the interest rate by 0.25 percentage points in both June and September so that the peak interest rate will be 3.75 per cent in the autumn,” Brasch said.

Norges Bank has been using interest rates to try and control inflation in Norway. In May, prices were 6.7 percent higher than the same month a year before.

The cost of flights, food and rent were the main drivers of the inflation figures. Price growth on imported goods, caused by the weak, has also contributed to the increased prices in Norway.

Lower interest rates in Norway than elsewhere also drive a weak krone. 

Norway’s largest bank, DNB, expects interest rates to be even steeper. It expects Norges Bank to raise the key policy interest rate by 0.5 percent in June. This would bring the key policy rate to 3.75 percent.

A number of economists have said that the inflation figures released Friday were bad news for the central bank.

“Norges Bank has a bigger job to do than what they have assumed so far,” chief economist for Nordea Markets, Kjetil Olsen, told Norwegian business newspaper Dagens Næringsliv.

He also predicted an interest rate peak of more than four percent.