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ECONOMY

What the current state of Norway’s economy means for you

The Norwegian economy has grown slightly after a recent fall. So, what do current economic conditions mean for you, your finances and your job prospects? 

Published: 7 July 2023 15:41 CEST
Pictured is the financial district of Oslo.
Norway's economy has barely grown this year. Here's what the current situation means for you. Pictured is the financial district of Oslo.

Following a decline, Norway’s economy grew by 0.5 percent in May, figures released by the national data agency Statistics Norway show. 

Consumption also increased following a sharp fall in April. The increase of 2.7 percent accounted for 0.4 percentage points of the growth in the Norwegian economy. 

“Growth in the Norwegian economy in May follows a corresponding decline in April. In May, the GDP for mainland Norway is roughly back at the same level as in March,” Pål Sletten from Statistics Norway said of the figures. 

Overall, there has been zero growth in GDP for mainland Norway from December 2022 to February 2022 and March to May of this year. 

Rising prices and interest rates mean many analysts expect no growth or a slight downturn in the Norwegian economy. 

The business world is also expecting tougher times. A survey from the Confederation of Norwegian Enterprise (NHO) shows that 36 percent of member businesses expect tougher times ahead. 

The surveys show growing pessimism in many industries. More challenging times for business can result in more layoffs. 

The job market

Norway’s unemployment rate is currently around two percent following the rise, figures from the Norwegian Labour and Welfare Administration (NAV) show. 

Unemployment was rising most in sectors heavily affected by the economic cycle. These industries see demand increase when the economy is performing well and unemployment rise when the economy is at a lull. 

“Unemployment rose somewhat again in June, and during the first half of the year, there have been 3,200 more unemployed. Unemployment is increasing in cyclically sensitive occupations such as construction and engineering and IT subjects, while it is decreasing slightly in occupations in, among other things, industry and the public sector,” Hans Christian Holte, director of employment and welfare at NAV, said of the figures.

Furthermore, the demand for labour also decreased in June.

Rising interest rates and falling house prices

Norges Bank, the central bank of Norway, has been using interest rate rises to try and slow down the economy and curb inflation. Inflation in Norway increased compared to a year ago, and the latest figures show inflation at 6.7 percent. 

However, there may be signs that the market thinks this strategy to combat inflation is rising. 

Higher interest rates mean more expensive loan and mortgage repayments. This equates to less disposable income reducing demand and consumption, which slows down the economy. 

Interest rates also affect the property market. Following a strong start to the year, house prices fell in June and are expected to continue falling into the autumn. 

This is because higher rates make it harder for consumers to secure mortgages as their finances are stress tested against further rises, raising the bar for securing a mortgage. 

Norway’s weak krone

Still, interest rates aren’t as high in Norway as they are in other countries. The key interest rate in the eurozone is four percent. The key policy rate in the US is 5-5.25 percent. Meanwhile, the key policy interest rate in Norway is 3.75 percent. This is the same as in Sweden. 

Lower interest rates in Norway compared to other countries are one of the factors that explain why Norway’s krone is struggling. Economic uncertainty globally and lower gas and oil prices are other factors. The lower key policy rate makes Norway less attractive to investors. 

A weak krone means that imports into Norway become more expensive, which contributes to inflation as goods become more expensive. 

In the short and medium terms, experts expect the krone to remain weak. 

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POLITICS

Four key things to know about Norway’s revised budget for 2024

The revised national budget was unveiled by the Norwegian government on Tuesday. Here are the key takeaways you need to know about the fiscal plan. 

Published: 14 May 2024 12:50 CEST
Four key things to know about Norway's revised budget for 2024

The government continues to tap the oil fund for public spending 

The current government isn’t the first to use the country’s oil and gas wealth to cover public spending costs. However, the revised budget will take public spending drawn from the oil fund close to the limit. 

Subsequent governments have limited themselves to using 3 percent of the value of the sovereign wealth fund where Norway’s oil and gas revenues are invested to top up public spending. 

The extra 9 billion kroner the government plans to spend from oil revenues will bring the total spending from the fund to nearly 419 billion kroner, which equates to around 2.7 percent of the fund’s value. 

This also means that the use of oil money in Norway will be 34 billion kroner higher this year than last year. 

Norway’s finance minister, Trygve Slagsvold Vedum, said that staying under the 3 percent threshold was important for the government. 

“It has been important that we are now under the action rule, even though we are making a heavy defence and security lift. The oil fund must be a generational fund,” he said. 

However, some analysts have previously suggested that the 3 percent limit is too generous and could deplete the fund. 

The increase in oil spending comes after a couple of cautious years where the government tried to limit spending from the fund to curb inflation. 

READ ALSO: Could Norway’s 1.3 trillion dollar oil fund run dry? 

Significant increase in defence spending 

The revised budget’s main focus is increased defence spending. The Norwegian Armed Forces will receive around 7 billion kroner more in defence spending as part of the revised national budget.

In the months leading up to the revised budget, PM Jonas Gahr Støre said that Norway would hit the NATO “two percent target”. 

The two percent refers to member countries allocating at least two percent of their GDP to defence spending. 

Some 2 billion kroner will increase immediate operational capability, while 5 billion would be spent on a long-term defence plan. 

The cost of living increases to ease, but interest rates to remain high

The Norwegian government has noted that the economy had outperformed its expectations and forecasts from last autumn when the initial budget was presented. 

Furthermore, unemployment has remained low at 1.9 percent and the government expects this to rise to 2 percent during the rest of 2024. 

It also expects the consumer price index to rise by 3.9 percent for 2024. The good news for consumers is that a real wage rise, meaning salary increases outpace the cost of living, is looking more likely as the year progresses. 

Looking ahead to 2025, inflation is expected to slow to 2.8 percent. 

Overall, the government expects the mainland economy in Norway to grow by 0.9 percent this year. 

Despite the optimistic outlook from the government, the figures are unlikely to move the needle regarding interest rate cuts. 

Norway’s central bank has brought the key policy rate to a 16-year high of 4.5 percent to curb inflation, and it isn’t expected to cut rates until December at the earliest. 

“Today’s budget gives no reason for Norges Bank to change the interest rate plans, which now point towards an interest rate cut in December,” DNB’s chief economist Kjersti Haugland told public broadcaster NRK.

The government doesn’t have a majority for its budget 

The most interesting side plot of every budget and revised budget is that the minority coalition comprised of the Labour Party and the Centre Party will rely on the support of the Socialist Left Party to get majority support for its proposals. 

This means the budget’s contents usually change throughout negotiations between the government and its budget partner. 

The Socialist Left Party has said it will advocate for an increase in the child benefit for the oldest children and a new tax on oil companies that would fund investment in offshore wind. 

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