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NORWAY IN 2024

What will happen to Norway’s economy in 2024?

With an unexpected interest rate hike in mid-December and a near-collapse in property construction, Norway's economic growth is set to remain weak next year, with unemployment creeping up and real wages rising marginally.

Published: 15 December 2023 16:43 CET
What will happen to Norway's economy in 2024?
A seagull surveys Oslo's busines district. Photo: Sergei Gapon/AFP

When Norges Bank decided to hike the interest rate one last notch to 4.5 percent, it went againt the analysts’ expectations at almost all of Norway’s major banks. 

“We see that the economy is cooling down, but the inflation rate is still too high,” said Ida Wolden Bache, the central bank’s chief, in a press release, saying that she expected to keep this higher rate in place “for quite some time to come.” 

Norges Bank is predicting that the economy will grow just 0.4 percent in 2024, a slowdown from 1.4 percent in 2023 and much lower than the 2.2 percent growth forecast by Statistics Norway (0.9 percent excluding the oil and industry) or the 1.1 percent forecast by the Finance Ministry (0.8 percent excluding oil and gas). 

Inflation to fall 

When Norges Bank decided to hike the core rate, it increased its forecast for 2024 core inflation to 4.8 percent from a forecast of 4.7 percent it issued in September, which is down from the peak of 7.0 percent recorded in June but still a long way above the bank’s target of 2.0 percent.

If the bank is right, it is may well keep the interest rate at 4.5 percent for the whole of 2024, waiting until inflation appears headed to 2 percent before cutting it again.

Thomas von Brasch, head of Statistics Norway, expects the bank to begin to cut rates in mid-2024, but he acknowledged that the weakness of the krone would make it harder for Norway to get inflation down than for some of its trading partners.

“Norway is a small and open economy, and the exchange rate plays an important role. The weakening of the krone so far this year means that it will take a little longer than for many of our trading partners before inflation comes down to more normal levels,” he said.

House prices to fall, at least in the first half of the year 

After rebounding unexpectedly in the first half of 2023, the prices of houses and flats in Norway began to fall towards the end of the year.

The property Nordvik Bolig estate agents told The Local previosuly that they expect a “slight drop in prices in the first half of 2024,” which they expect to then “even off during the second half of 2024.”

Slowdown in several industries, notably construction

According to a forecast by Statistics Norway, property construction is in a slump, with the level of investment falling by 18.8 percent between the last three months of 2022 and the July-September this year. 

“There has never been such a big drop in such a short period registered in Statistics Norway’s quarterly figures, which go back to 1978,” the agency wrote, adding that the number of building projects started was at its lowest level since 2010. 

The agency expects housing construction to fall by 30 percent overall in 2023 and 2024, driven by economic uncertainty, fewer sales of houses and flats, higher interest rates and increased construction costs. 

“This will contribute to a further cooling of the Norwegian economy in the time to come,” von Brasch said.  

According to Statistics Norway, other industries are also reducing investment, with Norges Bank listing the data centre industry, electric tools and equipment industry, the rubber plastic and cement, gypsum and calcium industries as reducing investment in 2024 due to falling profitability. 

Unemployment creeps up 

As a result, Statistics Norway expects the unemployment rate to creep up next year from 3.6 percent to 3.9 percent, reaching 4.1 percent in 2025. This is still, however, lower than the average rate of 3.9 percent seen in the 2000s, and the relatively tight labour market is expected to help lead to a small increase in real salaries in 2024.

Unlike in 2023, when, according to Norges Bank, people on average suffered a slight fall in their real salaries, in 2024, they can expect a slight rise in spending power.

In 2023, the average nominal salary hike of 5.5 percent was insufficient to cover the 5.2 percent rise in the price of goods, but in 2024, salaries will increase on average to 5.4 percent, while Norges Bank expects prices to rise by 4.8 percent.

“We expect increased unemployment going forward. The sudden stop in housing construction means that more people are unemployed in construction. In addition, the increase in unemployment is expected to pick up when more Ukrainians register in the labour market,” von Brasch said.

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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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