Norway projection note OECD Economic Outlook November 2023

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Norway Economic growth has slowed amid high inflation and monetary policy tightening. Mainland GDP growth is projected to slow to 1.1% in 2023 and 0.5% in 2024, before picking up to 1.3% in 2025 as domestic demand strengthens. Headline inflation has been declining on the back of lower electricity prices and is set to ease further. Underlying inflation will drift down more slowly, held up by wage pressures and the lagged effects of the weakening of the Norwegian currency. The unemployment rate is expected to rise as economic activity softens, but to remain around its pre-pandemic level. Monetary policy needs to remain tight for some time to contain inflation and ensure that inflation expectations are anchored. The fiscal stance should not add to inflationary pressures while ensuring well-targeted support to vulnerable groups. Making room for new spending is essential in view of pressures, notably from population ageing. Structural reforms that reduce incentives for early retirement, boost productivity and promote the green transition are key to inclusive and sustainable growth. Economic activity has slowed Mainland GDP growth has slowed during 2023 as high inflation and interest rate increases continued to weigh on domestic demand. Private consumption has weakened due to the rising cost of living, even though subsidies for households’ electricity bills and a decline in accumulated savings during the pandemic have provided support. Reduced car purchases, following the surge that preceded the reduction in tax incentives, have also curbed consumption. Housing investment has fallen markedly due to high construction costs and lower house price growth . Business investment growth has also slowed. After falling for four consecutive months, headline inflation increased to 4% in October 2023, as electricity prices edged up. Underlying inflation has also eased but remains elevated. A tight labour market is fuelling wage growth, with ongoing wage negotiations pointing to wage growth of around 5½ per cent in 2023.

Norway

1. Core inflation is Statistics Norway's CPI-ATE measure which adjusts for tax changes and excludes energy products. 2. Percentage share of regional network contact businesses responding that labour shortages are curtailing production/sales. 3. Long-term average of reported labour shortages between Q1 2000 and Q3 2023. Source: Statistics Norway; and Norges Bank. StatLink 2 https://stat.link/xz0yqk

OECD ECONOMIC OUTLOOK, VOLUME 2023 ISSUE 2: PRELIMINARY VERSION © OECD 2023


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