Major slowdown in Norwegian economy

The financial crisis and the backlash in the global economy are contributing to a fall in activity in the Norwegian economy, with the export industry being worst affected, according to the latest prognoses from Statistics Norway (SSB).

SSB says extensive fiscal policy and monetary policy measures are unlikely to prevent the GDP for mainland Norway from falling in 2009. The economy is not expected to see an upward swing until 2011.

Unemployment has increased sharply since August 2008, and is expected to increase in many industries in 2009. The fall in employment is likely to be particularly marked in manufacturing, and the building and construction industry is also expected to face manpower reductions. The increase in public sector employment has curbed the fall in employment as a whole.

Projections are based on reduced net immigration to Norway. However, unemployment is expected to increase from 2.6 per cent in 2008 to 4.7 per cent as a yearly average in 2010 and 2011. This corresponds to 125 000 unemployed persons.

Wage growth has been high for several years. Large wage increases late last year have ensured a higher average wage level for many this year than last. The increases in the 2009 pay settlements are likely to be low. The increase in unemployment and the special difficulties for export-oriented companies also mean that wage growth will be moderate in 2010 and 2011, and is expected to fall to the levels of the early 1990s, according to SSB.

Reduced wage growth and higher productivity growth are expected to reduce inflation in the next two years. Considerably lower energy prices in 2009 than 2008 are contributing to estimates that the consumer price index (CPI) will grow by 1.4 per cent on a yearly basis in 2009, compared with 3.8 per cent in 2008, Statistics Norway predicts.

Source:  Statistics Norway.