Growth in economic activity will be slightly lower, unemployment is likely to increase and inflation will fall sharply in 2023. This is what we can read in the publication of the Norwegian Statistical Office.
The year 2022 was characterized by high inflation and a recovery in economic activity after the pandemic. Since the second quarter of last year, the Norwegian economy has grown at a moderate pace.
At the same time, inflation rose to levels not seen since the 80s. This is due to the very high increase in prices abroad, which was reflected in prices in Norway.
On the other hand, unemployment has fallen to the level we usually associate with a boom.
"We're at a turning point now." Inflation should fall sharply over the course of the year and unemployment should rise slightly from the extremely low we have now, says SSB researcher Thomas von Brasch.
“It seems that after several years of much unrest, we are slowly moving towards more normal times for the Norwegian economy,” he adds.
With this picture, the activity in the Norwegian economy will remain similar until 2026. This means that the economy is growing at a pace considered normal. Mainland Norway's GDP growth is estimated at 1,3%. in 2023 and 1,6 percent. in 2024
Price pressure is weakened
In 2022, the annual CPI growth was 5,8 percent. Also at the beginning of 2023, the price dynamics remained at a high level. Latest figures show 6,3-month CPI increase of XNUMX percent. in February .
In the future, price increases are expected to decline internationally as a result of higher interest rates and lower energy prices. This will ease the price pressure in Norway as well.
“The price of natural gas in Europe has fallen sharply since its peak in September last year. Markets also believe in lower oil and electricity prices in the future, says Thomas von Brasch.
Elevated interest rates in Norway are also helping to ease price pressures. Forecasts indicate that the CPI will fall significantly over the course of the year. Since price inflation is still high at present, the average annual value will end at around 5%.
“Inflation seems to have peaked,” says Thomas von Brasch.
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In turn, the annual growth of the CPI after taxes and without energy goods (CPI-JAE), often referred to as core inflation, is expected to increase further to 5,4 percent. in 2023
– Overall CPI inflation is likely to fall more than core inflation as energy prices are expected to fall, says Thomas von Brasch.
The CPI-JAE is expected to decline from its current 2-month high over the course of the year and fall towards the 2025 percent inflation target in the first half of XNUMX.
Unemployment will gradually rise to 4%.
Unemployment, as measured by the Labor Force Survey, has been close to 3,4% in recent months, after falling from a peak of 5,5% in 2020. in August 2022. We have to go back to before the financial crisis to find unemployment as low as in XNUMX.
With weaker growth prospects internationally and lower demand in many industries, pressure on the labor market will ease.
– High price pressure over time, as well as rising interest rates, have meant that we have less money to spend. This results in lower activity in the economy, and with low unemployment, it should be expected to increase slightly in the future, says Thomas von Brasch.
- Our calculations show that in the coming years unemployment will gradually increase to about 4 percent. in 2025. This corresponds to an increase of approx. 25 thousand. more unemployed - says Thomas von Brasch.
In March, the interest rate may be increased
The prime rate is now 2,75 percent after being set in several rounds over the past year and a half. Statistics Norway expects it to double again by 0,25 percentage points.
– Norges Bank has justified the recent interest rate hikes on the grounds that it is important to contain inflation. But they must also consider that a higher interest rate will dampen activity in the Norwegian economy, leaving more people unemployed, says Thomas von Brasch.
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– The balance is particularly challenging in a period of increased international price increases. Large fluctuations in the economy can occur both when the interest rate remains unchanged and when it is raised too much, he adds and refers to the analyzes conducted by the researchers in Box 2.1 of the report on the business cycle.
Balancing these considerations, the central bank signaled that the main interest rate would be increased in March 2023 by 0,25 percentage points.
– The interest rate will most likely be raised with the interest rate decision in June, and if inflation falls in the second quarter, as our forecasts show, it will probably be 3,25 percent. will be the peak of interest rates, says Thomas von Brasch.
In the longer term, the interest rate is likely to fall as a result of rising unemployment and lower inflation, and could fall to 2024% over the course of 2.
Weakest wage growth since the 80s
Last year, wage growth was 4,4 percent, a full 1,4 percentage points less than the increase in consumer prices. In 2023, forecasts indicate that wage growth will be around 5%, roughly in line with inflation. This means that the real wage will remain unchanged.
– With this development, real wages will hardly increase from 2015. We have to go back to the 80s to find equally weak wage developments over such a long period, says Thomas von Brasch.
– Real wage growth is slow, but taking into account that our forecasts are coming true and once again there are no unforeseen events in the economy, real wage growth will increase to around 2,5% next year. says Thomas von Brasch.
House prices fall during the year
The fall was characterized by declines in pre-owned home prices across the country.
“Rising cost of living and rising interest rates will likely drive home prices down for most of the year,” says Thomas von Brasch.
On the other hand, the easing of credit regulations is likely to moderate the decline somewhat. Calculations show that from the peak in Q2022 2024 to Q9 XNUMX, house prices are likely to fall by about XNUMX%.
“This means that once the bottom is reached, the price level will still be 13% lower than before. higher than at the beginning of the pandemic, just before the increase in housing prices, says Thomas von Brasch.
International economy.
The likelihood of a major international economic crisis has recently been somewhat reduced. There are several reasons for this. China's economic outlook has improved. The energy crisis in Europe appears less serious than feared. In the US, the propensity of households to buy seems to be limited to a small extent by reduced purchasing power and higher interest rates.
In the short term, economic growth is expected to slow down and activity is likely to decline in some countries as well. However, the overall economic activity of Norway's trading partners appears to remain in line with the trend throughout the forecast period.
– As a result, the forecasts for the economic activity of our trading partners have been slightly revised upwards since the last time. In total, it will be close to the calculated GDP trend throughout the forecast period, says researcher Roger Hammersland.
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Source: Statistics Norway
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