Increased profitability in some industrial sectors provides room for real wages to increase in the coming years. The increase in purchasing power will contribute to the recovery of the Norwegian economy from the period of slowdown from 2026 - we read in information from Statistics Norway (SSB).
From 2015 to 2023, real wage growth in Norway was almost imperceptible. Last year wage increase nominal was 5,2 percent, while prices increased by 5,5 percent, as measured by the KPI. This means a slight reduction in real wages. Profitability in the industrial sector is key as the parties negotiate the framework for this year's wage talks.
An increase in real wages brings profitability in industrial sectors
– Profitability has increased in some industrial sectors, which gives room for real wage growth both this year and in future years, says Thomas von Brasch, research manager at SSB.
SSB estimates that annual real wage growth will average around 1,5 percent over 2024-2027.
– After several years without an increase in real wages, better times are coming. Increased purchasing power will lead to growth activities. Norwegian economy will emerge from the slowdown in 2026, adds Thomas von Brasch.
The wage cost share, an indicator that measures the percentage of value creation in an economy attributable to labor, was 71,6 percent for industry in 2023, according to preliminary national data. This is significantly lower than the average of 82,2 percent over the 2009-2021 period.
Inflation drops to around 3 percent by the end of the year
Increase in prices consumption in recent years has been high from a historical point of view. Prices haven't gone up this much since the 80s. Consumer Price Index (KPI) growth was 5,5 percent in 2023. The price increase was therefore slightly lower than in 2022, when the KPI increased by 5,8 percent. The year-over-year KPI growth rate declined further from December last year by 4,8 percent to 4,5 percent this year February this year.
– Inflation is expected to decline to around 3 percent by the end of the year. This is well below the peak of 7,5 percent in October 2022, but still well above the inflation target Norges Bank of 2 percent – says Thomas von Brasch.
Stronger koruna exchange rate and future prices lower than expected in December energy products contributed to reducing the annual inflation forecast in 2024 by 0,5 points. percent
Norges Bank is waiting for decisions from other central banks before cutting interest rates
The reference rate was raised from 0 percent in September 2021 to 4,5 percent in December last year. We have to go back to 2008 to find such a high level of the reference rate. Norges Bank signals that rates are likely to remain at current levels for some time.
– We expect the reference rate to remain at 4,5 percent until the second half of this year before being gradually reduced, but slightly later than in our trading partners. In 2027, we expect the reference rate to drop to around 3 percent, says Thomas von Brasch.
The framework loan rate, which is estimated at 6 percent this year, will therefore fall by almost 1,5 percentage points by 2027.
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Unemployment continues to rise
A year ago unemployment rate, measured by the labor force survey (AKU), exceeded 3 percent. During 2023, unemployment increased and in January 2024 was 3,9 percent, which corresponds to the average from the 2010s. In 2022 and 2023, approximately 65 Ukrainian citizens arrived in Norway. According to UDI's average forecasts from March 000 this year, an additional 6 to 2024 Ukrainians may arrive in 20.
– We expect that influx of refugees from Ukraine will increase both the labor force and unemployment in the future, but it is uncertain how large this increase will be, both in terms of the number of people who arrive and the number of people who will eventually return, says Thomas von Brasch.
A sharp decline in housing investment
Last year there was a very sharp decline in residential investment. Over the course of 2023, investment dropped by 21 percent. Such a large decline in such a short period of time had not previously been recorded in the quarterly national accounts dating back to 1978. The sudden stop in housing construction means that more people will be unemployed in the construction sector.
– Our forecasts show that the unemployment rate will increase from 3,6 percent last year to 4,1 percent this year and then further increase to around 4,2 percent in 2025, adds Thomas von Brasch.
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A soft landing for the Norwegian economy
The Norwegian economy grew weakly last year. There was no increase in economic activity in Norway during 2023. A decline of more than 2 percent was one of the main factors limiting Norway's onshore GDP growth in 2023. Going forward, there are several factors that encourage optimism about increased economic activity.
– Demand from our trading partners is expected to increase, interest rate will probably be gradually reduced from autumn, and the increase in real wages stimulates household demand. Moreover, it is expected high growth in consumption and investment public, among others, due to investments in defense. It is expected that the Norwegian economy should emerge from the slowdown by 2026, says Thomas von Brasch.
It is estimated that GDP Norway will increase by about 1 percent this year. Weak growth forecasts result mainly from the fact that the decline in construction activity will intensify. In 2026 and 2027, Norway's GDP growth is expected to increase to between 2 and 3 percent.
Declining economic situation among our trading partners
Many of our trading partners are still in a downturn. The course of inflation in connection with financial conditions i great uncertainty it will be geopolitical had an impact on economic activity in the future.
The USA surprises positively
– While economic growth in the US continues to surprise on the positive side, macroeconomic developments in Europe are weaker than expected. Our forecasts continue to predict a weak international economic performance in the coming years, says Roger Hammersland, a researcher at Statistics Norway.
Estimates show that the GDP growth of our trading partners, which has been growing on average by less than 2005% since 2. per year, this year it will be about 1%, and then in 2027 it will gradually increase to about 2%. Inflation is expected to be 2,2% this year, down from 5,4% in 2023, before falling to 2% in 2027.
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Source: Norwegian Office Statistical, Photo: pixabay
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