A fall in oil investment is expected to reduce mainland Norway’s GDP growth to just 1.1 per cent in 2015, compared with 2.3 per cent in both 2013 and 2014, according to Statistics Norway (SSB).
Unemployment will increase gradually, to an estimated 4.1 per cent in 2016. This will help to reduce wage growth, which is expected to be less than 3 per cent in 2015.
Reduced demand from the petroleum industry after years of strong growth, together with a modest growth in household demand, were key factors behind the shift to a moderate economic downturn in the second half of 2014. A sharp fall in crude oil prices in autumn 2014 and into 2015 will reinforce the negative impulses from the petroleum industry going forward.
Economic growth among Norway’s trading partners picked up towards the end of 2014. The fall in oil prices seems to be positive for most of Norway's trading partners, but growth is weakened by high debt in the public sector as well as in the households. Many OECD countries are experiencing a major slump, with high unemployment. Fears of deflation are leading to low interest rates globally. Growth in Norway’s export markets is expected to be roughly unchanged this year, followed by gradually higher growth thereafter.
Growth in average wages fell from 3.9 per cent in 2013 to 3.1 per cent in 2014. Higher unemployment means that wage growth this year will fall further, to an estimated 2.9 per cent. Growth in the consumer price index (CPI) was 2.0 per cent last year. Despite the low oil price pushing prices down, the weakened krone is expected to have a major impact on inflation, resulting in CPI growth this year of 2.3 per cent. Thus, real wage growth, which was 1.8 per cent in 2013 and 1.1 per cent last year, will fall to 0.6 per cent this year - the lowest real wage growth in 25 years.
Slow economic growth implies little growth in employment this year and next. A reduced participation ratio and slightly lower immigration will help to limit the rise in unemployment, which may nevertheless reach 4.1 per cent in 2016. This is well below the level from the beginning of the 2000s. The subsequent economic recovery is then expected to lead to a stronger development in employment, with unemployment falling to 3.8 per cent in 2018, according to the forecast from Statistics Norway.