Economic surveys and country surveillance

Economic survey of Norway 2007: Norway's economic success and the challenge of preserving it

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 1 of the Economic survey of Norway published on 30 January 2007.

See also the excerpt "The Petroleum Sector and its Impact".

Contents                                                                                                                           

What are the main challenges?

The economy is in the fourth year of a long cyclical upturn that has brought down unemployment, without so far rekindling underlying inflation. This reflects in large part the effects of globalisation, which have been more beneficial than in most other OECD countries. Norway has been supplying energy at prices driven up globally by the needs of buoyant emerging economies like China and India, and it has been increasingly importing low cost consumer goods in return. The resulting terms of trade gains have been large both by international and historical standards. Sustained rises in oil prices induced record high petroleum investments, growing demand for business services and other significant spillovers into mainland production. Inflation and wage growth have nonetheless remained low, thanks to declining import prices and large migration inflows of labour. In turn, low inflation has allowed monetary policy to remain accommodative longer than would otherwise have been possible, adding to the forces of recovery and stimulating a housing boom. Natural endowment is not the only reason for this fine outcome. A tradition of trade openness (except for agriculture), a good policy framework and sound macroeconomic management have also meant that Norway adjusted its product specialisation to the challenges of globalisation early on.

 GDP per capita and GDP per hours worked  relative to OECD countries
USA = 100

 

1. GDP per capita expressed in prices level and PPP of 2000.
2. Current GDP expressed in current PPP.
Source: OECD, Annual National Accounts, OECD, Productivity database (September 2006).


The central bank has kept interest rates low for an unusually long period as a result of muted inflation, but the short term challenge will now be to reduce the risk of overheating. In the medium term, policies must remain vigilant to avoid possible perverse impacts of the oil wealth, notably an undue crowding out of market sectors by overextension of oil financed public expenditure. The present fiscal rule has been helpful in this regard, but it nonetheless implies growing injections of oil money into the economy, the more so at the higher oil price. Buoyant petroleum revenues make it more difficult than otherwise to gather popular support for thorough going reforms of early retirement, sickness absence and disability benefit programmes. Yet, such reforms are essential to bring pension and benefit promises into line with what is affordable over the long run, and thus need to be pursued vigorously. Such reforms can be absorbed more easily when growth is thriving, as at present. To secure Norway’s longer term economic future, the economy needs to remain diversified and competitive, productivity gains need to stay robust and innovation will be critical to underpin them. Timely action is required, as petroleum production is expected to peak at the end of the present decade, at the same time that pension expenditures will start a rapid ascent.

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic survey of Norway 2007 is available from:

Additional information                                                                                                  

For further information please contact the Norway Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Alexandra Bibbee and Benoît Bellone under the supervision of Patrick Lenain.

 

 

 

 

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