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The following OECD assessment and recommendations summarise chapter 1 of the Economic survey of Norway published on 20 August 2008.
Norway was a major beneficiary of the booming world economy and will not be untouched by the current slowdown
Norway has seen several years of strong economic growth and very low unemployment. Low imported inflation has allowed Norwegians to enjoy large real wage gains with only modest increases in inflation until recently. A number of OECD countries have seen long booms brought to an end by an abrupt about–turn in housing and financial markets, while others have seen tentative upswings fade, with inflation rising under the influence of energy and commodity prices. Norway’s upswing may be slowing but shows no sign of coming to an abrupt end. Pressures that act as negative supply shocks in some countries have beneficial effects for Norway. The rise in the prices of oil and some metals, and low or falling prices for many imports, have brought considerable terms of trade gains to Norway over the past few years. Increased income from oil and gas production both benefits public finances and stimulates demand in the oil–supporting sectors of the mainland economy, contributing to the excellent growth and productivity performance that mainland Norway has been showing. However, Norway is not untouched by the ongoing slowdown in the OECD, while domestically generated inflation has also begun to pick up. Macroeconomic policy is now facing a number of difficult challenges.
Progressive monetary tightening has been vindicated
In the short term, the rise in inflation might in one sense be greeted with relief by macroeconomic policy makers, as they had been anticipating it for some time. Between 2004 and 2005 the central bank kept interest rates very low: output had been below potential and inflation was subdued. Sustained low interest rates also encouraged a housing boom. The accompanying decline in the household saving rate (it was negative in 2007) has helped to sustain high consumption growth, although the resulting increased level of households’ financial liabilities (almost entirely at floating interest rates) also poses a potential downside risk. Norges Bank began to raise interest rates in mid 2005 and, as it became more evident that demand pressure was building up, the pace of increases was stepped up slightly in 2006, a move supported by the last Economic Survey. Nevertheless, economic growth has remained strong, output has risen rapidly above potential and unemployment has fallen to a low level. In 2008, headline inflation picked up substantially and core inflation has been rising as well.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Norway 2008 is available from:
For further information please contact the Norway Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Paul O’Brien and Romina Boarini under the supervision of Patrick Lenain. Research assistance was provided by Ane-Kathrine Christensen, Elke Lüdemann and Thai-Thanh Dang.