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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of Norway, published on 30 January 2007.
The economy is experiencing a favourable period of robust growth, low unemployment and moderate underlying inflation. This largely reflects the effects of globalisation, of which Norway has been a prime beneficiary, supplying energy and other commodities at high prices and increasingly importing products from low cost countries. Sizeable labour migration inflows, together with sustained productivity growth, have kept cost inflation at a moderate pace. A tradition of foreign trade openness, domestic competition, a good policy framework and sound macroeconomic management have meant that Norway was well prepared to take advantage of these international trends.
With underlying inflation well below its target, Norges Bank has raised the interest rate in small, not too frequent steps. There are signs of tensions now emerging, notably in the labour market, which could lead to higher inflation expectations if interest rates remain below the neutral level for too long. The central bank has decided to edge up the pace of normalisation of interest rates; an even faster pace may become necessary if wage growth appears to accelerate more than expected.
The fiscal rule has helped to limit the injection of oil revenue within the absorptive capacity of the economy. The budget deficit was allowed to exceed the amount permitted by the rule in the past five years, in part to support the economy. But with the recovery well under way, the budget for 2007 reaffirms the political commitment to the rule, thus bolstering its credibility. An undershooting of the rule should now be envisaged, so as to compensate for past deviations and help cool the economy.
Even though the statutory retirement age is high by international norms, the pension system is not fully on a sustainable footing. Perhaps because oil revenues have allowed distortions in the work leisure choice, the effective age of retirement has trended down, suggesting that Norway may not in the end entirely escape the “resource curse”. The growing use of social benefit schemes for the most part sickness and disability benefits and early retirement has depressed older worker participation, lowered working time and brought labour utilisation towards the international average. Reforms are needed to correct such distortions. Norway must resist the temptation of finding in higher than expected oil revenues an excuse for delaying the adoption of necessary reforms.
Future economic prosperity will also depend on the pace of technology-driven innovation, which at present remains low by cross country standard indicators. Although measurement is incomplete, R&D intensity appears weak, patenting is moderate and business surveys report a limited interest for innovative activity. Yet, the level of productivity is high in the mainland economy and its trend growth enviable, showing a capacity to absorb innovation spillovers and undertake organisational and managerial changes. Improving the framework conditions that stimulate innovation, such as strong product market competition, would go a long way towards preparing Norway for its post oil future, when revenues from natural resources will make a reduced contribution to fast rising living standards.
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:
For further information please contact the EU Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Alexandra Bibbee and Benoît Bellone under the supervision of Patrick Lenain.