Mainland GDP will continue to recover, albeit at a moderate pace. High oil and gas prices will increase export and government revenues substantially. The direct impact of petroleum prices on inflation will be limited thanks to various energy support measures. However, import prices will rise and demand from trading partners will decline. Both business investment and mainland exports are expected to weaken somewhat. Nonetheless, household consumption will continue to sustain mainland GDP, supported by higher-than-anticipated wage growth.

Monetary policy has remained appropriately restrictive, given persistent underlying cost pressures. The central bank raised the policy interest rate by ¼ percentage point to 4.25% in early May, which should help keep inflation expectations anchored. Fiscal policy remains expansionary. As the structural non-oil deficit has substantially increased, the government should refrain from further loosening to avoid adding further impetus to inflation. Reducing regulatory burdens, particularly in the electricity sector, would boost sustainable growth.

While Norway’s per capita GDP is among the highest across OECD countries, this partly reflects petroleum activity. Over the past decades, trend growth in mainland activity has weakened notably, largely due to a marked decline in multifactor productivity growth, which has been constrained by stringent regulations in some areas. Although the employment rate is slightly higher than the OECD average, trend employment growth has been somewhat lower than in other Nordic countries.

Compared to other OECD countries, Norway has prioritised reforms in areas such as regulatory frameworks for physical infrastructure, product market regulations and insolvency regimes. Continuing reforms in these areas is essential to restoring productivity growth, promoting investment, including from abroad, and further integrating into global value chains. Reducing labour taxation and reforming the disability scheme would stimulate labour force participation.