OECD Economic Outlook, Volume 2025 Issue 1

Norway

Mainland GDP is projected to increase by 1.7% in 2025 and 1.9% in 2026. Solid household disposable income growth will boost private consumption. Housing investment will rebound from a slump as interest rates decline. Non-oil business investment will strengthen only slightly due to heightened uncertainty. Oil production is expected to decline markedly. Strong domestic cost pressures, currently pushing up inflation, are expected to subside gradually.

The central bank is expected to start cutting the policy rate around mid-2025, as inflation eases. Fiscal policy is set to remain expansionary in 2025-26, worsening the structural non-oil budget balance further. Easing product market regulations and insolvency regimes would spur private investment and productivity, fostering stronger self-driven economic growth.

Mainland activity has shown signs of recovery

Mainland GDP growth picked up in the first quarter of 2025. Household consumption, which had remained somewhat subdued due to high inflation and high interest rates, grew strongly on the back of solid real wage gains. Housing investment declined considerably through late 2024, and remains depressed. Growth in non-oil business investment has generally remained weak. There are signs of a more broad-based recovery, as both manufacturing production and retail sales have risen in recent months. Business surveys also suggest some momentum in activity, except for construction, in the near term. Headline inflation has been volatile in recent months, largely owing to food and energy prices, and stood at 2.5% in April.

Norway

1. “House prices” refer to the price index for new dwellings, including both detached houses and multi-dwellings.

2. “Mortgage interest rates” refer to interest rates on new loans secured on dwellings covering all fixed interest periods.

Source: OECD Economic Outlook 117 database; and Statistics Norway.

Statlink

Norway: Demand, output and prices

Statlink

The United States imposed a 10% tariff on goods imported from Norway in April, which could be raised to 15% by July. The United States accounts for around 3% of Norway's total exports, so the direct impact of the increased US tariff will be relatively modest. In this projection, Norway is assumed not to introduce a retaliatory tariff and the possible rise in July is assumed not to take place. Nonetheless, Norway will be affected by increased uncertainty in the global economy and a contraction in demand, including for oil and gas. Both oil and gas prices have declined markedly since early April, reducing export and government revenue.

Macroeconomic policies will be supportive

The central bank has repeatedly postponed the envisaged first rate cut, amid stronger-than-expected inflationary pressures associated with strong wage growth. With inflation expectations well anchored around the 2% target, however, the monetary policy stance is set to become less restrictive starting around mid-2025, with the policy rate expected to be brought down to 3.5% by late 2026. Overall, fiscal policy is expected to be expansionary in 2025 and 2026. Defence spending is to rise to 2.2% of GDP in 2025, and personal income tax and social security contributions are being cut. The Revised National Budget introduces a new electricity support package. It also considerably increases support to Ukraine, albeit with little effect on economic activity in Norway. The structural non-oil budget deficit is expected to widen by more than 2½ percentage points of mainland GDP this year, with the increased support to Ukraine largely accounting for the deviation from the initial budget. The structural non-oil deficit in 2025 is still expected to remain below the 3% of the value of the Government Pension Fund Global (GPFG) threshold, which has been raised significantly due to substantial increases in GPFG assets over time.

The projected recovery is surrounded by substantial risks

Mainland GDP growth is projected to extend its recovery and inflation to subside slowly, as real wages will outpace productivity. Solid growth in real household disposable income, driven by strong wage growth, lower inflation and government support, will drive up private consumption. As interest rates decline, housing investment will pick up in the latter half of 2025 from currently depressed levels. Non-oil business investment will increase only moderately, reflecting heightened uncertainty in the global economy. Oil production, exports and investment are projected to weaken this year. Oil and gas prices could affect the Norwegian economy substantially in both directions. A surge in oil and gas prices would considerably boost export and government revenue. Conversely, an abrupt decline in oil and gas prices would substantially strain the budget balance, especially given the significant deterioration of the structural non-oil budget balance in recent years. Similarly, a sharp drop in the value of GPFG assets would abruptly reduce fiscal space.

Public policy needs to stimulate market forces

While the Norwegian economy has been bolstered by offshore activity and government spending for some time, spurring private investment and productivity is key to making growth more sustainable. Industrial subsidies have increased substantially in recent years, with too much focus on specific industries such as battery factories and offshore wind projects. The government should stop support to these, and focus instead on further reforming market regulations, notably by reducing administrative burdens and licence requirements for firm entry and alleviating penalties for business failure. This would help ensure fiscal sustainability while boosting private investment, particularly innovative ventures, via market forces.