OECD Economic Outlook, Volume 2025 Issue 2

Norway

Mainland GDP is projected to increase by 1.7% in 2026 and 1.5% in 2027. Solid growth in household disposable income will support private consumption. Non-oil business investment will be held back for some time due to heightened uncertainty. Lower demand from trading partners is affecting mainland exports. Wage pressures will remain strong compared with productivity growth, slowing the disinflation process.

The central bank began cutting the policy rate in mid-2025, and the monetary policy stance should gradually become less restrictive, as inflation declines. Fiscal policy is set to remain very expansionary in 2026, further worsening the structural non-oil budget balance. A gradual tightening should start in 2027. Reducing administrative burdens for firm start-ups would spur productivity, while reducing regulatory uncertainty would help firms to undertake innovations and achieve environmental objectives.

Mainland activity has picked up

Mainland activity picked up in the first half of 2025, mainly driven by private consumption, while business surveys point to continued strong household demand. After turning positive in 2024, real wage growth has increased over the past quarters, driven by high nominal wages resulting from collective bargaining. Household disposable income was also supported by pension fund savings. After having declined markedly, headline inflation has been volatile in recent months, mainly due to fluctuations in food and energy prices. Housing investment has ceased contracting, with rising housing starts and permits. Business investment has remained sluggish, as indicated by investment intention surveys. Government spending has continued to support mainland activity.

Norway

1. Productivity and unit labour costs are calculated using the data for mainland GDP.

Source: OECD Economic Outlook 118 database

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Norway: Demand, output and prices

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The United States has imposed cumulative additional tariffs of 15% this year on goods imported from Norway. Direct exposure to the United States is limited, as it accounts for around 3% of Norway’s total exports. However, Norway is affected indirectly, as near-term demand from trading partners has weakened. Oil prices for the full year 2025 are set to decline sharply compared to the previous year, reducing export and government revenues.

Macroeconomic policies will be supportive

The central bank began cutting the policy interest rate in June, followed by another cut in September. However, the monetary policy stance remains restrictive, with the policy rate currently at 4.0%. As inflation is expected to gradually approach the 2% target, the policy rate is projected to be lowered to 3.25% by late 2027. The fiscal stance will ease further in 2026, before tightening modestly in 2027. According to Budget 2026, defence spending will increase to 3.4% of GDP in 2026, while personal income tax and social security contributions will be further reduced. Budget 2026 also introduces a new electricity support package. Overall, the structural non-oil budget deficit is expected to widen by around ½ percentage point of mainland GDP in 2026. The fiscal stimulus from this budget is expected to be limited, but the cumulative effects of past fiscal measures remain strong, which adds to cost pressures. The structural non-oil deficit in 2026 is still expected to remain below the threshold of 3% of the value of the Government Pension Fund Global (GPFG), the government’s oil fund, which has increased significantly due to substantial growth in GPFG assets over time.

Expansion continues, but at a slower pace

Mainland GDP is projected to grow above trend in both 2025 and 2026, before moderating towards trend growth in 2027. Headline inflation will continue to decline but is expected to remain above the 2% target, primarily driven by wage costs. Total GDP will expand more slowly, as offshore petroleum activity is expected to remain virtually flat in 2026‑27. Lower interest rates will support both housing and business investment. However, high construction costs will constrain housing investment, while global uncertainty will weigh on business investment. Household disposable incomes are expected to grow more moderately, slowing private consumption growth. This mainly reflects a slowdown in real wage growth, corresponding to sluggish underlying productivity growth. Buoyant international financial markets have boosted the value of the government oil fund and private pension funds, strengthening the financial position of both the government and households, which may intensify further, leading to even more fiscal stimulus. Conversely, a sharp drop in their value could abruptly reduce fiscal space and household demand.

Reforming regulations would make growth sustainable

The economy has been bolstered by offshore activity and government spending over the past two years. As petroleum revenues are expected to decline in the medium term, the high structural non-oil budget deficit needs to be gradually reduced by curbing public spending and improving spending efficiency. Untargeted measures to alleviate large electricity price fluctuations should be phased out, while electricity generation and transmission capacities should be strengthened. The increasing number of regulations needs to be assessed and streamlined to reduce compliance costs and regulatory uncertainty. Reducing major obstacles faced by businesses, notably regulatory burdens and labour shortages, would help spur private investment and productivity, thereby making growth more sustainable.