IMF Executive Board Concludes 2013 Article IV Consultation with Norway

Press Release No.13/326
September 5, 2013

On August 30, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Norway.1

The Norwegian economy continues to perform well with mainland (i.e. non-oil) GDP growing steadily at 2.5–3 percent, driven by private consumption, investment, and low interest rates. Despite strong domestic demand, inflation remains subdued, running below the 2.5 percent target, mostly due to declining import prices. Unemployment remains low at around 3–3.5 percent. The current account surplus was 19 percent of mainland GDP in 2012, boosted by strong oil prices and production. The general government balance was in surplus in 2012 and the non-oil structural fiscal deficit was 4.8 percent of mainland GDP or about 3.2 percent of the sovereign wealth fund (Government Pension Fund Global or GPFG) capital. This is below the deficit permitted under the authorities’ fiscal policy rule, but it still implies a slightly positive fiscal impulse due to the strong growth in GPFG assets.

However, the overall strength of the mainland economy masks divergent trends. A strong and growing set of industries supplying goods and services to the offshore sector coexist with a non-oil related subset of the mainland economy under increasing cost and competitiveness pressures. This divergence is also evident in cost pressures especially because of rapidly rising unit labor costs (ULC). Norway’s ULC-based real effective exchange rate appreciated substantially over the past decade, suggesting an erosion of long-term cost competitiveness.

House prices are high and increasing, and household debt is also high. The authorities tightened lending guidelines for mortgage loans in December 2011, and they are considering options for further tightening macroprudential limits including by increasing risk weights on mortgage loans. They are also consulting with other Nordic countries on how to regulate the operations of bank branches operating in Norway but headquartered elsewhere in the region.

Growth in the mainland economy is projected to continue at a moderate pace, largely supported by high activity in the petroleum sector and strong domestic demand. However, this central scenario is subject to key risks. A substantial and prolonged reduction in oil prices could undercut growth in the event that downside risks to the global growth outlook materialize. Also, a correction in the buoyant housing market could reduce household consumption with adverse consequences for retail trade, construction, commercial real estate, and lenders to those sectors.

Executive Board Assessment

Executive Directors appreciated the additional context provided by the Nordic Regional Report. They welcomed Norway’s sound macroeconomic management, which has underpinned steady growth and low unemployment in a difficult global environment. Directors agreed that the main challenge is to maintain macroeconomic and financial stability while containing vulnerabilities stemming from elevated house prices and high household indebtedness. In the longer run, competitiveness pressures on the mainland economy and the fiscal impact of population aging need to be addressed.

Directors concurred that the current monetary policy stance is appropriate. Inflation remains below target and is likely to increase only gradually as the economy approaches its potential and upward pressures on the exchange rate recede. Directors agreed that overheating in the property market should be addressed by tightening macroprudential policies and reducing the tax advantage of residential investment.

Directors welcomed the authorities’ prudent use of flexibility in the fiscal rule. Most Directors considered that wage pressures and eroding competitiveness in the non-oil sector argue for a slower rate of spending—in the 2014 budget and beyond—than the strictest interpretations of the fiscal rule would suggest. In addition, a conservative approach would help address future spending pressures connected with population aging.

Directors stressed the importance of further strengthening supervision and the regulatory framework in the financial sector. They supported the proposed legislation to increase capital requirements for banks in line with Basel III requirements. They also noted that more capital would appropriately support exposures and hedge against risks such as property price reversals or a disruption to external wholesale funding. In this context, Directors welcomed the proposal to reassess risk weights for residential mortgages and the consideration of measures to address risks related to covered bonds. In addition, they encouraged the authorities to enforce tighter limits on loan-to-value ratios and interest-only mortgages. Directors concurred that greater cross-border coordination on macroprudential measures—as recommended by the Nordic Regional Report—is necessary to limit regulatory arbitrage and ensure that foreign-headquartered bank branches lend in line with economic conditions in Norway.

Directors agreed that structural reforms are needed to enhance the competitiveness of the mainland economy. Priority areas include labor market, pensions, trade in agriculture products, and public sector services. Sickness and disability benefits could be further reformed to improve efficiency and help contain future pressures on government spending.

Norway: Selected Economic and Social Indicators, 2009–14

Population (2012): 5 million

Per capita GDP (2012): US$ 99,462

Main products and exports: Oil, natural gas, fish (primarily salmon)

Fund Position: 1,883.7 SDR Quota/72.12% of quota holdings of currency/94.59% of allocation holdings of SDR

2009 2010 2011 2012 2013 2014

Real economy (change in percent)


Real GDP 1/

-1.4 0.2 1.3 3.0 1.9 2.3

Real mainland GDP

-1.4 1.5 2.6 3.3 2.8 2.8

Domestic demand

-4.1 3.4 3.6 3.3 3.8 2.9

Private consumption

-0.1 3.6 2.5 3.1 3.6 3.3

Private mainland fixed investment

-18.4 -3.9 10.4 5.1 5.7 5.1

Government consumption

4.5 1.2 1.9 1.6 2.1 2.1

Unemployment rate (percent of labor force)

3.2 3.6 3.3 3.2 3.3 3.3

Output gap (mainland economy - implies output below potential)

-0.9 -1.0 0.0 0.3 0.2 0.2

CPI (average)

2.2 2.4 1.3 0.7 1.5 1.5

CPI (end of period)

2.0 2.8 0.2 1.4 1.5 1.5

Gross national saving (percent of GDP)

34.0 35.2 36.9 39.2 37.6 37.5

Gross domestic investment (percent of GDP)

22.3 23.3 24.1 25.0 26.7 27.5

Public finance


Central government (fiscal accounts basis)


Overall balance (percent of mainland GDP) 2/

9.8 8.6 13.0 13.4 9.7

Structural non-oil balance (percent of mainland trend GDP) 3/

-5.0 -5.0 -4.3 -4.8 -5.4

in percent of Pension Fund Global capital 4/

-4.2 -3.8 -2.9 -3.2 -3.3

General government (NA, percent of mainland GDP)


Overall balance

13.4 14.2 17.6 18.4 14.8 13.3

Net financial assets

196.6 209.8 207.7 220.7 238.5 241.2

of which: capital of Government Pension Fund Global (GPFG)

140.6 154.7 158.3 173.8 194.1 199.1

Money and credit (EOP, Y/Y percent change unless specified)


Broad money, M2

2.4 5.2 6.2 3.7

Domestic credit, C2

2.9 6.1 6.9 5.9

Three-month interbank rate, percent

2.5 2.5 2.9 2.2

Ten-year government bond yield, percent

4.0 3.5 3.1 2.1

Balance of payments (percent of mainland GDP)


Current account balance

14.9 15.3 16.8 18.7 14.1 12.8

Balance of goods and services

15.6 15.3 17.5 17.5 14.1 12.6

Mainland trade balance of goods

-6.5 -6.8 -7.4 -8.0 -7.5 -7.3

Offshore trade balance of goods

21.7 22.0 25.5 26.0 21.8 20.0

Terms of trade (change in percent)

-17.4 7.9 9.7 3.2

International reserves (end of period, in billions of US dollars)

48.9 52.8 49.4 51.9

Exchange rates (end of period)


Exchange rate regime


Bilateral rate (NOK/USD), end-of-period

6.2 5.8 5.7 5.8

Nominal effective rate (2005=100)

101.2 101.3 102.8 106.9

Real effective rate (2005=100)

102.2 102.6 101.5 105.1

Sources: Ministry of Finance, Norges Bank, Statistics Norway, International Financial Statistics, United Nations Development Programme 2011, and IMF staff calculations.

1/ Based on market prices which include "taxes on products, including VAT, less subsidies on products".

2/ Projections based on authorities’ 2013 revised budget.

3/ Authorities' key fiscal policy variable; excludes oil-related revenue and expenditure, GPF-G income, as well as cyclical effects.

4/ Over-the-cycle deficit target: 4 percent.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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