IMF Executive Board Concludes 2018 Article IV Consultation with Norway
IMF News, September 17, 2018
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- Published: September 17, 2018
Economic outlook and growth projections
- Mainland growth is projected to increase from 2 percent in 2017 to 2½ percent in each 2018 and 2019.
- Real GDP and mainland indicators (selected entries from Table 1):
- Real GDP change (percent): 2013: 1.0; 2014: 2.0; 2015: 1.1; 2016: 1.9; 2017: 2.1.
- Real mainland GDP (change in percent): 2013: 2.3; 2014: 2.2; 2015: 1.4; 2016: 2.5; 2017: 2.4.
- Domestic demand (change in percent): 2013: 3.5; 2014: 1.6; 2015: 0.7; 2016: 2.7.
- Unemployment rate (percent of labor force): 2013: 3.8; 2014: 3.6; 2015: 4.5; 2016: 4.7; 2017: 4.2; 2018: 3.7.
- Output gap (mainland economy, - implies output below potential): 2013: 0.5; 2014: 0.6; 2015: 0.0; 2016: -0.9; 2017: -0.6; 2018: -0.2; 2019: 0.2.
- CPI (average): 1.8 (year not specified in table extract).
- Headline inflation is already above the 2 percent revised target, and core inflation is slowly converging towards it.
- Petroleum investment will pick up; output will likely start to exceed potential in 2019.
- Unemployment has fallen below 4 percent and is expected to decrease somewhat further.
Risks to the outlook
- Risks are described as broadly balanced.
- External risk:
- Global trade tensions could be damaging to a highly open economy such as Norway.
- Domestic downside risks:
- High household debt and elevated house prices, particularly in the Oslo area.
- Over 90 percent of mortgages are variable rate, making highly-leveraged households and consumption vulnerable if financial conditions tighten abruptly.
- A sharp decline in house prices could curb private consumption and create negative spillovers to banks’ balance sheets.
- Upside risk:
- The upswing may prove stronger than expected, notably through higher oil prices impacting consumption and investment.
Fiscal stance and public finances
- The 2017 fiscal outturn implied a stimulus of 0.2 percent of mainland trend GDP.
- Non-oil structural balance stood at 7.5 percent of mainland trend GDP (equivalent to 2.8 percent of the GPFG).
- The revised 2018 budget:
- Maintains a neutral stance by saving stronger‑than‑expected gains from oil.
- Focuses on boosting long-term growth potential.
- Key measures aim at scaling back and shifting the tax burden from direct to indirect taxes, improving public sector efficiency, enhancing infrastructure, and promoting innovation.
- Table 1 fiscal indicators (selected):
- Central government overall balance (percent of mainland GDP) 2/: 2013: 9.4; 2014: 6.0; 2015: 1.3; 2016: -3.1; 2017: -2.0; 2018: -0.7.
- Nonoil balance (percent of mainland GDP) 3/: 2013: -4.8; 2014: -6.3; 2015: -7.1; 2016: -7.7; 2017: -8.0; 2018: -8.4; 2019: -8.5.
- Structural non-oil balance (percent of mainland trend GDP) 4/: 2013: -5.2; 2014: -5.9; 2015: -6.6; 2016: -7.3; 2017: -7.5; 2018: -7.6.
- Fiscal impulse (in percent of Pension Fund Global Capital) 5/: 2013: -3.3; 2014: -3.0; 2015: -2.7; 2016: -2.8.
- General government overall balance (percent of mainland GDP): 2013: 13.7; 2014: 10.8; 2015: 7.2; 2016: 4.6; 2017: 5.2; 2018: 6.9.
- Net financial assets: 2013: 262.6; 2014: 305.6; 2015: 335.4; 2016: 325.3; 2017: 350.3; 2018: 333.2; 2019: 328.9.
- Capital of Government Pension Fund Global (GPF-G): 2013: 207.7; 2014: 253.2; 2015: 284.6; 2016: 276.4; 2017: 302.8; 2018: 287.6; 2019: 285.6.
Executive Board assessment and policy recommendations
- Directors agreed with the thrust of the staff appraisal and commended authorities for skillful countercyclical policies during the last downturn.
- Short- and medium-term policy guidance:
- Recommend calibrated macroeconomic policies and structural reforms to sustain prosperity, boost productivity, and promote transition away from oil.
- Welcome decision in the revised 2018 budget to save the higher‑than‑expected oil windfall.
- Advise that the 2019 budget should target a modestly contractionary stance to begin unwinding the significant fiscal stimulus provided during the last downturn.
- Arresting the rise in non‑oil deficits of the last two decades would help relieve pressure on the real exchange rate and preserve competitiveness, and give a headstart on long-term consolidation needed for population ageing.
- Monetary policy and financial stability:
- Welcome the new monetary policy framework; not expected to result in major policy changes.
- Emphasize that the inflation outlook warrants a gradual tightening, as signaled by Norges Bank in its forward guidance.
- Note high levels of capital and liquidity in the banking sector but caution against financial stability risks from high household debt and fast rising house prices.
- Welcome recent extension of macro‑prudential measures and underscore the need to tighten policies further, and on a regionally differentiated basis, if risks intensify.
- Recommend further progress in relaxing constraints on housing supply and in reducing tax incentives in favor of home ownership.
- Labor market and structural reforms:
- Underscore the need to underpin competitiveness further; recommend carrying forward wage moderation achieved by social partners to facilitate transition out of oil.
- Encourage continuation of reforms supporting innovation and productivity growth.
- Note Norway’s social model requires high labor participation to be sustainable.
- Welcome recent agreements on private and public sector pensions to lengthen working lives and foster labor mobility.
- Recommend reforms to enhance work incentives, notably changes in the sickness and disability schemes, and improvements in integration of vulnerable groups into the labor market.
Financial, external, and other indicators (selected from Table 1)
- Gross national saving (percent of GDP): 2013: 38.1; 2014: 38.6; 2015: 35.5; 2016: 33.1; 2017: 34.3; 2018: 36.1; 2019: 36.4.
- Gross domestic investment (percent of GDP): 2013: 27.9; 2014: 28.1; 2015: 27.6; 2016: 29.3; 2017: 28.8; 2018: 28.3; 2019: 28.7.
- Current account balance (percent of mainland GDP): 2013: 13.0; 2014: 4.4; 2015: 6.5; 2016: 9.5.
- Exports of goods and services (volume change in percent): 2013: -1.7; 2014: 3.1; 2015: -1.8.
- Imports of goods and services (volume change in percent): 2013: 5.0; 2014: 2.8; 2015: 2.9.
- Terms of trade (change in percent): 2013: -11.7; 2014: -9.9; 2015: 4.9; 2016: 0.8.
- International reserves (end of period, in billions of US dollars): 2013: 57.9; 2014: 66.9; 2015: 58.5; 2016: 60.9; 2017: 65.1; 2018: 73.3; 2019: 78.7.
- Fund position and exchange rates:
- Holdings of currency (percent of quota): 2013: 78.2; 2014: 85.6; 2015: 89.8; 2016: 93.9; 2017: 93.5.
- Holdings of SDR (percent of allocation): 2013: 95.1; 2014: 94.8; 2015: 96.4; 2016: 88.3; 2017: 102.7.
- Quota (SDR millions): 1,884; 3,755 (table entries as shown).
- Exchange rate regime: Floating.
- Bilateral rate (NOK/USD), end-of-period: 5.9; 8.1; 8.4; 8.3.
- Real effective rate (2010=100): 99.0; 94.2; 86.5; 86.6; 87.4.
Source: IMF Press Release No. 18/350 — "IMF Executive Board Concludes 2018 Article IV Consultation with Norway", September 17, 2018.
