IMF Executive Board Concludes 2022 Article IV Consultation with Norway
IMF News, September 16, 2022
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- Published: September 16, 2022
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Norway on September 14, 2022.
- Norway’s economy continued to grow strongly: in 2021, real GDP grew 4.2 percent, supported by record high private consumption and public spending.
- Activity remained buoyant in the first half of 2022, benefiting from higher energy prices despite labor shortages and global supply disruptions.
- Core inflation reached levels significantly above the 2 percent target. Real wage growth remained moderately strong with fairly high expectations going forward amid historically low unemployment.
Economic outlook and risks
- Mainland real GDP growth is expected to be somewhat below 4 percent in 2022, with the forecast being especially sensitive to energy prices developments.
- Projected dynamics and risks:
- Household consumption could be affected by high global energy prices, but compensatory electricity subsidies and the agreed wage increase should help support real incomes and spending.
- The current account is projected to remain in a high surplus, with net exports contributing positively to growth.
- Indirect effects from the war in Ukraine, potentially lower demand from Europe for non-energy exports, and continued supply bottlenecks weigh on the outlook.
- Short-term risks are described as relatively balanced; ample policy space provides room to mitigate adverse shocks.
Executive Board assessment
- Directors noted Norway has rebounded strongly from the COVID-19 pandemic, benefitting from sound policies and solid economic fundamentals.
- Directors emphasized that while the outlook remains favorable, it is subject to uncertainties and risks, including spillovers from Russia’s war in Ukraine and pandemic developments.
- Long-term challenges identified: aging population, transition away from oil, and climate change.
- Directors supported continued use of Norway’s ample buffers to respond to shocks, and emphasized that over time policies should be reoriented toward addressing long-term structural challenges and promoting green and inclusive growth.
Policy recommendations
- Fiscal policy:
- The fiscal stance remains appropriately accommodative; a return to a neutral fiscal stance should be targeted over the medium term.
- Call for better targeting energy subsidies toward lower income households.
- Encourage authorities to proactively address expected strain on public finances driven by demographic trends and the transition away from oil.
- Some Directors saw merit in staff’s recommendation to adopt a medium-term expenditure framework guided by an operational rule.
- Reforms should aim at improving spending efficiency.
- Monetary policy:
- Monetary policy should continue balancing overheating risks and financial stability considerations.
- Directors welcomed Norges Bank’s decision to quickly increase interest rates and encouraged continued flexibility in decision making and clear public communication.
- Financial sector and housing:
- Financial sector remains on sound footing.
- While acknowledging improvements to the macroprudential policy framework, Directors saw merit in considering additional measures, especially to address high and interest sensitive housing related debt.
- Encouraged easing restrictions on the supply of new housing, altering regulations to boost construction efficiency, and gradually phasing out mortgage interest deductibility.
- Expanding the regulatory toolkit for mitigating commercial real estate vulnerabilities should also be considered.
- Structural reforms:
- Reforms should be wide-ranging with focus on raising non-oil productivity and boosting and diversifying labor force participation.
- Encourage promoting upskilling, changing the sickness and disability benefit system, and giving more opportunities to immigrants.
- Closing remaining gaps in digitalization will help further improve productivity.
- Directors welcomed Norway’s commitment to an ambitious climate agenda and efforts in helping to finance transition to renewable energy in developing countries.
Key statistics (Selected Economic and Social Indicators, 2019–24)
- Real GDP (change in percent) 1/: 2019: 0.7; 2020: -0.7; 2021: 3.9; 2022: 3.6; 2023: 2.6; 2024: 2.2
- Real mainland GDP (change in percent): 2019: 2.0; 2020: -2.3; 2021: 4.1; 2022: 3.7; 2023: 2.1
- Final Domestic demand: 2019: 2.3; 2020: -3.6; 2021: 3.4; 2022: 4.6
- Private consumption: 2019: 1.1; 2020: -6.6; 2021: 4.9; 2022: 5.8
- Public consumption: 2019: 1.3; 2020: 1.8; 2021: 3.8; 2022: 1.6; 2023: 1.7
- Gross fixed capital formation: 2019: 6.3; 2020: 0.0; 2021: 5.7; 2022: (not separately listed)
- Exports: 2019: 4.7; 2020: -8.2; 2021: 5.4; 2022: 3.1; 2023: 2.4
- Imports: 2019: -12.1; 2020: 3.0; 2021: 7.0
- Total Domestic demand (contribution to growth) 2/: 2019: 1.2; 2020: -4.3; 2021: 5.2
- Net exports (contribution to growth): 2019: -0.9; 2020: 2.5; 2021: 0.3; 2022: -1.5; 2023: -0.5; 2024: -0.2
- Unemployment rate (percent of labor force): 2019: 4.4
- Output gap (mainland economy, - implies output below potential): 2019: 0.2; 2020: -2.1; 2021: 0.8; 2022: 0.1
- CPI (end of period): 2019: 1.4; 2020: 5.3; 2021: 3.5; (2022 not separately listed)
- Core Inflation (end of period): 2019: 3.3; 2020: 2.8; 2021: (not separately listed)
- Central government (fiscal accounts basis) — Non-oil balance (percent of mainland GDP): 2019: -7.4; 2020: -12.2; 2021: -11.3; 2022: -8.6; 2023: -8.4; 2024: -8.3
- Structural non-oil balance (percent of mainland trend GDP) 3/: 2019: -7.3; 2020: -11.4; 2021: -10.8; 2022: -10.3; 2023: -9.4; 2024: -9.3
- Fiscal impulse: 2019: -0.1; 2020: -0.6
- In percent of Pension Fund Global Capital 4/: 2019: -2.7; 2020: -3.2; 2021: -2.9; 2022: -2.6
- General government (national accounts definition, percent of mainland GDP) — Overall balance: 2019: 7.7; 2020: 11.5; 2021: 27.8; 2022: 23.1; 2023: 20.3; 2024: -8.0; -13.3; -9.0; -8.7 (as listed)
- Net financial assets: 2019: 392.4; 2020: 423.0; 2021: 456.8; 2022: 425.3; 2023: 425.9; 2024: 429.3
- of which: capital of Government Pension Fund Global (GPF-G): 2019: 329.2; 2020: 358.5; 2021: 377.7; 2022: 352.2; 2023: 357.0; 2024: 363.5
- Money and credit (end of period, 12-month percent change) — Broad money, M2: 2019: 4.2; 2020: 12.1; 2021: 10.4; 2022: …
- Interest rates (year average, in percent) — Three-month interbank rate: 2019: 0.4; Ten-year government bond yield: 2019: 1.5
- Balance of payments (percent of total GDP) — Current account balance: 2019: 2.9; 2020: 15.0; 2021: 19.4; 2022: 14.5; 2023: 11.3
- Balance of goods and services: 2019: 15.5; 2020: 24.0; 2021: 17.1; 2022: 13.9
- Terms of trade (change in percent): 2019: -16.7; 2020: 42.7; 2021: 14.7; 2022: -8.1; 2023: -5.6
- International reserves (end of period, in billions of US dollars): 2019: 65.0; 2020: 73.6; 2021: 83.0
- Gross national saving: 2019: 32.8; 2020: 31.4; 2021: 40.3; 2022: 43.6; 2023: 40.2; 2024: 37.7
- Gross domestic investment: 2019: 29.9; 2020: 30.3; 2021: 25.3; 2022: 24.2; 2023: 25.6; 2024: 26.4
- Exchange rates (end of period) — Bilateral rate (NOK/USD), end-of-period: 2019: 8.8; 2020: 9.4; 2021: 8.6
- Nominal effective rate (2010=100): 2019: 81.7; 2020: 76.2; 2021: 80.5
- Real effective rate (2010=100): 2019: 83.7; 2020: 78.2; 2021: 83.1
- Memo: Nominal GDP (in Billions of US Dollars): 2019: 404.9; 2020: 362.2; 2021: 482.2; 2022: 504.7; 2023: 486.4; 2024: 495.1
IMF Communications Department; Press Release No. 22/308; September 16, 2022.