IMF Executive Board Concludes 2024 Article IV Consultation with Norway
IMF News, September 18, 2024
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- Published: September 18, 2024
Economic outlook and inflation
- Real GDP growth slowed to 0.5 percent in 2023 from a cyclical peak of 3.5 percent on average over 2021–22.
- Economic activity is projected to rebound in 2024, with real GDP growth rising to 1.5 percent.
- Real mainland GDP is projected to rise by 0.8 percent in 2024 amid still tight financial conditions.
- Inflation: headline inflation is high and above the 2 percent target. Inflation is projected to reach 3.3 percent by end-2024 and return to the target by mid-2026.
- Core inflation remains elevated driven by persistent services inflation; a weaker currency has contributed to keeping inflation high, while inflation expectations remain above the inflation target.
- Risk assessment: Amidst still high uncertainty, risks to the growth and inflation outlook are balanced.
Monetary policy, financial conditions, and financial stability
- Norges Bank implemented a cumulative 450 bps increase in its policy rate, resulting in a restrictive monetary policy stance; financial conditions remain tight though easing since early 2024.
- Tighter financial conditions have weighed on private consumption and gross fixed investment, particularly residential investment; exports and public spending provided some support in 2023.
- Commercial real estate (CRE) sector has been impacted by rising debt-servicing costs and declining valuations.
- Macroprudential policy settings have been tightened across several dimensions over the past two years; systemic risks are not building up further.
- The financial system is sound and bank buffers are robust, but vulnerabilities remain high.
- Directors recommended maintaining a tight monetary policy stance to ensure inflation convergence and mitigate risks of de-anchoring of inflation expectations; they encouraged a data-dependent approach and readiness to adjust the stance as needed.
- Directors welcomed that macroprudential policy settings should remain tight and recommended continued close monitoring; they noted elevated household indebtedness and high exposure to CRE as vulnerabilities.
- Directors encouraged further progress on the implementation of 2020 FSAP recommendations and welcomed strengthening of the Financial Stability Authority (Finanstilsynet).
Fiscal policy assessment and recommendations
- The fiscal policy stance is expansionary.
- Directors recommended adopting a neutral fiscal stance, highlighting that removing the current fiscal stimulus would support disinflation.
- Discretionary fiscal stimulus should be well-targeted and temporary and deployed only if needed.
- Directors encouraged efforts to address increased reliance on natural resource revenues and to adopt measures to ensure higher defense and ageing-related spending needs can be accommodated.
- Recommended measures include increasing the efficiency of the tax system, restructuring the pension and social protection regimes, and complementing the fiscal policy framework with enhanced medium-term budgeting and an expenditure rule.
- Directors noted the importance of addressing the structural non-oil balance and related fiscal metrics.
Structural reforms and medium-term challenges
- Directors underscored the importance of comprehensive structural reforms to address population ageing, productivity slowdown, and geoeconomic fragmentation.
- Reforms to foster diversification, raise productivity growth, and mitigate the impact of geoeconomic fragmentation were emphasized.
- Directors emphasized that reforming the sickness and disability benefits systems would help bolster labor supply.
- Directors welcomed the authorities’ commitment to enhancing climate mitigation and adaptation.
Executive Board Assessment (summary)
- Directors agreed with the thrust of the staff appraisal and welcomed the expected rebound in growth.
- They highlighted the need to carefully navigate policy trade-offs arising from elevated inflation and financial sector vulnerabilities.
- They recommended maintaining tight monetary and macroprudential policies, adopting a neutral fiscal stance, and pursuing comprehensive structural reforms.
Selected economic and social indicators (2021–2029) — key figures and projections
- Real GDP (change in percent): 2021: 3.9; 2022: 3.0; 2023: 0.5; 2024: 1.5; 2025: 1.8; 2026: 1.7; 2027: 1.6; 2028: 1.4; 2029: (not listed)
- Real mainland GDP (change in percent): 2021: 4.5; 2022: 3.7; 2023: 0.7; 2024: 0.8
- Final Domestic demand (change in percent): 2021: 5.1; 2022: 0.3; 2023: 0.4
- Private consumption (change in percent): 2021: 6.2; 2022: -0.8; 2023: 1.2
- Public consumption (change in percent): 2021: 3.6; 2022: 1.1; 2023: 3.4; 2024: 2.0
- Gross fixed capital formation (change in percent): 2021: 7.6; 2022: -1.2; 2023: -2.2; 2024: 1.3
- Exports (change in percent): 2021: 7.3; 2022: 9.3; 2023: 4.6; 2024: 2.5; 2025: 2.4
- Imports (change in percent): 2021: 2.8; 2022: 14.7; 2023: 0.6; 2024: 2.1; 2025: 2.3
- Real Offshore GDP (change in percent): 2021: -0.3; 2022: -0.1; 2023: 4.2; 2024: 2.9; 2025: 2.2; 2026: 1.0
- Unemployment rate (percent of labor force): 2021: 4.4; 2022: 3.3; 2023: 3.8
- Output gap (mainland economy-implies output below potential): 2021: -0.7; 2022: -0.2; 2023: 0.0; 2024: 0.1
- CPI (average): 2021: 3.5; 2022: 5.8; 2023: 5.5
- Non-oil balance (percent of mainland GDP): 2021: -11.1; 2022: -7.8; 2023: -7.5; 2024: -8.4; 2025: -8.7; 2026: -9.0; 2027: -9.2; 2028: -9.4; 2029: -9.6
- Structural non-oil balance (percent of mainland trend GDP): 2021: -10.1; 2022: -9.7; 2023: -10.4; 2024: -11.7; 2025: -12.0; 2026: -12.2; 2027: -12.3
- Fiscal impulse: 2021: -1.0; 2022: -0.9; 2023: 0.2
- In percent of Pension Fund Global Capital: 2021: -3.2; 2022: -2.7; 2023: -3.0; 2024: -2.6
- Gross Public Debt (percent of GDP): 2021: 41.6; 2022: 36.3; 2023: 44.0; 2024: 42.7; 2025: 42.3; 2026: 40.9
- Broad money, M2 (end of period, 12-month percent change): 2021: 10.4; 2022: 5.6; 2023: …
- Domestic credit, C2 (end of period, 12-month percent change): 2021: 4.9
- Three-month interbank rate (year average, in percent): 2021: 4.8; 2022: 4.0
- Ten-year government bond yield (year average, in percent): 2021: 3.2; 2022: 2.6
- Current account balance (percent of total GDP): 2021: 14.9; 2022: 30.2; 2023: 17.9; 2024: 14.5; 2025: 12.5; 2026: 10.6; 2027: 8.8; 2028: 6.6
- Balance of goods and services (percent of mainland GDP): 2021: 19.4; 2022: 44.3; 2023: 19.6; 2024: 20.6; 2025: 17.6; 2026: 12.6; 2027: 11.0; 2028: 9.6
- Terms of trade (change in percent): 2021: 50.8; 2022: 44.1; 2023: -29.4; 2024: 8.6; 2025: 4.3; 2026: -0.6; 2027: -1.4; 2028: -1.6
- International reserves (end of period, in billions of US dollars): 2021: 83.0; 2022: 72.1; 2023: 77.4
- Gross national saving: 2021: 40.0; 2022: 51.9; 2023: 43.8; 2024: 39.8; 2025: 38.5; 2026: 37.1; 2027: 35.7; 2028: 34.8; 2029: 33.9
- Gross domestic investment: 2021: 25.1; 2022: 21.7; 2023: 25.9; 2024: 25.3; 2025: 26.0; 2026: 26.6; 2027: 26.9; 2028: 27.2; 2029: 27.3
- Nominal GDP (in Billions of US Dollars): 2021: 503.4; 2022: 593.7; 2023: 485.3; 2024: 504.3; 2025: 507.6; 2026: 509.4; 2027: 521.3; 2028: 534.9; 2029: 549.5
- Nominal effective rate (2010=100): 2021: 80.5; 2022: 79.9; 2023: 73.2
- Real effective rate (2010=100): 2021: 83.1; 2022: 80.9; 2023: 74.1
IMF Executive Board press release: IMF Executive Board Concludes 2024 Article IV Consultation with Norway (Press Release No. 24/333).