IMF Executive Board Concludes 2025 Article IV Consultation with Norway
IMF News, August 28, 2025
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- Published: August 28, 2025
Overview
- The Executive Board completed the Article IV Consultation for Norway and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- The authorities consented to publication of the Staff Report prepared for this consultation.
- Main assessment: Norway’s economy is resilient and well positioned to face a more challenging external environment.
Economic Outlook and Projections
- Mainland real GDP is expected to pick up to 1.5 percent in 2025 and remain at around that level over the medium-term.
- Under the baseline:
- Headline inflation is expected to decline to 2.2 percent by end-2025 and return to target by 2027.
- Core inflation is expected to decline to 2.6 percent by end-2025 and return to target by 2027.
- Short-term and medium-term projections (selected):
- Real GDP (change in percent): 2023: 0.1; 2024: 2.1; 2025: 0.7; 2026: -1.7; 2027: 1.6; 2028: 1.3
- Real mainland GDP (change in percent): 2024: 0.6; 2025: 1.5; 2026: 1.4
- Unemployment rate (percent of labor force): 2023: 3.6; 2024: 4.0; 2025: 4.1; 2026: 4.2; 2027: 3.9; 2028: 3.8
- CPI (average): 2024: 5.5; 2025: 3.1
- Core Inflation (average): 2024: 6.2; 2025: 3.7; 2026: 3.0
- Risks:
- Balance of risks to growth is tilted to the downside; risks to inflation are more balanced.
- Downside growth risks include global trade tensions, elevated household debt, and long-term demographic and structural challenges.
Inflation and Monetary Policy
- Bringing inflation sustainably back to target remains the most pressing near-term policy priority.
- Norges Bank actions and stance:
- Began normalizing monetary policy in June 2025 by lowering the policy rate 25 bp to 4.25 percent and signaled further cuts ahead.
- Recommendation: Proceed cautiously with monetary policy normalization; current restrictive stance should remain until inflation is clearly on track to return to the 2 percent target.
- Suggested enhancements: expand use of scenario analysis, formalize a role for contrarian views in forecasting, and refine communication strategies including criteria for strategic communications when market expectations deviate markedly from policy intentions.
Fiscal Policy and Public Finance
- Government stance:
- The government’s fiscal stance has become increasingly expansionary; the 2025 budget delivers a significant fiscal impulse.
- Structural non-oil deficit is projected to reach about 13 percent of trend mainland GDP.
- Withdrawals from the Government Pension Fund Global remain below the 3 percent guideline.
- Government committed to gradually increasing defense spending toward 5 percent of GDP in line with NATO targets.
- Executive Board guidance:
- A broadly neutral fiscal stance would support the disinflation process and improve policy coherence.
- Offsetting new spending priorities with savings elsewhere may be required to avoid fueling inflationary pressures.
- Enhancements to fiscal framework recommended:
- Reinforce countercyclicality of fiscal policy and spending discipline.
- Complement the fiscal rule with explicit medium-term expenditure limits.
- Strengthen multi-year budgeting, improve public investment management, conduct systematic spending reviews, and set efficiency targets.
- Benchmark and expand the mandate of the Advisory Panel on Fiscal Policy Analysis.
- Fiscal projections and indicators (selected):
- Non-oil balance (percent of mainland GDP): 2023: -7.5; 2024: -8.2; 2025: -8.7; 2026: -9.1; 2027: -9.3; 2028: -9.5; 2029: -9.8; 2030: -10.0
- Structural non-oil balance (percent of mainland GDP): 2023: -9.4; 2024: -10.3; 2025: -12.9; 2026: -12.8
- Fiscal impulse: 2024: 0.4; 2025: 2.5
- In percent of Pension Fund Global Capital: 2023: -2.9; 2024: -2.7
- Overall balance (general government, percent of mainland GDP): 2023: 21.8; 2024: 17.0; 2025: 16.3; 2026: 13.5; 2027: 12.8; 2028: 12.3; 2029: 11.7; 2030: 10.9
- Net financial assets: 2023: 479; 2024: 557; 2025: 568; 2026: 572; 2027: 574; 2028: 575; 2029: 576
- Capital of Government Pension Fund Global (GPFG): 2023: 406; 2024: 487; 2025: 501; 2026: 507; 2027: 511; 2028: 515; 2029: 517; 2030: 519
- Gross Public Debt (percent of GDP): 2023: 44.2; 2024: 42.7; 2025: 42.5; 2026: 41.1; 2027: 39.8; 2028: 38.4; 2029: 37.0; 2030: 35.5
Financial Stability and Macroprudential Policy
- Assessment:
- Financial system is sound with strong buffers, but vulnerabilities remain elevated.
- Continued close monitoring and priority on preserving capital buffers and contingency planning are essential.
- Macroprudential guidance:
- Macroprudential policy settings should not be eased further.
- Easing should wait until systemic risks recede or financial disintermediation risks emerge.
- Current CCyB setting remains appropriate; Norges Bank should be prepared to raise it if cyclical vulnerabilities increase.
- Concerns noted about recent relaxation of the LTV limit for mortgages potentially increasing house prices and household indebtedness.
- Financial sector actions and recommendations:
- Ensure bank models properly reflect credit risks.
- Strengthen contingency planning amid pressure on the commercial real estate (CRE) sector.
- Measures addressing increased bank reliance on covered bonds are welcome to mitigate interconnectedness risks.
- Participation in a Nordic-Baltic regional stress test exercise recommended.
- Continue work addressing findings of the 2024 Nordic-Baltic crisis management exercise and 2020 FSAP recommendations.
Structural Reforms and Long-term Policies
- Priority reform areas:
- Advance the “reinforced work line” agenda to reduce reliance on disability benefits, raise labor force participation among underrepresented groups (including youth and immigrants), and increase total hours worked.
- Strengthen education-to-work transitions, promote full-time employment, and accelerate digitalization to support productivity.
- Further measures needed to achieve Norway’s 2035 emission reduction targets.
- Fiscal and tax reform recommendations:
- Tax reforms to improve efficiency and broaden the revenue base, including consolidating multiple VAT rates and enhancing incentives for work and investment.
- Further reforms to disability and sickness benefits to reduce work disincentives, increase labor force participation, and contain long-term fiscal costs.
- Implementation guidance:
- Sustained reform efforts are crucial to ensure long-term sustainability of fiscal policy in the face of rising structural spending pressures.
Key Statistics and Memo Items
- Population (2024): 5.6 million
- Per capita GDP (2024): US$ 86,611
- Main products and exports: Oil, natural gas, fish (primarily salmon)
- Selected table entries (rounded to source precision where provided):
- International reserves (end of period, in billions of US dollars): 77.4 (2023); 82.4 (2024)
- Gross national saving (percent of mainland GDP): 2023: 41.6; 2024: 40.8; 2025: 38.8; 2026: 38.3; 2027: 37.8; 2028: 37.1; 2029: 36.3; 2030: 35.6
- Gross domestic investment (percent of mainland GDP): 24.3 (2023); 24.1 (2024); 24.0 (2025); 24.2 (2026)
- Nominal GDP (in Billions of US Dollars): 2023: 482.9; 2024: 83.6; 2025: 515.5; 2026: 546.9; 2027: 566.2; 2028: 584.2; 2029: 603.1; 2030: 623.3
- Terms of trade (change in percent): 2023: -29.3; 2024: -6.1; 2025: -4.9; 2026: -0.4
- Balance of goods and services (percent of mainland GDP): 2023: 20.3; 2024: 17.5; 2025: 16.1; 2026: 15.7; 2027: 15.2; 2028: 14.7; 2029: 14.2; 2030: 13.7
- Projection basis: Based on information available as of July 1, 2025.
IMF Executive Board Concludes 2025 Article IV Consultation with Norway — Press Release No. 25/283