## IMF Executive Board Concludes 2018 Article IV Consultation with Norway

_IMF News, September 17, 2018_

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## Bibliographic details
- Published: September 17, 2018

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### 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.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Norway and the IMF](http://www.imf.org/external/country/NOR/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm.](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/09/17/pr18350-norway-imf-executive-board-concludes-2018-article-iv-consultation_