The Norwegian economy is experiencing a gradual upswing, bolstered by stronger household purchasing power and improved economic conditions. After a period of high inflation, rising interest rates, and weaker global demand, domestic consumption has begun to recover, playing a key role in the country's economic revival. According to Statistics Norway's head of research, Thomas von Brasch, household spending, which makes up nearly half of mainland GDP, is expected to continue growing after a slow 2023.
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This increase in purchasing power is largely driven by solid profitability in sectors that lead the labour market. Alongside lower price increases and reductions in interest rates, households are anticipated to enjoy an improved financial situation, contributing to sustained economic growth.
Inflation has eased significantly from its peak in late 2022, when prices surged to 7.5 per cent. By November 2024, annual inflation had fallen to 2.4 per cent, with the cost of imported goods playing a key role in lowering price growth. As a result, inflation is forecast to hover just above the 2 per cent target in the coming years, according to von Brasch.
Interest rate levels have remained high since December 2023, reaching their highest since 2008. However, there is now a clear expectation that interest rates will be lowered gradually in 2025, with five cuts of 0.25 percentage points anticipated throughout the year. This expected easing in monetary policy is expected to further boost household spending and investment.
Looking ahead, the mainland economy is anticipated to recover further in 2025, driven by lower interest rates, increased purchasing power, and regulatory changes in the housing market. A reduction in mortgage deposit requirements is expected to stimulate housing construction, following a decline in recent years that mirrored earlier housing crises.
While the Norwegian economy shows promising signs of recovery, global growth remains weaker. Economic activity among key trading partners like the United States and China has been stronger, but China's growth has underperformed expectations, and the eurozone continues to experience subdued growth. Geopolitical uncertainty and trade policies are key risks that could impact future developments.
Overall, Norway's economic prospects appear positive, with household consumption and investment likely to play a central role in driving the economy forward.
More information:
Statistics Norway
www.ssb.no