Revitalized optimism

Despite a decline in residential investment and consumer spending, Norway's economy benefits from increased petroleum investments, enhanced export competitiveness due to a weak NOK and higher public spending of oil revenues. Strong export profitability and high investment on the Norwegian Continental Shelf are expected to sustain growth, supported by the petroleum fund's value surge.

Norway's growth prospects are optimistic, supported by strong economic fundamentals and strategic investments. The nation continues to leverage its abundant natural resources, especially in oil and gas, which remain vital to its economy. Furthermore, Norway is actively working to diversify by investing in renewable energy and technology sectors, aligning with global sustainability objectives. Government initiatives aimed at improving infrastructure and promoting innovation are expected to drive further growth. Although challenges like fluctuating oil prices and global economic uncertainties persist, Norway's resilient economy is well-positioned for ongoing expansion. While firms’ profitability remains high, wage growth was above +5% for the second year in a row in 2024, which should push up household purchasing power and thus private consumption. Growth should reach +1.4% in 2025 and +1.7% in 2026 as the economy gradually returns to its potential growth rates.

Inflationary pressures are gradually easing but remain significantly above the 2% target. Overall inflation has decreased notably from +5.5% in 2023, driven by lower price growth in food and energy, as well as base effects. However, with sustained high wage growth, inflation is expected to remain elevated at +2.3% in 2025, reaching target by 2026. The combination of high nominal wage growth and stagnant productivity suggests ongoing price pressures on Norwegian goods and services. Additionally, the vulnerability of the NOK and the link between wage formation, inflation and industry profitability complicate efforts to control inflation compared to other countries. As a result, Norges Bank is likely to maintain its current interest rates at its 16-year high of 4.5%, with no cuts anticipated before March 2025. Furthermore, the Norwegian krone (NOK) is susceptible to geopolitical influences and international interest rate trends. If the NOK continues to weaken, it will become increasingly challenging to reduce inflation towards the 2% target, prompting Norges Bank to potentially delay any rate cuts even further.

Norway offers a robust business environment, excelling in areas such as low market entry barriers, competition, trade, and investment. In recent years, the government has introduced several reforms aimed at streamlining contract enforcement. However, there remains an opportunity to further simplify regulatory and administrative burdens on businesses.

A minority center-left coalition led by the Labor Party took office under Prime Minister Jonas Gahr Støre in October 2021. Political stability remains assured even in the absence of a parliamentary majority, underlining the country's strong historical capacity for cooperation. Policies to diversify the economy and pursue green initiatives are likely to be progressive and we do not expect any major disruption to the oil sector despite pressure from some smaller parties.