Norwegian Economy Outlook in 2011

Photo : Norges-Bank

Conventional wisdom says that a global recession has been avoided, so that a gradual recovery of the world economy is present. Rising consumer spending all over the world also has led economists to predict a strong start for 2011. This fast recovery increased the positive outlook for the Norwegian economy in 2011, as leading economists presented optimistic financial forecasts in the media. However, they also share similar concerns.

Accordingly, the economy in 2011 will follow 2010’s trend of steady growth at around 2,5-3 percent. On the other hand, the growth will occur unevenly in different sectors. Hiring in the private sector will continue to improve, while job growth in the public sector may be flat. Some sectors, including business services, education and hospitality, have shown signs of job growth and will continue to pick up in 2011. The now steady average of activity in the construction sector is also expected to rise and help job creation. The most promising sector in investment is still the oil sector. Analysts are predicting an increased activity in the oil sector and higher oil prices. Increased petroleum investment and continued high consumption of oil money from the state budget are supposed to boost exporting and recruitment. However, all these investments and growth will still fall short of the growth rate needed to lower unemployment, as the oil sector and oil exports are all dependent on economic conditions outside.

Another indicator of the 2011 economic prospect will be the rise of house prices, according to the majority of Norwegian economists. They expect a steady rise until interest rates begin to decrease. The key rate may remain at 2- 2.25 percent throughout the year, but a probable slight increase in these rates may pull down house prices in the end of 2011.

As for personal finance, expectations are that Norwegians will have slightly more wage increases and therefore more cash in their pockets. However, energy and food costs traditionally rise in the first months of the year. Adding to these tremendous price upturns, it would be safe to say that whatever boost the average Norwegian gets from wage increases will be absorbed by these higher electricity and food prices.

Risks Still Prolonged

The prolonged weaknesses in the U.S. and European economies may be Norway's troubles in 2011, economists say, as the region fights potentially destabilizing inflationary pressures and where the unresolved debt crisis continues in Europe. With its economy dependent on oil exports and activities, Norway’s biggest downside risk is the impact of a new possible international downturn, which may put the Norwegian export industry in risk.

Nevertheless, 2011 should be a better year overall for the economy than 2010 in many ways. Investments and industrial activities will be bright prospects, along with solid improvements in financial and governmental regulations. However, the most positive attribute to Norway’s economy would be the continuous improvement of personal welfare, which would be contrary to the rest of