OECD ECONOMIC SURVEY OF NORWAY Maintaining a successful economy in a changing world Centre for Monetary Economics, Oslo, Tuesday 19 December 2017 www.oecd.org/eco/surveys/economic-survey-norway.htm OECD Economics OECD
Norway s GDP per capita remains impressive Thousand 70 60 50 40 30 20 10 GDP per capita, constant USD prices, 2010 PPP OECD Norway Norway (Mainland) Thousand 70 60 50 40 30 20 10 0 1970 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 2 4 6 8 10 12 14 16 GDP per capita is equivalent to about 60 000 US dollars, a material living standard very few countries have achieved 0 Source: OECD National Accounts database, and OECD Analytical Database. 2
Living standards are high and inequality is low Environmental quality Personal security Subjective well-being Jobs and earnings Work and life balance A. Better Life Index Norway OECD Other Nordic Civic engagement 10 8 6 4 2 0 Education and skills Health status Housing Income Social connections Poverty rate after taxes and transfers Poverty rate before taxes and transfers B. Equality indicators Norway OECD Other Nordic Gini (disposable income) 10 8 6 4 2 0 P50/P10 disposable income decile P50/P10 disposable income decile ratio Gini (gross income) P90/P50 disposable income decile ratio Note: Other Nordic group comprises Denmark, Finland and Sweden. Indicators are rescaled from 0 (worst) to 10 (best). Source: OECD Better Life Index 2016. 3
The economy is picking up Y-o-Y % change 6 Real GDP growth (mainland) 4 2 0-2 -4 Real GDP (Mainland) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mainland real GDP is projected to grow by over 2% in 2018 and 2019 Business investment and household consumption growth will be key drivers Source: OECD Analytical Database; Norges Bank. 4
Key themes of the Survey Macroeconomic risks Public-spending efficiency Business competitiveness 5
Little risk from consumer-price inflation % Long term CPI growth and expectations 3,5 3,0 2,5 2,0 1,5 1,0 0,5 Expected inflation 2 years ahead CPI 10-year m.a, annual change 0,0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Trend outcomes and expectations of consumer-price inflation remain close to Norges Bank s 2.5% target Source: Norges Bank ; OECD analytical database. 6
Adjustment of the fiscal rule: a good move % of trend mainland GDP 9 8 Structural non-oil deficit 3 percent path 7 6 5 4 3 2 1 0 2000 2004 2008 2012 2016 2020 2024 Source: Ministry of Finance. 7
Housing market and related debt: the No.1 risk Household debt and house prices % of disposable income Index 2000 = 100 260 260 240 220 Household debt (left) Real house price (right) 240 220 200 200 180 180 160 160 140 140 120 120 100 2000 2002 2004 2006 2008 2010 2012 2014 2016 100 Source: Statistics Norway; Norges Bank ; and OECD Analytical database. 8
House prices have fallen in recent months, especially in Oslo Index 2014 = 100 150 140 Oslo including Bærum (quaterly, existing dwellings) Norway (monthly) Index 2014 = 100 150 140 130 130 120 120 110 110 100 100 90 2014 2015 2016 2017 90 Source: Statistic Norway; and Real Estate Norway (Eiendom Norge). 9
What problems could a housingmarket correction generate? Demand downturn via from weakening household consumption (more likely) Direct threat to banking sector (less likely) 10
Recommendation regarding the housing market Be prepared to respond to a hard landing in the housing and debt markets. This should include, as necessary, delay to monetary policy normalization and the introduction of targeted fiscal policy. 11
Other macroeconomic risks Oil price External demand, particularly Europe Domestic upswing failure 12
Public-spending efficiency: comprehensive public services and investment absorb considerable resources % of GDP 60 50 40 30 20 10 B. Total disbursements % of GDP 60 50 40 30 20 10 0 MEX IRL KOR TUR CHE AUS LVA USA JPN CZE ISR EST CAN POL NZL OECD GBR SVK LUX ESP NLD DEU PRT ISL SVN HUN EA15 ITA SWE GRC AUT BEL DNK FIN FRA NOR 0 % of GDP 60,0 50,0 40,0 30,0 20,0 10,0 A. Total revenues, net of property income % of GDP 60 50 40 30 20 10 Note: Norway Total mainland receipts minus mainland property income, as % of mainland GDP; Total disbursements as % of mainland GDP. 0,0 MEX IRL USA AUS KOR TUR CHE JPN LVA CAN ISR ESP GBR POL SVK NZL CZE EST SVN PRT LUX NLD HUN DEU EA15 ITA NOR AUT SWE GRC BEL FIN DNK FRA ISL 0 13
Norway invests heavily in transport infrastructure General Government investment in transport % of GDP % of GDP 2,0 2,0 Denmark Norway (Mainland) Sweden 1,8 1,8 1,6 1,6 1,4 1,4 1,2 1,2 1,0 1,0 0,8 0,8 0,6 0,6 0,4 0,4 0,2 0,2 0,0 2000 2005 2010 0,0 2015 Source: OECD National Accounts database. 14
The key problems appear to be: 1. Gold plating in the planning process 2. Final selection includes poor-ranking projects in terms of economic criteria 15
Business competitiveness 16
Business competitiveness: cost challenges EUR 60 Hourly labour costs, 2016 EUR 60 50 50 40 40 30 30 20 20 10 10 0 POL ESP GBR ITA EA19 DEU FIN FRA SWE DNK NOR At 50 euros per hour, Norway has much higher average labour costs than many countries Business conditions on other fronts need to be topranking for Norwegian business to compete 0 Source: Eurostat. 17
And (as elsewhere) productivity slowdown % change Trend in real labour productivity growth Per hour worked % change 3,0 Norway (mainland) OECD 3,0 2,5 2,5 2,0 2,0 1,5 1,5 1,0 1,0 0,5 0,5 0,0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Norway s trend labour productivity growth fell from about 2.5% in 2000 to 0.75% in 2016 0,0 Source: OECD Analytical database, and OECD Economic Outlook database. 18
1. Taxation The areas where policy can make the biggest difference are probably: 2. Education 19
Other areas for policy attention 1. Competition law, state ownership (market competitiveness) 2. Red tape, insolvency (firm dynamics) 3. Innovation policy 4. Disruption 5. Labour supply 20
Thank you www.oecd.org/eco/surveys/economic-survey-norway.htm OECD Economics OECD 21
Extra slides 22
Major road projects initiated in the period 2014-17 Corridor Number of projects Net benefit (NOK million) Cost (NOK million) Net Benefit to Cost ratio 1. Oslo-Svinesund-Kornsjø 1 860 1830 0.47 2. Oslo-Ørje/Magnor 2 1790 4750 0.38 3. Oslo-Grenland-Kristiansand-Stavanger 7 12080 33890 +0.36 4. Stavanger-Bergen-Ålesund-Trondheim 4 18020 26800 +0.67 5. Oslo-Bergen/Haugesund. Branch via Sogn to Florø 4 2320 8950 0.26 6. Oslo-Trondheim. Branches to Måløy, Ålesund, and Kristiansund 3 5210 6500 +0.80 7. Trondheim-Bodø. Branches to the Swedish border 2 1740 5670 0.31 8. Bodø-Narvik-Tromsø-Kirkenes. Branches to Lofoten and the national border 2 530 1890 0.28 Source: Sager (2016). 23
There is room to improve regulation 3,0 OECD Product Market Regulation (PMR) indicator, 2013 Scale 0-6 from least to most restrictive 2,5 2,0 1,5 1,0 0,5 0,0 NLD GBR AUT DNK NZL AUS DEU SVK ITA EST FIN PRT HUN BEL CZE JAP CAN ESP IRL LUX NOR FRA OECD ISL CHE CHL SWE USA LVA POL SVN GRC KOR MEX ISR TUR The OECD s Services Trade Regulation Index also points to middle-ranking performance Source: OECD Product Market Regulation Database. 24
Norway s PISA scores in mathematics and science remain middle-ranking A. Reading Average PISA score 550 Norway Top 3 OECD 550 B. Mathematics 550 OECD Bottom 3 OECD C. Sciences 530 530 530 510 510 510 490 490 490 470 470 470 450 450 450 430 430 430 410 2000 2003 2006 2009 2012 2015 410 2000 2003 2006 2009 2012 2015 Globalisation reinforces the importance of skills-based education Many vocational-stream students do not complete courses 410 2000 2003 2006 2009 2012 2015 Source: OECD PISA 2000-2015 Databases. 25
Recipiency of Disability Benefit remains an issue People on Disability Benefit, % of age category A. Age 18-34 B. Age 50-67 2,5 2,0 1,5 1,0 0,5 0,0 2008 2017 40 35 30 25 20 15 10 5 0 2008 2017 Benefit recipiency among older cohorts is falling but remains high Recipency is becoming more common in young cohorts Source: Norwegian Labour and Welfare Administration (NAV). 26