ECONOMIC

OUTLOOK

DEPUTY GOVERNOR

JON NICOLAISEN

Jæren, 10 May 2017

1. Background: structural adjustments

and oil sector downturn

2. The current situation abroad

3. The economy in Norway has turned

the corner

2

1. Background: structural adjustments

and oil sector downturn

2. The current situation abroad

3. The economy in Norway has turned

the corner

3

Oil prices putting a brake on growth

4

GDP mainland Norway. Volume. Annual growth. Percent

0

1

2

3

4

2011 2012 2013 2014 2015 2016

Sources: Statistics Norway and Norges Bank

Oil investment and petroleum revenue spending

In billions of 2016 NOK. Average annual change

Sources: Ministry of Finance, Statistics Norway and Norges Bank

-30

-20

-10

0

10

20

30

2001-2013 2013-2016

Spending

Investment

5

The key policy rate has been lowered

Percent

Source: Norges Bank

0

1

2

3

4

5

6

7

2008 2010 2012 2014 2016 2018 2020

Forecast, March 2017

Forecast, March 2014

Key policy rate

6

Oil price and krone exchange rate

Oil price1) and import-weighted exchange rate index2)

1) Brent Blend. USD/barrel.

2) A positive slope denotes a stronger krone exchange rate.

Sources: Thomson Reuters and Norges Bank

85

90

95

100

105

110

11520

40

60

80

100

120

2014 2015 2016 2017

Oil price (left-handscale)

I-44 (right-hand scale)

7

Improved competitiveness

8

Labour costs in Norway, relative to trading partners’ labour costs1). Index2)

80

90

100

110

120

130

140

1995 1999 2003 2007 2011 2015

Measured in domesticcurrency

Measured in a commoncurrency

1) Hourly labour costs in manufacturing.

2) Index 1995 = 100.

Sources: Statistics Norway, Norwegian Technical Calculation Committee for Wage Settlements (TBU)

and Norges Bank

Structural adjustments

Changes in employment between 2014 Q3 and 2016 Q4. In thousands of persons

Sources: Statistics Norway and Norges Bank

-40 -30 -20 -10 0 10 20 30

Other sectors

Public sector

Construction

Hotel and restaurant

Oil-related industries

9

1. Background: structural adjustments

and oil sector downturn

2. The current situation abroad

3. The economy in Norway has turned

the corner

10

US: The dollar has risen in tandem with

long yields

US 10-year government bond yield and effective US dollar exchange rate

96

98

100

102

104

106

108

110

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

2.8

Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17

US 10-yeargovernment bondyield (l.h.s.)

Effective USDexchange rate(r.h.s.)

Source: Bloomberg 11

Europe: Somewhat wider sovereign yield spreads

-0.5

0

0.5

1

1.5

2

2.5

3

Apr-16 Jul-16 Oct-16 Jan-17 Apr-17

Italy

France

Germany

10-year government bond yields. Percent

Source: Bloomberg 12

Have rates abroad reached bottom?

0

1

2

3

4

5

2008 2010 2012 2014 2016 2018

September 2016

April 2017

Money market rates and forward rates for trading partners. Percent.

Sources Thomson Reuters and Norges Bank

13

Oil price

USD per barrel. January 2014 – December 20201)

1) Futures prices for May 2017 (broken lines) are the average of futures prices for the period 25 April – 1 May 2017.

Sources: Thomson Reuters and Norges Bank

0

20

40

60

80

100

120

140

2014 2015 2016 2017 2018 2019 2020

Futures prices, May 2017

Futures prices, March 2017

14

Active rigs and production in the US

Production in millions of barrels per day. Week 1 2013 – week 17 2017

Source: Thomson Reuters

6.5

7

7.5

8

8.5

9

9.5

10

2013 2014 2015 2016 2017

200

400

600

800

1 000

1 200

1 400

1 600

1 800

Active rigs (l.h.s.)

Production (r.h.s.)

15

1. Background: structural adjustments

and oil sector downturn

2. The current situation abroad

3. The economy in Norway has turned

the corner

16

The economy has turned the corner

0

1

2

3

4

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GDP mainland Norway.1) Volume. Annual growth. Percent

1) Projections for 2017-2020 from MPR 1/17.

Sources: Statistics Norway and Norges Bank

17

Regional network reports broad upturn

18

Reported and expected output growth. Annualised. Percent

Source: Norges Bank

-5

-4

-3

-2

-1

0

1

2

3

4

Domest.oriented mfg.

Export industry Oil serv.domest.oriented

Oil serv. exportoriented

Construction Retail trade Commerc.services

Househ.Services

November 2016 – Past 3 months February 2017 – Past 3 months

February 2017 – Next 6 months

Unemployment

As a percentage of the labour force. Seasonally adjusted

1) Hordaland, Møre og Romsdal, Rogaland and Vest-Agder.

Sources: Norwegian Labour and Welfare Administration (NAV), Statistics Norway and Norges Bank

0

1

2

3

4

5

6

2010 2012 2014 2016 2018 2020

Registeredunemployment

Labour force survey(LFS) unemployment

Registeredunemployment, oil-dependent regions

19

House price inflation has risen

NOK per square metre

Sources: Finn.no, Eiendomsverdi and Real Estate Norway

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

2003 2005 2007 2009 2011 2013 2015 2017

Norway

Bergen

Oslo

Stavanger

20

Oil investment close to bottoming out

Constant 2015 prices1). In billions of NOK

1) Projections for 2017-2020 from MPR 1/17.

Sources: Statistics Norway and Norges Bank

50

100

150

200

250

300

350

2000 2003 2006 2009 2012 2015 2018

Other businessinvestment

Oil investment

Housing investment

21

Is oil revenue spending levelling off?

Constant 2017 prices. In billions of NOK. 2000–20201)

0

50

100

150

200

250

300

350

2002 2005 2008 2011 2014 2017 2020

Structural non-oil deficit

4% of the GPFG

3% of the GPFG

1) Projections for 2017−2020 (broken line and shaded).

Sources: Ministry of Finance and Norges Bank 22

Historically low wage growth

-2

-1

0

1

2

3

4

5

6

7

1995 2000 2005 2010 2015 2020

Nominal wages

Real wages

Annual growth. Percent. 1995–2020

Sources: Statistics Norway, Norwegian Technical Calculation

Committee for Wage Settlements (TBU) and Norges Bank

23

Inflation is falling

Twelve-month change. Percent

0

1

2

3

4

5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

CPI

CPI-ATE

Sources: Statistics Norway and Norges Bank

24

Forecast for the key policy rate

Norges Bank’s Executive Board, March

2017:

The Executive Board’s current assessment of

the outlook suggests that the key policy rate will

most likely remain at today's level in the period

ahead.

Norges Bank’s Executive Board, May 2017:

The outlook and the balance of risks for the

Norwegian economy do not appear to have

changed substantially since the March Report. The

key policy rate has therefore been kept unchanged

at this meeting.

Percent

Source: Norges Bank

-1

0

1

2

3

2010 2012 2014 2016 2018 2020

March 17

25

Increase in the number of monetary policy meetings and

publication of the minutes of monetary policy meetings

Norges Bank's Executive Board has decided to

publish the minutes of monetary policy meetings.

The content of the minutes will be included in the

Executive Board's assessment, which will be

published at the same time as the interest rate

decision is announced.

The Executive Board has also decided to increase

the number of monetary policy meetings from six

to eight per year, beginning in 2018.

26

ECONOMIC

OUTLOOK

DEPUTY GOVERNOR

JON NICOLAISEN

Jæren, 10 May 2017