Slower but still growing economy in 2024, helped by hydrocarbon production

In 2024, Norway's domestic economy faces challenges as high interest rates exert downward pressure on household consumption and housing investments. Despite a robust labour market, marked by growing employment, the housing sector is experiencing the backlash of elevated interest rates. The increased supply of houses on the market suggests a potential downturn, with expectations of lower prices in the coming year. This shift in the housing market dynamics may influence consumer sentiment and overall economic activity. Easing interest rates during 2024 coupled with positive wage growth are likely to provide a much-needed boost to household consumption in the latter half of 2024. This cuts will aim to counterbalance the earlier impacts of high interest rates on both consumer spending and housing investments.

Norway's economic outlook is further bolstered by government spending, which is expected to remain an important driver of growth. Lower interest rates are expected to stimulate increased business investments, particularly within the hydrocarbon sector, thereby fostering more activity. The normalisation of insolvencies in the upcoming year, which implies a slight rise compared to 2023, suggests that the business landscape will stabilise.

However, a key concern lies in the exchange rate as the Norwegian krone continues to exhibit weakness against both the US dollar and the euro. This disparity may pose challenges for policymakers contemplating a rate cut, potentially delaying its implementation.

Balances helped by hydrocarbon production and exports

In 2024, Norway's current account balance continues to be characterized by its substantial goods surplus, primarily driven by hydrocarbon exports. The nation's hydrocarbon production is anticipated to rise, contributing to an expected improvement in the balance of goods. Conversely, the balance of services is likely to persist with a similar deficit or see a slight rise. One of the defining aspects of Norway's current account is the consistently high balance of income and current transfers stemming from its substantial foreign assets and investments. The country is home to the world's largest sovereign wealth fund.

Norway's public balance remains robust with a continued strong surplus, largely attributed to tax revenues derived from hydrocarbon production. Despite an increase in government spending, the country's public debt is anticipated to remain low, reflecting a stable fiscal approach. However, without oil and gas production and tax income, mainland Norway would continue to record a deficit.

Opposition gaining popularity

Norway’s next scheduled Parliamentary election is in September 2025. The political landscape is marked by interesting developments. The current coalition, comprising the Labour Party, Centre Party, and the Socialist Left Party, collectively holds 34% of voter support according to polls, far from a majority. Notably, the Conservative Party registered an impressive performance in the 2023 local elections, gaining more seats than the Labour Party for the first time since 1924, suggesting a shift in the political landscape. This success positions the Conservative Party as a strong contender at the next Parliamentary elections.