After a long period of robust growth, which continued unabated in the first half of 2007, there are signs that mainland Norway (i.e. non-offshore sector) is reaching the peak of the cycle with a large positive output gap. Tightening monetary conditions are beginning to exert a cooling effect and further expansion is made difficult by very high capacity utilisation. Some of the forces that kept price increases down are diminishing and inflation is now picking up slightly.
Further monetary policy tightening is expected ahead, broadly in line with the path forecast by Norges Bank, the central bank. Fiscal policy has been expansionary and needs to be tighter than the fiscal rule would imply if overheating is to be avoided. Structural policies aimed at increasing labour utilisation, notably among youth and elderly, remain a priority.
©OECD Observer No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/norway
• All OECD Observer articles on Norway