The Norwegian

EconomyNORINT0500 - Norwegian Life and Society

Spring 2018

Hilde Karoline Midsem

19.03.2018

Outline of today’s lecture

1. Some facts

2. Production, trade and the history of oil

3. The labor market, standard of living and the public sector

4. Future challenges for the Norwegian economy

2

Norway: A wealthy nationGDP/capita among highest in the world.

3

• High GDP per capita

• High standard of living

• Low income inequality

… But Norway has not always been richA vast income growth last 50 years.

4

Norway’s economic systemSocial democracy. Welfare state

5

Combination free market activity/ large state ownership in

key sectors.

Norway: Large economic zoneRights regarding the exploration and use of marine resources (UN)

6Source: Wikipedia/www.government.no

7

Production

Trade

Natural resources

Norway is rich on natural resources:

8

Oil and natural gas

Waterfalls/electricity

Metals/aluminium

Fish

Norway: An «open economy» Trade – a key factor behind Norwegian economic growth

9

• Import consumer goods

• Export : natural resource-

based goods

-1500

-1000

-500

0

500

1000

1500

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

Norway: Exports and imports

Billion kroner

Total exports Total imports Oil and gas export

Source: Statitstics Norway/NHO

Most importantexport-goods

10

… and industrial machinery

Cars, trucks

Industrial machinery

Cellphones/computers

Clothes etc.

Most importantimport-goods

Important trading partners: Europe, USA and China

11

0 50 100 150

Polen

China

Denmark

USA

Belgium

Sweden

France

Netherlands

Germany

UK

Export: Main trading partnersBillion kroner. 2016

Kilde: Thomson Source: Statstics Norway / NHO

0 50 100 150

Italy

France

Polen

Netherlands

UK

Denmark

USA

China

Sweden

Germany

Import: Main trading partnersBillion kroner. 2016

Kilde: Thomson Source: Statstics Norway / NHO

The discovery of oil and natural gas in the late 1960s has had great impact on the Norwegian economy.

12

Norwegian contintental shelfA large source of income

13

• Source: www.government.no/Norwegian petroleum directorate

1959: Finding of natural gass in Groningen Netherland–

led attention to the Nordic Sea – maybe there could be

oil?

1962: Phillips Petroleum applied for permission for

exploration in the North Sea

1963: Norwegian Government proclaimed sovereignty

over The shelf

1966: First well drilled in 1966 – it was dry

1969: Ekofisk field: First discovery in 1969 – oil

adventure began.

The managing of the oil resource

• Statoil: 1972

• Principle of 50 percent state participation in each production

licence was established.

• Government aimed to build national knowledge and

competence

• From the beginning: Moderate extraction in order to prevent

«over heating» of the economy14

Oil and natural gas: 13 % of total production

15

Oil and Offshore production

Mainland - production

0

500

1000

1500

2000

2500

3000

3500

Q4 1979 Q4 1985 Q4 1991 Q4 1997 Q4 2003 Q4 2009 Q4 2015

Norway: GDP

NOK 2015-billion. Four quarter sum.

GDP GDP Mainland-Norway GDP total

Kilde: Statistisk sentralbyrå/Thomson Datastream/NHO

The Oil Fund and The Budgetary Rule

• Established in 1990

• Owned by the Norwegian people

• Primary purpose to finance the welfare state

• 2000: Budgetary Rule: “Never use more than the

long run projected interest return from the Fund”

(estimated to 3% of fund value)

16

The Oil Fund - investments all over the world

Source: https://www.nbim.no/en/investments 17

Investments in the oil sector: Important source ofdemand for Norwegian business

18

… and industry in Mainland-Norway is an important supplier to the petroleum sector

19Is this a problem?

Production in Mainland Norway

20

Agriculture, fish and

fish farming

3 %

Manufacturing

9 %

Electricity and water

supply

3 %

Construction

8 %

Service production

52 %

Public sector

25 %

Mainland Norway: GDP by industryPer cent. 2016

Kilde: Thomson Datastream/DNB MarketsSource: Statstics Norway / NHO

The labor market, household economy and the public

sector

21

Unemployment is low in NorwayHigh share of employed women

22

50

55

60

65

70

75

80

OEC

D

DN

K

SW

E

NO

R

Employed personsIn per cent of persons 15-64 years. 2014

Women MenKilde: Thomson

Source: OECD ES17 / NHO

0

5

10

15

20

25

Icel

and

Jap

an

Germ

any

Norw

ay UK

USA

Neth

erla…

Pole

n

Aust

ria

Denm

ark

Irel

and

Sw

eden

EU (27)

Finla

nd

Port

ugal

Fran

ce

Italy

Spai

n

Gre

ece

Unemployment ratesJune 2017. Per cent

Kilde: Thomson Source: Statstics Norway / NHO

High share of employed womenWomens participation in the labour market increased gradually after1970s

23

• A result of a concious choice of the policy makers

• There was a demand for labor in the 70s

• Subsidised day-care for children

• Paid parental leave

High standard of living. Income inequality is lowHigh degree of trust in the population.

24

0

2

4

6

8

10

12

Inco

me

Educatio

n

Housin

g

Socia

l conn.

Hea

lth

Work-life

bala

nce

Job

Perso

nal safe

ty

Subjective

well

bein

g

OECD's How's Life Index

Norway OECD avg.Source: OECD/FIN Dep PM 2017/NHO

0,00

0,10

0,20

0,30

0,40

0,50

0,60

SV

ND

NK

CZ

ES

VK

NO

RB

EL

FIN

SW

EA

UT

HU

NIR

LC

HE

LUX

FR

AN

LDD

EUK

OR

ISL

ES

TG

RC

PO

LE

SP

NZ

LJP

NA

US

CA

NIT

AG

BR

PR

TIS

RU

SA

TU

RM

EX

CH

LO

EC

D-2

9

Income inequalityGini coefficients. Disposable income. 2006-2009

Kilde: OECD/Thomson Datastream/NHO

Norway: A nation of home owners85% own the house they live in

25

House prices have grown dramatically last decades… And so has household debt

26

50

70

90

110

130

150

170

197

9

198

0

198

2

198

4

198

6

198

7

198

9

199

1

199

3

199

4

199

6

199

8

200

0

200

1

200

3

200

5

200

7

200

8

201

0

201

2

201

4

House prices to diposable income1998Q4=100

Kilde: Thomson Source: OECD ES17 / NHO

175

180

185

190

195

200

205

210

215

220

225

230

jan.10 jan.11 jan.12 jan.13 jan.14 jan.15 jan.16 jan.17

Household debt ratioDebt as percentage of disp. income

Debt ratio

Source: Norges Bank, PPR 2017-III/NHO

… Reason to worry?

27

• Interest rates

• Changes in regulation on residential mortgage loans this year

• Some decline in housing prices last months

Large public sectorOnly Luxembourg spends more per capita. Highest employment share of all

28

0

10

20

30

40

50

LUX

NO

RD

NK

AU

TBEL

FIN

SW

EFR

AN

LDC

HE

USA

DEU

ISL

IRL

ITA

CAN

GBR

AU

SO

ECD

JPN

SVN

ESP

NZL

ISR

PRT

GR

CC

ZE

SVK

HU

NES

TKO

RPO

LLV

ATU

RM

EX

Government expenditures per capita1000 PPP-USD

2015 2016Kilde: Thomson

Kilde: OECD, Government At A Glance, 2017/NHO

0

5

10

15

20

25

30

NO

RD

NK

SW

EFI

NES

TH

UN

FRA

LVA

ISR

SVK

BEL

CAN

OEC

DG

RC

SVN

GBR

CZE

AU

TES

PU

SA

PRT

IRL

ITA

NLD

TU

RLU

XD

EU

CH

EKO

RJP

N

Employed in gen. governmentShare of total persons employed. 2015

Kilde: Thomson Kilde: OECD, Government At A Glance, 2017/NHO

… and the tax-level is relatively high

29

Where does the money go?

30

37 37 39 41

15 16 16 17

1213 12 11

56 6 7

31 28 27 24

0

10

20

30

40

50

60

70

80

90

100

1996 2000 2010 2016

Government expendituresPurpose. Pct. share

Social protection Health Education Transport Other

Kilde: Thomson Datastream/DNB MarketsSource: Statistics Norway/NHO

The population trust the government

31

• Trust is important for the success of a wide range of public policies that depend on behaviouralresponses from the public.

Trust is necessary to increase the confidence of investors and consumers.

Trust is essential for key economic activities, most notably finance.

Trust in institutions is important for the success of many government policies, programmes and regulations that depend on cooperation and compliance of citizens. (www.OECD.org)

0

10

20

30

40

50

60

70

80

90

GR

CC

HL

KO

RIT

ASVN

FRA

MEX

HU

NU

SA

ESP

LVA

EST

PRT

ISL

JPN

SVK

PO

LG

BR

CZE

OEC

DBEL

AU

TIS

RA

US

DN

KSW

EFI

ND

EU

NZL

IRL

NLD

TU

RC

AN

NO

RLU

XC

HE

Conficence in the national governmentPer cent. 2016

Kilde: Thomson Source: Gallup World Poll/OECD, Government At A Glance, 2017/NHO

Centralized wage bargaining

32

• LO : Largest union confederation

• NHO : Largest employers confederation

• Possible to respond quickly to cyclical changes in the economy

The Scandinavian model for wage bargaining:

The negotiation procedure is based on the principle that

national wage growth should follow the wage growth in

competitive export-sector. The competitive export sector

(manufacturing industry) negotiates first

Norway

The golden age won’t last for ever

Future challenges:

33

Oil sector will shrink. The population is getting olderLower oil price-level, lower production. Public expences on health care etc. will increase

34

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

1970 1980 1990 2000 2010 2020 2030 2040

Petroleum sector2013 = 100

Production Demand, %GDP ML (ha)Kilde: Thomson

Kilde: Finansdepartementet, PM17 & RNB17NHO

0

2

4

6

8

10

50

52

54

56

58

60

2020 2030 2040 2050 2060 2070 2080 2090 2100

Population by groups of agePer centage share.

20-64 år 80-89 år (ha) 90+ (ha)Kilde: Thomson

Source: Statistics Norway/NHO