1
Interest rates, the exchange rate and the outlook for the Norwegian economy
Governor Svein Gjedrem
Mid-Norway Chamber of Commerce and Industry 28 November 2007
Norges Bank
2
0 2 4 6 8 10 12 14
1980 1985 1990 1995 2000 2005
0 2 4 6 8 10 12 14
Inflation
Moving 10 year-average and variation in CPI. Per cent
CPI
Variation in CPI
Inflation target
Sources: Statistics Norway and Norges Bank
3
Low inflation
CPI and CPI-ATE. 12-month change. Per cent
-2 0 2 4 6
2002 2003 2004 2005 2006 2007
-2 0 2 4 6
Source: Statistics Norway CPI-ATE
Inflation target CPI
Norges Bank
4
Strong economic growth
GDP mainland Norway. Annual growth. Per cent
-2 -1 0 1 2 3 4 5 6 7
-2 -1 0 1 2 3 4 5 6 7
1980 1985 1990 1995 2000 2005
Sources: Statistics Norway and Norges Bank Average 1980-2007
5
Prolonged cyclical upswing
GDP mainland Norway. Index. Quarter 0 = 100. Seasonally adjusted
95 100 105 110 115 120 125
-3 0 3 6 9 12 15 18 21
95 100 105 110 115 120 125
Sources: Statistics Norway and Norges Bank Number of quarters
2003 Q2
1982 Q4
1992 Q1
Norges Bank
6
0 1 2 3 4 5 6
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 0 1 2 3 4 5 6
Tight labour market
Registered unemployed. Percentage of labour force
Source: Norwegian Labour and Welfare Organisation (NAV)
7
Wage share 1) and registered unemployment
Per cent
60 64 68 72 76 80
1985 1989 1993 1997 2001 2005
0 2 4 6 8 10
Wage share, left-hand scale
Unemployment, right-hand scale
1)Labour costs as share of factor income. Market-oriented enterprises in mainland Norway.
Sources: Statistics Norway, Norwegian Labour and Welfare Organisation (NAV) and Norges Bank
Norges Bank
8
-2 -1 0 1 2 3 4 5
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 -2 -1 0 1 2 3 4 5
Wage-earners real wages and corporate earnings
Annual growth. Per cent
Wage-earners real wages
Corporate earnings
Sources: Statistics Norway and Norges Bank
9
Capacity utilisation
Regional network. Share of respondents that report they will have problems accommodating an increase in demand. Per cent
0 20 40 60 80 100
Jan.05 May.05 Sep.05 Jan.06 May.06 Sep.06 Jan.07 May.07 0
20 40 60 80 100
Source: Norges Bank Building and construction
Total Industry
Retail trade
Norges Bank
10 REGION CENTRAL NORWAY
Centre for Economic Research at the Norwegian University of Science and Technology
REGION NORTH Kunnskapsparken Bodø
REGION NORTH-WEST Møreforsking Molde
REGION INLAND Østlandsforskning
REGION EAST Norges Bank REGION SOUTH-
WEST International Research Institute of Stavanger
REGION SOUTH Agderforskning
Norges Bank’s regional network
Region Central Norway:
– Moderate to solid growth – Growth is expected to
continue
– Investments are expected to increase – Employment is expected
to increase
Source: Norges Bank
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate 11 Agency Firms, FINN.no, Econ Pöyry, Statistics Norway and Norges Bank
-10 0 10 20 30
2002 2003 2004 2005 2006 2007
-10 0 10 20 30
House prices and credit to households
Change in 3-month moving average. Annual rate. Per cent
House prices Credit (C2)
Norges Bank
12
Regional house prices
12-month change. Per cent. January 2006 – October 2007
-5 0 5 10 15 20 25 30
Jan.06 Jul.06 Jan.07 Jul.07
-5 0 5 10 15 20 25 30
Møre and Romsdal
Norway, total Oslo
Rogaland
Hedmark Trøndelag
Agder
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate Agency Firms, FINN.no, Econ Pöyry, Statistics Norway and Norges Bank
13
Turnover and number of houses for sale
Seasonally adjusted. January 2003 – October 2007
0 5000 10000 15000
2003 2004 2005 2006 2007
0 5000 10000 15000
Turnover Number of houses for sale
Sources: Norwegian Association of Real Estate Agents, Association of Real Estate Agency Firms, FINN.no and Econ Pöyry
Norges Bank
14
Terms of trade
Index, 95 Q4 = 100. 4-quarter moving average
90 110 130 150 170 190
1995 1997 1999 2001 2003 2005 2007
90 110 130 150 170 190
Traditional goods and services Total
Sources: Statistics Norway and Norges Bank
15
-10 0 10 20 30 40 50
1970 1980 1990 2000
0 5 10 15 20 25 30 35
2004 2005 2006 2007
Latvia Estonia Lithuania Poland
Registered employees from new EU countries
1000s of persons in the period Jan.-Oct.
Population growth
Net inward migration
1)Estimate 2007 calculated as sum 06 Q4 – 07 Q3.
Population growth and net inward migration
In thousands. 1970-2007
1)Sources: Statistics Norway and Central Office - Foreign Tax Affairs
Norges Bank
16
Productivity growth in the business sector 1)
Trend. Annual growth in per cent
-1 0 1 2 3 4 5
1983 1986 1989 1992 1995 1998 2001 2004 2007 -1 0 1 2 3 4 5
Sources: Statistics Norway and Norges Bank 1) Mainland Norway excluding public sector, export
industry, electricity supply and housing services.
17
Credit spreads on US subprime asset-backed securities
First half of 2006 vintage. Percentage points
0 5 10 15 20 25 30
Jan.06 Apr.06 Jul.06 Oct.06 Jan.07 Apr.07 Jul.07 Oct.07 0 5 10 15 20 25 30
Rating BBB-
Rating A
Rating AAA
Source: Lehman Brothers 17
Norges Bank
18
0 0.2 0.4 0.6 0.8 1 1.2
Apr.07 Jun.07 Aug.07 Oct.07
0 0.2 0.4 0.6 0.8 1 1.2
Spreads between 3-month money market rates and expected key rates 1)
Percentage points
1)The expected key rate is measured by Overnight indexed swap (OIS).
2)Estimates.
UK
Euro area
US
Norway2)
Sources: Bloomberg and Norges Bank 18
19
0 1 2 3 4 5 6
Jan.05 Jan.06 Jan.07 Jan.08 Jan.09 Jan.10
0 1 2 3 4 5 6
Norway US
Euro area UK
Policy rates and forward rates
Per cent. Forward rates on 26 November 2007
Sources: Reuters (EcoWin), Bloomberg and Norges Bank 19
Norges Bank
20
85 88 91 94 97 100 103
2002 2003 2004 2005 2006 2007 2008 2009 2010 -1 0 1 2 3 4 5
Sources: Bloomberg, Reuters (EcoWin) and Norges Bank I-44
(left-hand scale)
Weighted interest rate differential (right-hand scale)
26 November 2007
1)A rising curve denotes an appreciation of the krone.
3-month interest rate differential
and import-weighted exchange rate (I-44) 1)
January 2002 – December 2010
26 November 2007
21
Oil price (Brent Blend) and gas price
Per barrel in USD and euro. 1 Januar 2003 – 1 May 2010
0 50 100 150 200 250 300 350 400 450 500
2003 2005 2007 2009
0 10 20 30 40 50 60 70 80 90 100
26 Nov. 07
21
26 Nov. 071) Oil price (USD)
Oil price (Euro) Gas price Statoil/Hydro (USD)
1)Futures prices in euros are calculated on the basis of the exchange rate on 26 November 2007.
Gas price USD/1000Sm3
Oil price USD/barrel
Sources: Reuters (EcoWin), Statoil, Norsk Hydro and Norges Bank
Norges Bank
22
0 20 40 60 80 100 120
1995 1998 2001 2004 2007 2010
0 20 40 60 80 100 120
Sources: Statistics Norway and Norges Bank
Investment in oil and gas recovery including pipeline transport
Investment level in billions of NOK (constant 2004-prices)
23
International commodity prices in USD
Index, 2000 = 100
50 100 150 200 250 300 350
2000 2002 2004 2006
Sources: Reuters (EcoWin), The Economist and Statistics Norway Industrials
Metals
All items
Non-food agriculturals Food
23
0 10 20 30 40 50
2000 2002 2004 2006
Price of fresh Norwegian salmon
In NOK
Norges Bank
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0 25 50 75 100 125
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 25 50 75 100 125
Expected real returns Cyclically adjusted transfers Transfers
Source: Ministry of Finance (National Budget 2008)
Government Pension Fund - Global
Transfers to government budget and expected real returns
In billions of 2008-kroner
25
Underlying growth in spending over government budget and growth in mainland GDP
Per cent. 1985 – 2008
1)0 5 10 15
1985 1990 1995 2000 2005
0 5 10 15
Sources: Ministry of Finance (National Budget 2008) and Statistics Norway Underlying
spending growth
Growth in mainland GDP
1)Estimates for 2007 and 2008 from Ministry of Finance
Norges Bank
26 0
1 2 3 4
2005 2006 2007 2008 2009 2010 0 1 2 3 4 0
1 2 3 4 5 6 7 8 9
2005 2006 2007 2008 2009 2010 0 1 2 3 4 5 6 7 8 9
-2 -1 0 1 2 3 4 5
2005 2006 2007 2008 2009 2010 -2 -1 0 1 2 3 4 5
-1 0 1 2 3 4 5
2005 2006 2007 2008 2009 2010 -1 0 1 2 3 4 5
Capacity utilisation
Underlying inflation (CPI- ATE)
Key policy rate
Inflation (CPI)
Sources: Statistics Norway and Norges Bank
Baseline scenario
Monetary Policy Report 3/07. Per cent. 2005 Q1 – 2010 Q4
27 0
1 2 3 4
2005 2006 2007 2008 2009 2010 0 1 2 3 4 0
1 2 3 4 5 6 7 8 9
2005 2006 2007 2008 2009 2010 0 1 2 3 4 5 6 7 8 9
-2 -1 0 1 2 3 4 5
2005 2006 2007 2008 2009 2010 -2 -1 0 1 2 3 4 5
-1 0 1 2 3 4 5
2005 2006 2007 2008 2009 2010 -1 0 1 2 3 4 5
30%
50%
70%
90%
Capacity utilisation
Underlying inflation (CPI- ATE)
Key policy rate
Inflation (CPI)
Sources: Statstics Norway and Norges Bank
