The Norwegian economy has regained much of the ground lost during the sharp downturn last spring. Mainland activity was 2.4% lower in November than in February, after a drop of no less than 14% in March last year. The recovery is also visible in the unemployment figures. Unemployment was just under 4% at year-end, after having risen from 2% to over 10% when Norway locked down some ten months ago. However, activity is now on its way down again as a more contagious coronavirus variant has led to new strict restrictions in parts of the country. In the next few weeks, many will likely be furloughed again, and unemployment may rise a good deal again.
The restrictions dampen activity, and the recovery will not continue until they are eased. However, when the restrictions are eased and gradually lifted, spending and demand will increase. We will therefore see the economy rapidly returning to a more normal situation when activity is allowed to start rising again.
The roll-out of vaccines gives ground for optimism about the Norwegian economy. If all goes according to plan, there will be four different vaccines available from Easter and it will be possible to vaccinate the entire adult population by the end of summer. And as warmer weather seems to dampen infection rates, we believe that the summer will mark a definite turning point for the pandemic and hence the economy.
More vaccines will facilitate a faster normalisation
At present, two COVID-19 vaccines have been approved in Norway, those from Pfizer and Moderna. Based on recent announcements from vaccine producers and the health authorities, we expect two additional vaccines to be approved during Q1 2021. The vaccine from AstraZeneca and Oxford University will likely be approved at the end of January, and the first doses should arrive in Norway in February. Moreover, the vaccine from Johnson & Johnson might be approved in February, with the first doses arriving in April. In that case, most of the 1.6 million Norwegians in the risk groups could be vaccinated until the beginning of May.
Subsequently, vaccines for the rest of the population should become more readily available over the course of Q2 2021. Against this backdrop, it is reasonable to believe that many of the restrictions dampening economic activity can be lifted gradually from May onwards. Hence, life could return to some kind of normal during the summer.
Households will drive the rebound ahead
We expect a sharp increase in the consumption of services, which will boost total household consumption during the summer. Household consumption will be the key driver behind the economic rebound ahead, which could be powerful. Many Norwegians probably want to make up for lost time. And as a saying goes: “Money is not an issue.” Norwegian households have saved about 10% of one year’s disposable income, partly due to much lower spending on services than usual and partly due to the travel restrictions, which since March last year have reduced spending abroad to almost zero. Historically low interest rates and ample public spending will also contribute to the economic recovery.
Norway: Macroeconomic Indicators
|
2018 |
2019 |
2020E |
2021E |
2022E |
Real GDP (mainland), % y/y |
2.2 |
2.3 |
-3.4 |
2.7 |
4.3 |
Household consumption |
1.6 |
1.4 |
-8.0 |
5.6 |
9.0 |
Core consumer prices, % y/y |
1.5 |
2.2 |
3.0 |
1.8 |
2.1 |
Annual wage growth |
2.8 |
3.5 |
2.2 |
2.7 |
3.2 |
Unemployment rate (registered), % |
2.5 |
2.3 |
5.0 |
3.8 |
2.5 |
Monetary policy rate, deposit (end of period) |
0.75 |
1.50 |
0.00 |
0.25 |
1.00 |
EUR/NOK (end of period) |
9.90 |
9.87 |
10.47 |
9.90 |
9.60 |