More optimistic forecast for Norwegian labour market

New figures from Statistics Norway in September 2009 indicate that the downturn in the Norwegian economy is levelling out. The various measures implemented during the autumn of 2008 and spring of 2009 helped to alleviate negative developments in the economy; however, the recession will still have an effect until 2012. Unemployment is estimated at 3.3% in 2009 and 3.9% in 2010, and gross domestic product is expected to grow in 2010 following a drop in 2009.

In September 2009, Statistics Norway (Statistisk sentralbyrå, SSB) published new figures indicating that the substantial decline in economic activity witnessed in Norway over the past year is over; however, the economy is still in recession (Economic Survey 3/2009). According to SSB, the Norwegian economy as a whole is faring much better than the national economies of its main trading partners. The increase in unemployment in Norway has also been much lower than in surrounding countries. SSB emphasises the large-scale political intervention, through measures targeted directly at stimulating the financial markets as well as in the form of more traditional demand stimulus packages, as important reasons for the slowing downturn.

Slowdown in unemployment rate

The financial crisis and the recession that hit the Norwegian economy as early as in the first half of 2008 have led to an increase in unemployment. The unemployment rate in Norway rose from 2.3% in March 2008 to 3.2% in March 2009, according to labour force surveys. In early 2009, SSB anticipated an unemployment rate of 3.7% in 2009 and 4.7% in 2010 (Economic Survey 1/2009). However, these estimates have now been adjusted downwards to 3.3% in 2009 and 3.9% in 2010 (Economic Survey 3/2009). Unemployment in Norway will therefore continue to be relatively low in an international comparison.

According to the Norwegian Labour and Welfare Administration (Norsk Arbeids- og velferdsetaten, NAV), unemployment continued to rise in August 2009, but at a far lower rate than earlier in 2009. This is partly because the increase in unemployment is now lower in large sections of the private sector, while labour demand is high in the public sector. It is also due to a decline in the number of laid-off workers. In April 2009, more than 18,000 employees were wholly or partially laid off. In August 2009, the equivalent figure was just over 13,000 workers, that is, a reduction of 5,000 persons.

Slight growth in gross domestic product

Gross domestic product (GDP) figures have also been readjusted in a more positive direction for the Norwegian economy. SSB expects the downturn to be less pronounced than originally anticipated. A slight growth in GDP in the second quarter of 2009 has been observed, following a sharp fall in the autumn of 2008 and early 2009. While GDP for the whole of 2009 is expected to decrease by 1.6%, estimates for 2010 and 2011 envisage growth of 1.4% and 2.5% respectively.

Sectors and workers most affected by recession

Traditional export industries, particularly within the manufacturing sector, are struggling with low demand internationally. SSB expects a significant decline in traditional commodity exports in 2009. Unemployment figures from NAV for August 2009 show that unemployment is at its highest among workers in the construction and manufacturing sectors, albeit with decreasing unemployment rates among construction workers over the last months.

Figures from NAV also indicate that unemployment among migrant workers from the new Member States that joined the European Union in 2004 has increased over the past year. From January 2009 to July 2009, the number of unemployed workers in this group increased from 612 to 4,143 persons. Many of the migrant workers from these countries are employed in the manufacturing and construction industries – sectors that are being hit hard by the recession. Norway has not experienced conflicts in connection with incidents where migrant workers keep their jobs while workers with a Norwegian background lose their jobs.

Wide-ranging measures to mitigate effects of downturn

The revised and more optimistic economic forecasts come against the backdrop of recent developments in the international economy and measures implemented to mitigate the effects of the financial crisis in Norway. In February 2009, the Norwegian parliament (Stortinget) adopted an extraordinary crisis package that includes an increase in public spending of NOK 16.75 billion (€2 billion as at 20 October 2009) (NO0902049I). The crisis package involves greater investment in road and rail transport infrastructure, and an increase in allocations to public building infrastructure maintenance. The package also contains tax cuts for businesses which will enable companies with a taxable surplus in the two preceding years (2007 and 2008) to reverse deficits in 2008 and 2009. In addition, the rules pertaining to temporary layoffs were modified to make it easier for companies to resort to lay-offs rather than redundancies.

A variety of measures directed at banks and credit institutions have also been implemented, all aiming to improve companies’ and individuals’ access to loans. In the course of 2009, Norway’s central bank (Norges Bank) has gradually reduced its key interest rate, which stands at 1.25% as at September 2009 (see list of measures adopted by the government (in Norwegian)).

Public committee to examine regulatory framework

The government has set up a public committee to examine the regulatory framework regulating the Norwegian financial market in light of the financial crisis (press release (in Norwegian)). The committee is headed by the Managing Director of Fafo, Jon M. Hippe, and has representation from the financial intermediation sector, the social partner organisations, consumer organisations, and government and research institutions. The committee will deliver its report by 31 December 2011.

Wage developments and negotiations

Collective bargaining took place in all parts of the Norwegian economy as usual in the spring of 2009 (NO0905019I). The outcome of the bargaining round can only be described as moderate; nevertheless, agreement on general wage increases was reached in both the private and public sectors. In the private sector, however, an opening was introduced allowing the agreed pay increases to be postponed if agreed by local-level parties. Preliminary estimates indicate wage growth of 4% for 2009.

Use of oil and gas revenues

The Norwegian authorities have met the financial crisis with an expansionary fiscal policy, primarily by spending more of the government’s oil and gas revenues than it would otherwise have done. Normally, the use of oil revenues through the state budget is not to exceed the returns of the state oil fund, a principle supported by a broad political majority. In the present economic situation, however, there is a general consensus that a larger share of the oil revenues may be spent to avoid high unemployment and long-term recession.

According to estimates from May 2009, the state will use about NOK 55 billion (€6.5 billion) more in 2009 than in 2008, which is equivalent to 3% of GDP for mainland Norway (figures from Ministry of Finance (Finansdepartementet) in conjunction with the revised national budget, press release: Revised national budget 2009: Continued expansionary policies). The measures implemented in Norway will thus mainly be carried out through increased use of oil revenues, without cuts in transfers to sectors such as health and education. These measures are not expected to have a permanent effect on public spending.

Views of social partners

The social partners are satisfied on the whole with the provisions to counter the consequences of global economic decline, and there is little political disagreement over the measures taken. The views of the political opposition were also partly taken into consideration when the government’s proposal for a crisis package was discussed in parliament in February 2009. Differing opinions as to how the Norwegian authorities should handle the financial crisis were not a cause of conflict in connection with the parliamentary election in September 2009, although several opposition parties called for greater tax cuts. Trade unions and the employer organisations also highlight that many private sector companies, especially within the export industries, are still experiencing serious economic challenges. Continued attention to the situation in these sectors is necessary.

Budget for 2010

The national authorities’ actions in relation to the economic crisis are partly implemented as extraordinary measures outside the regular budget process and partly as measures within this process. Some of the measures adopted will also have an effect in 2010. Moreover, the state budget for 2010, which is to be presented in October 2009, will continue to be directed towards combating the effects of the crisis, which are expected to be felt until 2012.

Kristine Nergaard, Fafo