Much of the contraction we saw in the Norwegian economy last spring has been reversed. Mainland GDP in October was down by 1.5 per cent from February. For 2020 as a whole, the mainland economy declined by 2.5 per cent.¹ This is the largest downturn since records began 1970.

At the same time, it was substantially smaller than many had feared when things were at their worst. Statistics Norway upgraded its forecasts three times during 2020, and the outcome was better than its most recent projection predicted. The difference between the actual downturn, which came to 2.5 per cent, and last April’s forecast was no less than three percentage points.

While the downturn is naturally industry-specific, it is nevertheless remarkable how little it has propagated outside the hard-hit sectors. And although Oslo has suffered the highest infection rates and toughest measures in Norway, the office sector in the capital has managed well.

Based on preliminary figures from Statistics Norway, our calculations indicate that 0.5 to one per cent of office jobs in Oslo were lost during the past year. In the event, that would be about half the decline we experienced during the two previous downturns in 2019 and 2015.

Certain industries have even grown. An office-intensive sector such as IT and communication has taken on 1 400 new employees over the past year. That represents a rise of 3.4 per cent. In addition, many financial and legal companies reported record profits for 2020.

The way ahead

Great uncertainty naturally prevails about future developments. Nevertheless, the signs are that the worst is behind us, and the latest available forecast from Statistics Norway (March 2020) indicates 3.3 per cent growth for the mainland economy this year.² Private consumption, which has been strongly affected by the pandemic, will probably be the most important growth impulse once the vaccine has been rolled out. Statistics Norway expects private consumption to increase by no less than 6.9 per cent this year and 6.9 per cent in 2022.

The equations underlying these forecasts naturally contain many unknowns, and much of the uncertainty rests on the pace of vaccination and how strict the necessary measures will be while we wait.

Vaccination with its associated improvement in economic activity is contributing to expectations among many analysts that Norges Bank will raise its base rate earlier than envisaged last autumn. Statistics Norway assumes that the central bank will make its first rate increase during the summer, and that the base rate will be up to one per cent by the end of 2023.³  Considerable uncertainty attaches to the future development in interest rates, and Norges Bank will probably need to see a clear improvement in the Norwegian economy before raising the base rate.

Long-term interest rates, which largely reflect developments in the EUR and USD, have already risen by 123 basis points since bottoming out in mid-May last year. The main explanation is that the US market is fearful of higher inflation in the wake of the massively expansionist financial policy we are now witnessing.