Evaluation of Norges Bank’s Projections for 2007

Abstract

The economic upswing since the summer of 2003 has been stronger and lasted longer than projected by Norges Bank. Growth in the mainland economy in 2007 was the highest since the early 1970s and strong in the light of the advanced phase of the current cyclical upswing. Capacity utilisation in the Norwegian economy in 2007, as measured by the estimated output gap, was higher than projected in 2006 and 2007. Unemployment was lower than expected. Underlying inflation was nevertheless low, broadly in line with that projected. There are several reasons why growth in 2007 was stronger than expected. Improved terms of trade in recent years have probably had a greater effect on demand than anticipated. At the same time, an ample supply of labour and high productivity growth provided a higher-than-expected boost to the economy’s potential output. Norges Bank’s projections of developments in 2007 were broadly in line with those of other forecasters.