Current Economic Situation In Norway

Norway, one of the world’s wealthiest countries, has been experiencing inflationary pressures since 2022. The combination of the conflict in Ukraine, the imposition of sanctions against Russia, and the aftermath of the COVID-19 pandemic have all played a role in the belief that a global economic slowdown is inevitable. The growth forecasts revision indicates that Norway’s trading partner will experience an economic decline towards the end of this year and for a significant period thereafter, resulting in a downward revision of growth forecasts.

In this article, we will discuss the causes and effects of inflation in Norway. Also, how inflation has affected the retail business and electronic sector.

Norway is influenced by the outside world. When it’s bad out there, it is bad in Norway too. It would not be surprising if there were a recession in Norway.

Chief economist Kjersti Haugland

Economic Challenges and Consumer Confidence in Norway

Norway’s economy is defined by two key aspects. Firstly, it entails significant public spending. Secondly, it boasts a vast sovereign wealth fund, known as the Government Pension Fund, which ranks among the world’s largest. Additionally, Norwegian banks have positioned themselves to absorb higher loan losses caused by the pandemic while maintaining their lending capacity. Regardless, according to Director General of Statistics Norway, Gier Axelsen, inflation has increased significantly during the summer. Largely due to the elevated costs of electricity.

As a result, a decline in economic activity is occurring due to reduced purchasing power and household consumption, accompanied by an increase in interest rates. The increase in prices has also led to a decrease in consumer confidence. According to a report, consumer confidence in the economy fell to its lowest level in six years in 2022. This has led to a decrease in consumer spending, which has further impacted businesses in the retail sector.

Inflation, Supply Chain Disruptions, and Retail Challenges

One of the main drivers of inflation in Norway is the increase in demand for goods and services. The COVID-19 pandemic has led to increased demand for certain products. For example, electronics, as more people work and study from home. This has led to supply chain disruptions and shortages of certain components, which has pushed up prices. This move suggests a serious situation. As even large and influential players in the industry are struggling to cope with the historically high rise in prices.

Although turnover numbers may appear to show a thriving industry, much of its growth is driven by inflation, which eats up profitability. There is evidence of a sharp drop in sales volumes, similar to pre-pandemic levels. The industry has experienced a complete turnaround, shifting from facing challenges in recruiting employees and timely product delivery to a different reality. Inflation has outpaced wage growth, and the retail industry is downsizing as a result. Support schemes contribute to sustaining inflationary pressures for a longer period.

Additionally, other factors such as the transition towards eco-friendliness and the transfer of production from Asian countries to domestic facilities are also contributing to the continuation of inflation. The level of registered unemployment has returned to pre-pandemic levels, and the proportion of the population that is employed is the highest it has been since 2012. The forecasts predict that registered unemployment will stay low at 2% in 2023, and economic activity will exceed the normal level.

The strong labour traditions in Norway, including strong unions and extensive collective bargaining also contribute to lows rates of poverty among working Norwegians. In 2020, Amazon launched in Sweden, but it is unlikely to come to Norway anytime soon due to limited shipping in rural areas, high union share, and a significant fall in e-commerce. Fear of competition from Amazon and the resurgence of e-commerce during the pandemic have prompted Norwegian business to improve their own e-commerce solutions.

Technology and Pandemic Shifts

The declining price of electronic goods is primarily due to rapid technological advancements over the past 50 years. When there is an introduction of new products, companies face high investment costs and have limited economies of scale. However, as the market expands, production increases and average costs fall. Experts also believe that the COVID-19 pandemic and recent inflation have shifted public mentality from ‘nice to have’ to ‘need to have’. E-commerce of goods was somewhat lower, as there were particularly less purchases of electronics, clothing, and shoes in 2022 than the previous year. In addition to higher prices, retailers have also had to deal with supply chain disruptions. With global shipping delays and shortages of certain components, retailers have had to delay product releases and deal with stock shortages. This has led to decreased revenue and profits for businesses in the sector.

Nevertheless, not all companies chose to downsize their workforce. One of the most influential technological corporations went with an approach different from downsizing workforce. Cutting employees’ salaries between 5 and 25% has been the tactic some retailers chose to follow during hard times. HR managers took the stand and discussed how such incentives have prevented employees from becoming passive during the process. The high internet penetration rate in Norway, exceeding 97% of the population, drives e-commerce growth. Additionally, Norway’s logistics infrastructure is well-developed, which helps to facilitate the prompt delivery of online orders.

E-commerce Growth and Government Measures

The e-commerce industry has gone from struggling to recruit sufficient staff and stock stores promptly to experiencing an entirely different reality. The pattern for retail trade is now more similar to before the pandemic started, with more purchases in physical stores and less shopping of goods online. However, e-commerce has continued to increase as demand for services has skyrocketed. In the second quarter of 2022, payments and transfers over the Internet with Norwegian international payment cards amounted to NOK 72 billion. A slight increase compared with NOK 57 billion a year earlier.

The Norwegian government and central bank have taken steps by raising interest rate to address the inflationary pressures. The bank aims to curb inflation by reducing demand and slowing down the economy. In addition to raising interest rates, the Norwegian government has implemented several measures to address the supply chain disruptions. In February 2023, the government announced a plan to invest in local production of critical goods such as electronics and medical supplies. The goal of this plan is to reduce Norway’s dependence on imported goods and strengthen the domestic supply chain.

Overall, Norway’s e-commerce market is anticipated to keep growing. The main factors are increased digitalization, evolving consumer habits, and continuous advancements in technology and logistics infrastructure.

Yoana Delova