OECD Economic Surveys: Norway 2026

Before the Middle East conflict, Norway’s mainland economy had largely recovered from the pandemic and the cost‑of‑living crisis and was operating slightly above capacity, while the impetus from offshore activity was waning. Underlying inflation pressure turned out to be stronger than expected. The conflict in the Middle East will boost oil revenues again. Inflation is likely to edge up, remaining above target. Fiscal policy is mildly expansionary. The economy is expected to grow resiliently, but uncertainty and risks remain elevated.

The economy has picked up, driven by rapidly growing household income (Figure 1). Business investment has been gaining some momentum, while housing investment has ceased contracting. The oil and gas export boom following Russia’s invasion of Ukraine is unwinding. Higher US tariffs have had little effect on exports so far.

The labour market is easing but imbalances remain. Unemployment is edging toward 5%, largely reflecting higher youth unemployment. However, employment continues to expand. Shortages in health care and technical professions remain binding. Real wages continue to increase against the background of tight labour conditions.

Inflation persists above target. After a rapid post-pandemic decline, headline inflation fluctuated at around 3% through 2025, driven mainly by domestic cost pressures. In May 2026 the policy rate was raised to 4.25% as inflation pressures were mounting. The krone has strengthened since late 2025, damping imported inflation.

Household debt is rising. Macro-prudential rules have been slightly eased, including a higher loan-to-value ratio. The housing market remains tight, mostly because of lagging housing supply. Household debt is expanding, and while it is supported by rising incomes, it warrants close monitoring.

Projections remain subject to considerable uncertainty. Mainland GDP is expected to grow by 1.7% in 2026 and 1.5% in 2027, supported by consumption (Table 1). Headline inflation is expected to decline towards the end of 2026 but is likely to stay above the 2% target. Risks are elevated, particularly regarding the impact of Middle East developments on inflation and oil export revenues.

Norway relies strongly on withdrawals from the oil fund to cover substantial and rising non-oil deficits. Public spending has grown steadily for two decades and is now the highest share of GDP in the OECD as measured against mainland GDP. Complementing the fiscal framework with a medium-term expenditure plan would reinforce fiscal discipline. Tax reform should reduce the burden on capital and labour.

The structural non-oil deficit continues to widen. The overall budget surplus fell to around 10% of GDP in 2025, down from 25% in 2022, while the structural non‑oil deficit reached a record 11.6% of mainland GDP (Figure 2). The fiscal rule—capping average withdrawals from the Fund at 3%—remains respected, with the withdrawal rate at 2.7% in 2025. The Fund’s value exceeds 400% of GDP.

The fiscal rule should be complemented with a spending plan. Public spending as a share of mainland GDP has risen almost continuously over the past two decades and is now the highest in the OECD. Withdrawals from the fund cover more than a quarter of that spending, up from 3% in 2001. A lasting decline in fund value could pose considerable problems for fiscal policy. Introducing a structural expenditure plan would limit spending growth and contain spending excesses.

A medium-term expenditure framework (MTEF) would support budget discipline. Norway is virtually the only OECD country without a MTEF. Introducing a MTEF would reduce short-termism of fiscal policy and ensure consistency between policy decisions and their future fiscal implications. In the National budget for 2026 estimates of the medium term fiscal space was presented to parliament.

Sickness and disability benefits are generous. Norway’s sick leave and disability benefit system is the most generous in the OECD. Spending on sickness and disability makes up around 22% of total public spending or more than 8% of mainland GDP. Prolonged absences also weigh on employment, increase the risk of labour‑market detachment and serve as a pathway to early retirement.

Subsidies are high and rising. The share of subsidies in GDP is high and rising, especially for climate-related purposes. Agricultural subsidies are the highest in the OECD, many of them distorting markets and damaging the environment. The “Norgespris” electricity subsidy weakens incentives to save on energy. The government plans to prune subsidies for innovation, which are often ill-targeted and governed by a scattered system of agencies.

Tax reform could ease the burden on businesses. Norway’s tax burden is geared toward revenues from natural‑resources. The government is planning a comprehensive tax reform to reduce the burden on labour and capital, which is welcome. The net wealth tax should be reduced in favour of stronger immovable property and inheritance taxation. The very light taxation of housing also needs reform.

The monetary policy framework should remain largely unchanged. Norges Bank’s mandate is currently under review. Norway’s experience with flexible inflation targeting has been broadly positive, contributing to high and stable output. The revised mandate should therefore reaffirm and possibly strengthen inflation targeting as the primary objective of monetary policy. Preserving the Bank’s operational independence is also key.

Education outcomes, as measured by the Programme for International Student Assessment (PISA), have fallen below the OECD average and the share of underperforming students is rising. The education system struggles to cater to individual student needs and ensure consistent quality within schools. A comprehensive education reform should improve teaching quality, streamline the curriculum and strengthen quality control. Early childhood education and care should adopt more ambitious standards.

PISA results have fallen sharply over the past decade and are now close to or below the OECD average, despite high education spending (Figure 3). The share of low‑performing students has risen. The decline in PISA scores could reduce long‑term productivity by about 3%. National test results show similar patterns, with falling student motivation a likely driver of weaker outcomes. Yet adult skills remain among the highest in the OECD.

While Norway’s education system is universal and comprehensive, it struggles to meet the needs of both high- and low-performing students. More tailored measures - such as small‑group instruction, within‑class grading or two‑teacher classrooms - would better address individual learning needs. Language skills of immigrant students should be assessed more systematically. The rigid class‑size requirement should be removed, as it does not improve performance.

Improving teaching quality and the school environment could help raise performance. Teacher appraisal should become more regular and binding. The curriculum should become leaner and practical to foster core skills. More standardized testing will help to better assess student skills and foster equal opportunity. A better disciplinary climate and enforcing digital device bans will improve learning.

The objectives of early childhood education and care (ECEC) should become more ambitious. Public spending is close to 1% of GDP, and kindergarten fees - already low - were further reduced in 2025. Although ECEC is not compulsory, attendance is among the highest in the OECD. Further development should emphasise playful learning and systematic efforts to build social and emotional skills. Financial incentives such as the cash‑for‑care benefit, which discourages ECEC for toddlers, should be removed.

As an exporter of key commodities, Norway is relatively less exposed to global value chain (GVC) disruptions. Its GVC risk‑management framework is decentralised and flexible, with significant responsibilities assigned to local authorities, firms and households. Recent geopolitical and economic tensions have raised the prominence of economic security. To reinforce resilience, Norway should standardise GVC risk management, develop effective inventories of essential goods and deepen its openness to international trade.

Norway is relatively little exposed to GVC risks. As an upstream commodity exporter, Norway controls several key GVCs, including oil, gas and electricity. Import‑side risks are well diversified, and the share of vulnerable country–product combinations—such as rare earths and semiconductors—is among the lowest in the OECD. However, exposure to non‑European partners has increased on both the import and export sides.

The risk management system is decentralized and flexible. Businesses and households retain primary responsibility for managing GVC risks. The inventory system is focused mainly on essential goods. Strengthening coordination across agencies and adopting more standardised risk assessments would improve evaluation of the costs and benefits of policy intervention. The concept of “self‑sufficiency” should be replaced by “security of supply”.

Diversifying the economy and lowering trade barriers would strengthen the resilience of global value chains. Trade costs remain considerably higher in Norway than the OECD average and exposure to countries without free‑trade agreements has increased on both the import and export sides. Concluding additional trade agreements and further facilitating trade would help make GVCs more robust.

Research and development could reduce reliance on critical GVCs. Spending on R&D is comparatively low. Many universities are small, limiting economies of scale and scope in education, research and innovation. Stronger coordination of education and research programmes across universities could help raise excellence in science and technology. Programmes to support cutting‑edge research and development should be expanded and coordinated internationally.

Business dynamism should be revived to unleash the potential of existing and prospective firms. The entry rate has been on a declining trend and firm expansion remains limited. Existing regulations should be reviewed to alleviate increasing compliance costs and reporting obligations while rationalising regulations. This would not only reduce regulatory costs but also remove entry barriers. These efforts should be accompanied by reducing marked regulatory barriers in some key sectors and lowering the restrictiveness of insolvency regimes to encourage entrepreneurship

The number of regulations that businesses must comply with has increased markedly. Consequently, compliance costs and reporting obligations have also increased. Norwegian firms perceive regulatory burdens as among the most important obstacles to their business. While environmental and social regulations strive for best-in-class standards in Norway, the related compliance costs are even higher. Individual reporting requirements are cumbersome and the lack of coordination among authorities requires multiple submissions. An OECD estimate suggests that such regulatory costs are higher in Norway than in other European countries.

The policymaking system is solid but has weaknesses (Figure 4). Burdensome regulations have cumulated over time. Existing regulations are evaluated in some cases, but key elements are not assessed systematically. Regulations need to remain fit for purpose in changing circumstances and achieve their intended objectives in a cost-efficient manner. A broad review of regulations should be conducted, involving stakeholders and specifically aiming at reforms. While stakeholders are generally active, more effective control of contact with interest groups and conflicts of interest would alleviate the risk of undue influence through lobbying.

Administrative and regulatory burdens for entry remain high, particularly in some sectors and for foreign affiliates. The number of procedures and public bodies that must be contacted to set up a company is large, despite the common digital platform “Altinn”. Heavy reporting obligations should be alleviated by consolidating them, as many contain overlapping elements. Licensing issues become particularly complex where multiple objectives exist and coordination among several public bodies is required. In the energy sector, procedures for obtaining licences for new power plant installations, including approvals from local authorities, should be streamlined while reducing political interference.

Insolvency regimes should be made more business oriented. Insolvency regimes in Norway tend to prompt firm liquidation too often. The authorities should aim to increase the possibility of restructuring viable firms and encourage stakeholders to use restructuring procedures more extensively. The personal bankruptcy regime is particularly penalising, which should be alleviated by reducing the time to discharge. Finally, given the number of small businesses that are compulsorily liquidated due to a lack of resources and proper accounting, a special regime for SMEs should be reintroduced with reduced administrative charges and the provision of technical support.