Norway, with its long coastline and vast forests, is traditionally a fishing and lumbering country, but since the end of World War I it has greatly increased its transport and manufacturing activities. Without extensive inland mineral deposits, Norway has had to seek opportunities for income abroad, hence its vital interest in areas such as fishing, whaling, and shipping. The exploitation since the late 1970s of major new oil reserves in the North Sea has had considerable impact on the Norwegian economy.
Foreign trade is a critical economic factor. Exports bring in over 40% of the GDP. As a trading nation without a large domestic market, Norway was especially vulnerable to the effects of the worldwide recession of the early 1980s and is sensitive to fluctuations in world prices, particularly those of oil, gas, and shipping. Since the early 1980s, Norway's exports have been dominated by petroleum and natural gas, which produce one-third of commodity exports by value and roughly 14% of GDP in 1996.
Norway has a mixed economy with the government owning over 50% of domestic businesses and employing 35% of the workforce. State ownership is most dominant in the oil and mining sectors. In manufacturing, however, state ownership is down to about 10%. At considerable expense, the government provides subsidies for industry, agriculture, and outlying regions. About half of the total goes to agriculture.
Norwegian competitiveness in the global economy is hampered by a small population (4.5 million), a restrictive immigration policy, and an expensive social welfare system that places high tax burdens on the population.
In the early 1980s, the nation's economy became increasingly dependent on oil revenues, which stimulated domestic consumption and, at the same time, increased costs and prices, thus hampering the competitiveness of Norway's other export industries. The drastic decline of oil prices in 1986 caused the value of Norway's exports to fall by about 20%. Recently, the service sector has grown, accounting for 67% of GDP (2000 est.)
From 1949 to 1989 the real GDP rose on the average by 3.9% per year. The GDP fell in 1988 for the first time in 30 years. Since 1989, however, growth resumed, averaging only 1.3% during 1989–91, but climbing by an annual average of 3.7% during 1992–94. In 1998, GDP growth was 2.4%, inflation was 2.3%, and unemployment was 2.6%. In 1999, low world oil prices helped reduce growth to 1.1%, while their recovery, in 2000 helped raise GDP growth to 2.3% and an estimated 2.4% in 2002. Unemployment averaged about 3.3% 1999 to 2002, while annual price inflation was about 2.9%. Government statistics show that government spending as a percent of GDP declined from 39% in 1999 to about 34.5% in 2001, down from the estimated 50% reported by the OECD in the mid-1990s.
Norwegian voters rejected European Union membership in 1994. However, Norway is a member of the European Economic Area (EEA) which consists of the EU member countries together with Norway, Iceland, and Liechtenstein. Membership gives Norway most of the rights and obligation of the EU single market but very little ability to influence EU decisions.