Following a period of strong expansion from 1993 to 1998, growth in the Norwegian economy has been far more moderate the last three years. Despite the slowdown, the economy is still characterised by high capacity utilisation, with a shortage of labour in many sectors and relatively strong cost inflation. With low unemployment and record high labour force participation rates, available labour resources are limited. An increase in the number of vacation days this year and next will restrict the supply of labour further. The growth potential of the economy over the next few years is therefore limited compared with the cyclical upturn through the 1990s.
In recent months growth internationally has slowed considerably. In addition, the terrorist attacks on the US on 11 September have increased the risk of a more pronounced international setback. Reduced growth internationally has contributed to a decline in Norwegian exports in recent months. A more pronounced downturn internationally is expected to result in weaker growth in the export-oriented industries and other industries exposed to international competition. This may have spillover effects on domestic demand and activity. Even if world economic growth turns out to be weaker than assumed, the risk of a pronounced downturn in Norway remains limited.
Chart 1. Unemployment
Per cent of labour force
Source: OECD, Statistic Norway and Ministry of Finance.
Norway has abundant natural resources. Petroleum revenues provide us with a scope for manoeuvre enjoyed by few other countries. This enhances possibilities for further economic progress. However, mainland output accounts for about 4/5 of total production in the Norwegian economy, and even a small reduction in growth in the mainland economy could therefore easily exhaust the increased leeway provided by the petroleum revenues. The Government places substantial emphasis on avoiding a weakening of the growth potential of the Norwegian economy.
previous year, pct.
|GDP Mainland Norway|| |
|Unemployment rate|| |
|Consumer price inflation|| |
|Current account surplus, NOK billion|| |
|Fiscal Budget Surplus, NOK billion|| |
|Structural, non-oil budget balance1)|| |
|Underlying Fiscal Budget real expenditure|| |
1) Per cent of trend-GDP for Mainland-Norway.
Source: Ministry of Finance.
Economic policy must contribute to stable economic growth, avoiding excessive cyclical fluctuations. Over the next ten years, Norway will probably record very high government budget surpluses as a result of substantial petroleum revenues. However, petroleum revenues will gradually decline and be accompanied by a sharp rise in expenditures on pensions and health care services as a result of the ageing of the population. In order to address these challenges without having to tighten policy at a later stage, it is necessary to transfer a substantial portion of the high petroleum revenues to the Government Petroleum Fund over the next decade. The Government presented new guidelines for economic policy in Report no. 29 to the Storting (2000-2001) at the end of March 20011). The main features of the new guidelines are:
The Government proposes a 2002 fiscal budget with a structural, non-oil deficit equivalent to the expected real return on the Government Petroleum Fund of NOK 26 billion. This results in a real increase in the use of petroleum revenues over the Fiscal Budget of about NOK 6 billion from 2001 to 2002. A good half of the increased scope for manoeuvre will be used to reduce the level of taxes and excise duties, with particular emphasis on stimulating the supply of labour. The Government has also given priority to measures that can improve productivity and the use of resources in the economy, including measures for improving infrastructure, enhancing the knowledge base and promoting technological advances.
Chart 2. The Fiscal Budget and the Petroleum Fund
Source: Statistics Norway and Ministry of Finance.
1) The report is available at www.odin.dep.no/fin/engelsk.