THE NORWEGIAN Ministry of Finance

Senior Information Officer Anne-Sissel Skånvik, tel: +(47) 22 24 41 09

Pressrelease October 4. 1996

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The Norwegian economy:

Continued growth

The strong cyclical upswing in the Norwegian economy over the last three years is expected to continue in 1997, albeit at a somewhat slower pace. The expansion, which gathered momentum in the second half of 1993, was initially driven by increased growth in private consumption, housing investment and merchandise exports. In 1995 the upswing became more broadly based as investment in mainland industries picked up. Employment has risen by almost 6 per cent from 1993 to 1996. Despite strong growth, price inflation has remained subdued, at rates well below that of Norway's main trading partner countries.

Given the strong expansion, there is a risk that the economy might be heading towards a period of excess demand and higher price- and wage growth. In order to forestall such a development, the Government has pursued a tight fiscal policy from 1994 onwards. The Government proposes to maintain this policy stance in 1997. The budget entails a fiscal tightening, which is equivalent to about 1 per cent of mainland GDP as measured by the non-oil cyclically adjusted budget indicator.

The strengthening of government finances will increase the room for manoeuvre in fiscal policy in the medium to long term. This will particularly enhance the economy's ability to withstand a fall in oil prices, without having to resort to major cutbacks in expenditure.

Strong government finances will enable the government to more fully accommodate the twin challenges in the first decades of the next century, as Norway will experience a decline in the petroleum revenues and a sharp rise in public expenditures on pensions and care for the elderly.

The proposed fiscal budget for 1997 shows a surplus of NOK 40.9 billion, which will be allocated to the Government Petroleum Fund and invested abroad by Norges Bank. This estimate is based on a technical assumption of an oil price of NOK 115 per barrel in 1997. At current exchange rates (beginning of October) this equals 17.7 USD.

A general government surplus of 5.1 per cent of GDP is expected in 1997. This figure can be compared with the Maastricht criterion of a deficit ceiling of 3 per cent.

In real terms, the underlying spending growth from 1996 to 1997 amounts to about 1/4 per cent, while the overall tax level will be unchanged.

Monetary and exchange rate policy is oriented towards maintaining a stable krone exchange rate against European currencies as a means to achieve low price and wage inflation.

The Government intends to continue to co-operate with the social partners in order to strengthen cost competitiveness through moderate wage increases.

An active labour market policy is a central element in the overall policy framework. This policy is geared towards enhancing the skills of the unemployed, in order to combat passivity and exclusion from the labour market.

A broad range of structural reforms have been implemented in Norway over the last 10 - 15 years. A number of previously regulated markets are now exposed to competition. The Government is presently taking steps to liberalise the aviation and telecommunication sectors.

A deepening of international market integration entails that Norwegian industries have easier access to foreign markets. Norway takes part in the EU-internal market through the European Economic Area (EEA) Agreement. The Government puts considerable emphasis on further developing the EEA co-operation

Macroeconomic estimates for 1997

• Mainland GDP growth in 1997 is estimated at 2 1/2 per cent, down from 3 1/2 per cent this year. Total GDP (including petroleum activities and shipping) is estimated to grow by 5 per cent in 1996, and 3 per cent in 1997.
• Private consumption is estimated to increase by 3 1/4 per cent following an expected increase of 4 per cent this year.
• Mainland business fixed investment has grown by more than 40 per cent since 1993. A further increase of 13 per cent for 1996 and 3 1/2 per cent for 1997 is forecast.
• Growth in traditional merchandise exports is estimated to slow down from 7 per cent this year to 5 1/2 per cent in 1997. The strong export figures this year, despite the slow growth in many of our traditional trading partner countries, reflects an increase in exports to Southeast Asia.
• The labour market is expected to further improve in 1997. Total employment may increase by 1 1/4 per cent, bringing the rate of unemployment down to 4 per cent.
• Consumer prices are estimated to grow by 1 1/4 per cent this year and 2 1/2 per cent in 1997. The low inflation rate this year is partly caused by a reduction in car taxes. Furthermore, an increase in wage growth this year, is expected to affect price inflation next year.

Table 1 Key projections

¹⁾> Estimates.
Source: Statistics Norway and Ministry of Finance.

The National budget will be available in English, Friday 4. October 1996, on the Internet at: linkdoc006005-990891#dochttp://odin.dep.no/bud97/nbe/