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

Press release

13 October 1997

Internet address: linkdoc006005-991221#dochttp://odin.dep.no/bud98/nbe/

The Norwegian fiscal budget for 1998

Proposal for a tight fiscal budget to dampen the continued strong growth in the Norwegian economy

Today the Norwegian government presents its budget proposal and economic policy statement (the National Budget) for 1998, including new projections for the economy (see table on page 3).

The Norwegian economy is in its fifth consecutive year of steady growth. Mainland GDP (GDP excluding the petroleum and shipping sector) which accounts for about 85 per cent of total GDP, is estimated to grow by 3.5 per cent this year and 3 per cent in 1998. The growth is broadly based, with private consumption and investment as the main driving forces. Furthermore, the export growth will remain strong. Total GDP is estimated to grow by 3.9 per cent in 1997 and 4.6 per cent in 1998. The number of employed persons is estimated to grow by 2.6 per cent in 1997 and 1.4 per cent in 1998. Unemployment is estimated at 4.2 per cent in 1997 and 3.8 per cent in 1998.

After a prolonged period of strong growth, the economy is now approaching full capacity. Shortages of labour can be observed in parts of the labour market, particularly in building and construction, health care and in some manufacturing sectors. Price and wage inflation is, however, expected to remain moderate, helped by a tight fiscal policy and a continued incomes policy co-operation. Consumer prices are estimated to grow by 2¼ per cent, down from 2.5 per cent in 1997, whereas wages are estimated to grow by 3¾ per cent in 1997 and 3½ per cent in 1998.

The proposed fiscal budget for 1998 entails a tight fiscal stance in order to dampen the pressures in the economy and to ensure balanced growth. According to the fiscal budget, expenditure will grow by 1 per cent in real terms from 1997 to 1998, and the fiscal tightening in 1998 (negative contributions to overall demand in the economy) is estimated at ¾ per cent of GDP.

The growth in expenditure is mainly caused by increased investments in the provision of care for the aged as well as increased provision of health services. In addition, the Government proposes to increase the allocation of funds for priority areas like the primary school reform, childcare and foreign aid.

Monetary policy will continue to be oriented towards maintaining a stable krone exchange rate against European currencies.

The proposed fiscal budget for 1998 shows a surplus before transfer to the Government Petroleum Fund of NOK 73.4 billion, or 6.4 per cent of GDP. The surplus is in its entirety allocated to the Petroleum Fund. General government surplus (central and local government accounts) is estimated at 8.3 per cent of GDP. The estimates are based on an oil price assumption of NOK 125 per barrel. Net revenues from petroleum activities in 1998 are estimated at NOK 85.5 billion. The non-oil budget balance - the budget balance adjusted for net petroleum revenues - shows a deficit of NOK 12.2 billion or about 1 per cent of GDP.

Projections for the Petroleum Fund indicate that the Fund, measured at market value, will amount to NOK 198 billion at the end of 1998 and about NOK 570 billion at the end of 2001. The accumulation of capital will enable the government to meet the strong increase in public pension liabilities that are projected to occur after 2010, although the income from the petroleum sector is expected to decline after the turn of the century. Long-term projections that illustrate possible developments of the Fund are presented in the National Budget 1998.

Key projections

1) Estimates.
2) Change in stockbuilding as a percentage of GDP in previous year.
3) Including mining and quarrying.

Source: Statistics Norway and The Ministry of Finance.