Robust growth in the Norwegian economy

“Unemployment has come down across the country, and an increasing share of the population is in work. I am pleased to see that four out of five new jobs have been created in the private sector. This improves the sustainability of our welfare state,” says Finance Minister Siv Jensen.

Growth in the Norwegian economy is robust. In the Revised budget for 2019 GDP for Mainland Norway is projected to increase by 2.7 per cent this year and 2.5 per cent next year, which is higher than the long-term trend estimate of around 2 per cent, see table 1.

Given the robust growth in the Norwegian economy, the government has held back public expenditure in recent years. “The fiscal policy stance has facilitated growth in the economy and new jobs in the private sector,” says Finance Minister Siv Jensen.

In the 2019 budget, the Government continued its emphasis on transport, research and education, and growth-enhancing tax reductions, within responsible limits. These policies will allow the positive developments in the Norwegian economy to continue.

The revision of the budget includes increased expenses for defence related to the sinking of the frigate KMN Helge Ingstad, additional funds to the police as well as the Norwegian Police Security Service in order to prevent and combat crime, and increased spending on measures to reduce the effects of climate change.

The budgetary impulse for 2019, which in the autumn of last year was estimated at close to zero, is now estimated at 0.5 per cent of non-oil GDP. The upward revision is primarily due to expenditure being lower than expected in the previous year, and consequently a substantial negative revision of the impulse for 2018.

“If we consider 2018 and 2019 as a whole, the fiscal policy stance is broadly neutral,” says Finance Minister Siv Jensen.

The main features of the Government’s fiscal policy in 2019 are:

• Petroleum revenue spending, as measured by the structural non-oil deficit, is estimated at NOK 238.1 billion, equivalent to 7.7 per cent of GDP for mainland Norway. The fiscal impulse, as measured by the change in the structural non-oil deficit as a percentage share of mainland GDP, is 0.5 percentage points.
• The non-oil deficit is projected at NOK 229.2 billion. This deficit is fully financed through a transfer from the Government Pension Fund Global.
• Net cash flow to the Fund from petroleum activities is estimated at NOK 263 billion. 
• Petroleum revenues spending in 2019 corresponds to 2.9 per cent of the estimated capital in the Government Pension Fund Global at the end of 2018. This is below the expected real return of the Fund, estimated at 3 per cent, but higher than the 2.7 per cent that was projected in the autumn of last year. The increase is partly due to the unexpectedly low value of the Fund at year-end.
• The real, underlying growth in fiscal budget expenditure from 2018 to 2019 is estimated at 2.0 per cent, below projected real GDP growth in the mainland economy. In nominal terms, expenditure is projected to grow by 4.9 per cent.
• The consolidated surplus of the Fiscal Budget and the Government Pension Fund, including NOK 229.4 billion in interest and dividends, is estimated at NOK 263.0 billion. 
• The general government financial balance is estimated at NOK 276.0 billion, equivalent to 7.6 per cent of GDP.
• The market value of the Government Pension Fund Global was NOK 8 243 billion at the end of 2018, and is estimated at NOK 9 300 billion at the end of 2019.

Read more: The Norwegian Fiscal Policy Framework

 

Key figures for the Norwegian economy. Percentage volume change from previous year

	Billion NOK1
	2018	2018	2019	2020
Private consumption	1 532.9	2.0	2.3	2.9
Public consumption	831.8	1.2	1.7
Gross fixed investment	853.2	1.0	5.3	0.8
Of which: Petroleum extraction and pipeline transp.	154.6	2.7	13.0	-3.3
Business sector Mainland Norway	312.0	2.6	6.7	3.7
Housing	192.3	-6.0	0.9	0.8
Public sector	193.4	6.8	1.2
Demand from Mainland Norway2	3 062.4	1.6	2.4	2.1
Exports	1 345.3	-0.7	1.8	6.9
Of which: Crude oil and natural gas	569.4	-4.7	-3.3	11.9
Goods from Mainland Norway	411.0	2.7	5.2	5.3
Services from Mainland Norway	236.5	1.7	5.9	6.1
Imports.	1 150.7	0.6	3.8	2.1
Gross domestic product	3 535.6	1.4	2.1	3.4
Of which: Mainland Norway	2 907.0	2.2	2.7	2.5
Other key figures:
Employment. 1 000 persons		1.5	1.4	0.8
Unemployment rate. LFS (level)		3.8	3.7	3.6
Unemployment rate. registered (level)		2.5	2.2	2.2
Annual wage		2.8	3.2
Consumer price index (CPI)		2.7	2.3	2.0
Underlying inflation (CPI-ATE)		1.6	2.6	2.2
Crude oil price. NOK per barrel (level)		583	559	556
Three-month money market rates. pct.3		1.1	1.5	1.7
Import-weighted exchange rate (yearly change)4		0.1	2.0	0.0

1) Preliminary national accounts in current prices.
2) Excluding inventory changes.
3) Technically calculated using forward prices in April.
4) Positive number indicates a depreciation of the krone.

Sources: Statistics Norway, ICE, Macrobond, Norwegian Labour and Welfare Administration, Reuters and Ministry of Finance.

 

Key figures for the Fiscal Budget and Government Pension Fund. NOK billion

	2017	2018	2019
1. Fiscal Budget
Total revenues	1 225.9	1 350.6	1 416.1
Revenues from petroleum activities	194.4	273.5	291.9
Revenues excl. petroleum activities	1 031.5	1 077.1	1124.2
Total expenditures	1 280.9	1 318.1	1382.5
Expenditures on petroleum activities	26.6	22.6	29.0
Expenditures excl. petroleum activities	1 254.3	1 295.6	1 353.5
Fiscal budget surplus before transfers from the Pension Fund Global	-55.0	32.4	33.6
Net revenues from petroleum activities	167.8	251.0	262.9
=  Non-oil budget surplus	-222.8	-218.5	-229.2
+  Transfers from the Pension Fund Global	231.4	225.5	229.2
=  Fiscal Budget surplus	8.6	7.0	0.0
2. Government Pension Fund
Net transfer to the Pension Fund Global	-63.5	25.4	33.6
+ Interest and dividends on the Pension Fund	203.6	225.0	229.4
3. Fiscal Budget and Government Pension Fund consolidated surplus	148.6	257.4	263.0

Source: Ministry of Finance.

 

General government financial balance. NOK million

	2017	2018	2019
Central government financial balance	176  904	278  335	301 768
Fiscal Budget surplus and Surplus in Government Pension Fund	148 646	257 445	263 038
Non-oil budget surplus	-222 826	-218 513	-229 234
Net revenues from petroleum activities	167 847	250 959	262 872
Interest and dividends on the Pension Fund	203 625	224 999	229 400
Surplus in other central government and social security accounts	-2 142	-2 482	217
Definitional differences between Fiscal Budget and national accounts1	30 400	23 372	38 513
+  Local government financial balance	-13 356	-23 312	-25 794
=  General government financial balance	163 548	255 023	275 974
In per cent of GDP	4.9	7.2	7.6

1) Includes central government accrued but not recorded taxes. Direct investments in state enterprises including government petroleum activities. is defined as financial investments in the national accounts.

Sources: Statistics Norway and Ministry of Finance.