Norway to Cap Spending as Krone Strength Threatens Industry Jobs

Norway will cap state spending below a national rule that limits the use of oil riches as the government looks for ways to prevent the krone’s appreciation from killing industrial jobs.

“We will continue to manage oil money in a responsible way and make sure that we have money for important tasks, but that, at the same time, we don’t use too much money so that the interest rate and the krone rate get out of control,” Prime Minister Jens Stoltenberg said before budget talks today.

As the euro area grapples with a recession, Western Europe’s largest oil exporter is struggling to avoid overheating from petroleum wealth that’s inflating wages and the krone’s exchange rate. The central bank has signaled it may raise rates as soon as this week, in part to cool record house-price increases and stem the pace of private debt growth.

The mainland economy, which excludes income from oil and shipping industries, will grow 2.6 percent this year and 3.1 percent next year, down from 3.5 percent in 2012, Oslo-based Statistics Norway forecast last week. Unemployment will be 3.4 percent this year, next year and in 2015, the agency said.

“If you look at the competitiveness of Norwegian businesses, there’s a combination of wage growth and the strengthening of the currency, and it’s very important that through the different choices we make in the budget that we do not put extra pressure on the currency,” Finance Minister Sigbjoern Johnsen said today. “That means that we have to have a balanced budget.”

4% Rule

Budget spending will be less than Norway’s fiscal guideline of 4 percent of the nation’s sovereign wealth fund, Johnsen said. Norway, which has built a $710 billion wealth fund from its oil exports, emerged last year as a haven for investors fleeing Europe’s fiscal woes.

Norges Bank has kept its benchmark deposit rate unchanged at 1.5 percent since March to prevent policy from deviating too far from measures elsewhere. The krone strengthened to a record on a trade weighted basis on Feb. 13, closing at 84.30, and is up 3 percent from a low last year.

A strong krone has helped keep inflation below the central bank’s 2.5 percent target since mid-2009. A report today showed headline consumer prices rose 1 percent in February. Underlying inflation was 1.1 percent. Norges Bank targets price growth of 2.5 percent.

To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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