Norway’s government will probably need to lower growth forecasts for the economy as it presents its new budget next month, the head of parliament’s Finance Committee said in an interview.
The two-party minority government, headed by Conservative Prime Minister Erna Solberg, last month said it would seek to cut taxes and promote spending on infrastructure to prepare for slower growth over the coming years. The economy of the western Europe’s largest oil producer is slowing amid stagnant crude prices and a cooling housing market.
“It might be that expectations will be a bit lower all over for growth,” said Hans Olav Syversen, who runs the committee and is a member of the Christian Democrats, which has committed to backing the government in parliament. “There was a shift at the end of the year in the economy.”
The government in November forecast that the mainland economy, which excludes oil and gas output, would expand 2.5 percent this year, far above the 1.75 percent currently predicted by the central bank. Norway, backed by an $850 billion sovereign wealth fund, is straining to spur growth as it struggles to absorb an oil and gas industry that’s driven up production costs. The government last month forecast that unemployment will rise next year to 3.75 percent, from about 3.6 percent.
While Finance Minister Siv Jensen has flagged that the use of oil money will grow, the government will probably stick to fiscal spending rules in the revised budget, according to Syversen.
“For the state budget, a slump in the economy means you can put oil money into the domestic economy without hurting competitiveness for the export industry,” he said. “I don’t think we will see much change in the revision.”
Norway, which uses oil money to plug its budget deficits, limits the use of crude revenue at 4 percent of its wealth fund. In November, the government said it will use 2.9 percent, or 139 billion kroner ($23 billion), of the fund in 2014.
The $500 billion economy grew 2 percent last year after expanding 3.4 percent in 2012. Norges Bank last week cut its growth forecast for this year to 1.75 percent, from 2 percent estimated in December.
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