Norway Upbeat on Growth as Tools Deployed to Fight Oil Slump

  • Says budget room now more limited amid plunge in oil prices
  • Government met support parties to discuss challenges

Norway has the tools to combat the slump in oil prices.

That’s according to the nation’s finance minister, Siv Jensen, who met on Tuesday with key support parties to hammer out priorities for next year’s budget. Her partners, including the Christian Democrats, said the main efforts will directed to help those that are losing their jobs.

“We still have solid state finances,” Jensen said in an interview after a press conference in Oslo. “There are many mechanisms that are working at the same time, low rates, krone development, moderate wage growth and not least the expansionary government budget. Together, it will contribute to higher economic growth ahead.”

The plunge in crude prices is squeezing the economy of western Europe’s biggest oil producer, driving up unemployment and threatening to halt growth. The government has already boosted spending to record levels and will this year tap the nation’s $810 billion sovereign wealth fund for the first time. It could dig even deeper next year.

“The oil price fall of course have consequences for room to maneuver in 2017,” Jensen said. “We must take that into account.”

The krone rose for a fourth day, gaining 0.3 percent to 9.424 per euro as of 4:42 p.m. in Oslo. Brent crude is trading above $36 per barrel, up from below $30 in January.

The minority government on met with the smaller Liberal Party and the Christian Democrats to gather support for its priorities as it lays the groundwork for 2017 fiscal spending. Rising unemployment was high on the agenda, according to the parties.

Joblessness has surpassed levels seen in the aftermath of the global financial crisis and has especially hit the nation’s oil hub. The Rogaland region on the west coast, where Statoil ASA is based, has seen unemployment rise by 67 percent.

Prime Minister Erna Solberg conceded in January that the situation in those areas has reached a “critical” stage.

The central bank last month predicted that the government may need to withdraw almost $10 billion from its oil fund this year. Oil prices have dropped 31 percent to about $35 since the government released its 2016 budget in October. The government then forecast it would withdraw about $570 million from the rainy-day fund.

The central bank has already cut rates three times to a record low since December 2014 to ward off a recession. Governor Oeystein Olsen said last month it would be appropriate to use the “fiscal space available” to support the economy, while advising that spending of oil revenue should be “used to finance temporary measures that are easy to reverse.”

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