Petrodollars Replace Rate Cuts as Norway Defends Stimulus Pushby and
Finance minister says fiscal policy doing its job in economy
Says hopefully labor market will revive in six to 12 months
As Norwegian central bankers signal growing reluctance to relax policy further, the country’s finance minister says fiscal policy will be there to support the economy.
“Monetary policy has done its job, especially in Norway, we have lower interest rates now than we’ve had for a very long time and we still have a little bit to work on in monetary policy issues,” Finance Minister Siv Jensen said on Wednesday in an interview in Paris. “But I think fiscal policy needs to take its turn and it’s doing its job in the economy right now.”
Jensen’s government last month unveiled a revised budget that added to record spending of the nation’s oil wealth, dipping deeper into its sovereign wealth fund to ward off a recession threatening western Europe’s biggest oil exporter. The government will use 206 billion kroner ($25 billion) of its oil income. The spending will have a stimulus effect of 1.1 percentage point, which is the most since 2009.
Parts of the country have struggled with rising unemployment but there’s growth in others areas because of the weakening krone, Jensen said in the interview.
Most important is that “we have prudent fiscal policy and for the time being we have the possibility to have an expansionary fiscal policy due to the fact that we have savings,” she said. The currency is floating and the recent strengthening is just “something we have to see happening from day to day,” she said.
The plunge in crude prices has squeezed Norway’s economy, driving up unemployment and threatening to halt growth. The central bank in March cut rates to a record low of 0.5 percent and signaled it was prepared to ease further to avoid an outright recession. Still, it also signaled greater reluctant to further measures as the effects become less clear the closer rates get to zero.
The government last month lowered its forecast for mainland economic growth this year to 1 percent and said it sees an expansion of 1.7 percent in 2017. Unemployment will rise to 4.7 percent this year from 4.4 percent in 2015.
Jensen said on Wednesday that “hopefully” unemployment will take a “positive turn in the next six to 12 months, but I think that has to do with the measures the government is implementing at the moment and we will continue to do so.”