Country Report Norway

Outlook for 2008-09

• The Economist Intelligence Unit's central forecast is that the "red-green" majority coalition of the Labour Party, the Socialist Left Party (SV) and the Centre Party will hold together, despite differences over key policy areas.
• There is a small risk that the SV could leave the government ahead of the September 2009 election if the party continues to perform poorly in opinion polls. Under this scenario, Labour would govern as a minority administration.
• Labour stands a reasonable prospect of remaining in government after the 2009 election, most likely in a minority administration, although the chances of a centre-right government have improved since last year.
• Over the next two years public spending on local government, health, education, research and environmental projects will increase as the government channels an increasing amount of oil wealth into the economy.
• With core inflation increasing, there is a good chance that Norges Bank (the central bank) will opt for one final increase in official interest rates before the peak of the current tightening cycle is reached.
• Norway's economic upswing will moderate in 2008-09. Consumer spending will weaken as a result of higher inflation, higher interest rates and a cooling housing market. High oil prices will continue to support investment spending.

Monthly review

• Annual negotiations over the financial settlement for Norwegian farmers exposed a rift within the ruling coalition, with the Centre Party pressing its partners for a more generous offer on price support.
• Recent opinion polls paint a gloomy picture for the centre-left coalition, suggesting the three parties would be unable to achieve a parliamentary majority if an election were held today.
• The EU is expected to lift its anti-dumping measures against Norwegian salmon imports, following a long-running dispute.
• The revised 2008 budget promises additional spending for key public services. However, as a result of strong growth in tax receipts, the non-oil budget deficit should be lower than originally predicted.
• Economic growth slowed in the first quarter of 2008. Real GDP rose by a seasonally adjusted 0.2% quarter on quarter, from over 1% in each of the previous two quarters.
• Output growth in the services sector remained buoyant at the beginning of 2008, but growth in most export-oriented manufacturing weakened.

SOURCE: Country Report