Country Report Norway June 2009

Outlook for 2009-10

• The Economist Intelligence Unit's central forecast is that the present government will continue in power after the election on September 14th, but the three ruling parties need to recover some support before then.
• The global financial crisis should strengthen the position of the current government, allowing it to portray planned increases in public spending as promoting social justice during the economic slowdown.
• In the event that the government loses its majority, the four opposition parties might well be unable to agree on a coalition, leading to a minority government of left or right.
• Norway's economy is partly shielded from weaker global conditions by its large petroleum sector, but the country will not avoid a sharp downturn in 2009. External and budget balances will remain comfortably in surplus.
• Following the latest cut in official interest rates in May, Norges Bank (the central bank) is expected to announce one additional reduction, although concerns about inflationary pressures may stay its hand.
• The Norwegian krone is expected to regain some strength in 2009 following a sharp depreciation against both the euro and the US dollar in the final months of 2008.

Monthly review

• The Norwegian Confederation of Trade Unions has criticised the governments acceptance of key pieces of EU legislation which derive from its membership of the European Economic Area.
• The opposition Conservative Party set out its electoral platform at its annual conference in early May. The party's dismal opinion polls have led some to question whether a centre-right government will be possible.
• Following its mid-term review of the 2009 budget in early May, the government announced that an additional Nkr9.5bn (US$1.5bn) of oil revenue would be spent in 2009 to boost the economy.
• The budget revision will boost the size of the fiscal stimulus in 2009 to the equivalent of 3% of mainland GDP in 2009, from 2.4% previously.
• Norges Bank lowered its main policy interest rate to 1.5% in early May, taking the cumulative reduction since October 2008 to 425 basis points. Inflation rose in April 2009, but is expected to decline in the coming months.
• Norway's economy has slipped into recession, with mainland GDP falling by 1% quarter on quarter in the first quarter, the second successive contraction. Total GDP contracted more slowly, reflecting buoyant offshore activity.