Country Report Norway November 2009

Outlook for 2010-11

• The incumbent centre-left coalition of the Labour Party, the Centre Party and the Socialist Left Party (SV) was re-elected for a second four-year term in the general election on September 14th, with a narrow parliamentary majority.
• Despite divisions on some policy issues, the coalition is expected to hold together. There is a small risk that the SV could leave the coalition if it fails to reverse its electoral decline in the mid-term local elections in September 2011.
• The government will continue to implement a centrist programme, with an emphasis on supporting employment, environmental policies and on reforming education and healthcare services.
• Norway's economy is partly shielded from weaker global conditions by its large petroleum sector. Following a downturn in 2009, growth is forecast to rebound in 2010-11, led by strong private consumption.
• Following a series of cuts in official interest rates up to June 2009, Norges Bank (the central bank) raised its interest rates at the end of October, and the sight deposit right expected to rise to around 4% by the end of 2011.
• The Norwegian krone is expected to appreciate gradually during the remainder of 2009 and in 2010-11, although volatility cannot be ruled out.

Monthly review

• The three governing parties have drawn up their programme for government. The Soria Moria II agreement provides enough for the Centre Party and SV to remain in the coalition, at least until the mid-term local elections.
• A new cabinet of 20 ministers gives the Centre Party and SV four ministers each, with the rest going to the Labour Party. Sigbjorn Johnsen returns as minister of finance, a position he first held 19 years ago.
• In one of her final acts as minister of finance, Kristin Halvorsen presented the draft 2010 budget before the Storting (parliament) on October 13th. Fiscal policy will remain expansionary in 2010, although less so than in 2009.
• The budget to some extent reflects the priorities outlined in the Soria Moria II agreement, with additional funds for healthcare, education, transport and to help Norway meet its environmental and climate change goals.
• The budget includes several tax changes, notably to the system of property taxes, but the overall level of taxation remains broadly unchanged.
• Norges Bank's latest Regional Network Report suggests that some sectors experienced rising output in the third quarter, for the first time since August 2008. The report indicates a strong pick-up in household demand.