Country Report Norway October 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) is expected to raise rates before the end of 2009, but the central bank will proceed cautiously.
• 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 result of the September election was extremely close. The opposition parties won a higher share of the vote than the governing parties, but the incumbent centre-left coalition won a three seat majority in parliament.
• Labour increased its support, marking a personal triumph for the prime minister, Jens Stoltenberg. However, support for his two coalition partners fell.
• The two main opposition parties, the Progress Party and the Conservatives, both had good results, but pre-election disputes with two smaller opposition parties thwarted any hopes of forming a centre-right government.
• A new coalition agreement will be agreed during October. Compared with the past four years the government's fiscal room for manoeuvre will be much more limited, which could add to tensions within the coalition.
• A major bone of contention between the ruling parties concerns energy and climate policies. Labour is in favour of more oil and gas activity in hitherto unexplored offshore areas, but the SV and Centre Party oppose this.
• Norges Bank's September policy meeting provided a strong indication that interest rates will soon start to rise, possibly as early as October.
• Recent economic data on the labour market, retail sales and the housing sector suggest that Norway's economy is emerging from recession.