Norway cut planned oil-revenue spending to ease pressure on the krone and interest rates, while sticking to budget stimulus as Europe’s debt crisis weighs on economic growth.
The world’s seventh-largest crude exporter will use 116 billion kroner ($19 billion) of its oil revenue, compared with an October forecast of 122 billion kroner, the Finance Ministry said in its revised 2012 budget today. The budget is expected to add 0.75 percentage point to growth as structural oil spending is estimated to rise 19 billion kroner from 2011.
“Economic activity in Norway has held up well in 2012, despite the global economic slowdown,” Finance Minister Sigbjoern Johnsen said in the statement. “Unemployment is expected to remain at the current low level. In the revision of the 2012 Budget, the government emphasizes the need for fiscal constraint to reduce the pressure on the exchange rate and exposed mainland industries.”
Unemployment in Norway is the lowest in Europe as record investments in its oil and gas fields has allowed the nation of 5 million people to withstand Europe’s debt crisis. The country’s central bank has cut rates twice since December to keep krone gains in check after the currency gained haven status and to protect the economy from the fallout of Europe’s crisis.
“We had expected a somewhat tighter budget, but the difference in mainly due to trend-adjustments of the budget deficit,” said Kyrre Aamdal, an economist at DNB ASA, in a note to clients.
The government said it expects mainland gross domestic product, which excludes oil and gas production, to expand 2.75 percent this year, compared with a forecast of 3.1 percent in October. Mainland growth will be 3 percent in 2013.
Home prices increased an annual 8.5 percent in April, according to the Norwegian Real Estate Brokers Association, while retail sales jumped 9.6 percent in March. Policy makers are battling to limit gains in the currency, which has become a haven currency for investors seeking to escape Europe’s debt crisis. Norway boasts the world’s biggest budget surplus of any AAA rated nation and has no net debt.
Net revenue from petroleum activities for 2012 is estimated at 378 billion kroner, compared with the 352 billion kroner anticipated in October, according to the budget. The oil price will average 650 kroner ($109) a barrel this year, the government estimated today. That’s up from a forecast of 575 kroner a barrel in October.
The increased oil price forecast supports a forecast for the country’s central bank to raise krone selling to 700 million kroner a day, on average, SEB AB said in a note today. That’s double from the current level.
The country sells kroner to put funds into its $610 billion sovereign wealth fund. It invests abroad to avoid stoking inflation in the domestic economy. The Government Pension Fund Global is Europe’s largest equity investor. A fiscal spending rule limits the use of petroleum revenue for budget purposes to 4 percent of the fund. The government expects to spend 3.5 percent of the oil fund this year, up from 3.1 percent in 2011. It spent 3.9 percent in 2010 and 4.3 percent in 2009.
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