Bloomberg News

Norway Should Reduce Spending to Boost Competitiveness, IMF Says

May 24, 2013

Norway, western Europe’s largest oil exporter, should consider limiting government spending next year to avoid adding to labor costs and further damaging industrial competitiveness, according to the International Monetary Fund.

“Ratcheting down a bit more would make sense,” Thomas Dorsey, part of an IMF mission to Norway, said in an interview in Oslo today. Lower government spending would help ease “competitive pressures on the non-oil parts of the mainland economy,” he said.

Norway on May 7 unveiled its most expansionary budget since 2009 as it taps more of its oil wealth to shield Europe’s second-richest country per capita from the fallout of the debt crisis raging farther south. While the surplus generated by the nation’s oil and gas revenue has largely insulated the economy, exporters are struggling to cope with falling demand, high labor costs and the impact of a strengthening currency.

Prime Minister Jens Stoltenberg is concerned about the development of a two-speed economy in Norway, he said on April 17. That came as his government cut its forecast for mainland economic growth this year to 2.6 percent from 2.9 percent and predicted a 3 percent expansion next year.

Including oil and gas production, gross domestic product will grow 1.4 percent this year, slowing from 3.2 percent in 2012, the government said. Total exports are seen falling 1.3 percent in 2013, led by a 5.5 percent decline in oil and gas shipments, it estimated.

Norway’s mainland economic output will stay close to potential as inflation and unemployment remain low, the Washington-based IMF said today, citing risks from falling oil prices and slowing housing demand.

Norway will use 3.3 percent of its $740 billion oil fund to plug deficits this year, representing a 19 percent increase from 2012, according to the Finance Ministry. That will deliver the biggest fiscal boost to the economy per capita in four years.

A fiscal spending rule limits the use of petroleum revenue to 4 percent of the fund.

To contact the reporter on this story: Stephen Treloar in Oslo at streloar1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net


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