Large interest rate cuts, exchange rate depreciation, increasing oil investment and expanding export markets are expected to lead to an economic recovery towards the end of 2003. Mainland GDP growth may reach 2¾ per cent in 2004, with the unemployment rate peaking at some 4¾ per cent. Inflation should remain low, reflecting the negative output gap being closed only in 2005. The Government is continually moving away from its fiscal guidelines, thereby posing a threat to fiscal credibility. Long-run fiscal sustainability is conditional on pension reform, as future pension expenditure growth is projected to be extremely rapid in Norway compared to other countries. Reforms to curb public spending and enhance competition in sheltered sectors, in addition to prudent wage settlements, would provide a sounder environment for longer-term growth...