OECD Economic Surveys: Norway

Every 18 months
1999-0383 (online)
1995-3321 (print)
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OECD’s periodic surveys of the Norwegian economy. Each edition surveys the major challenges faced by the country, evaluates the short-term outlook, and makes specific policy recommendations. Special chapters take a more detailed look at specific challenges. Extensive statistical information is included in charts and graphs.

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OECD Economic Surveys: Norway 2010

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08 Mar 2010
9789264077133 (PDF) ;9789264077126(print)

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The 2010 edition of OECD's periodic review of Norway's economy.  This edition features chapters covering the impact of the crisis and Norway's emergence from it, long-term challenges of fiscal policy, and sustainable development: climate change and fisheries policies.

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  • Mark Click to Access
  • Basic Statistics of Norway
  • Executive summary
    Norway has ridden out the financial crisis better than most OECD countries, with a shallower recession and unemployment likely to peak below 4%. Its advantageous fiscal position made room for a massive budgetary stimulus complementing steep cuts in interest rates and substantial liquidity measures. The key challenge is now to withdraw the extraordinary policy support sufficiently early to avoid overheating. Norway’s bold embrace of green growth objectives deserves praise, and the search for more cost-effective ways to pursue these objectives must continue.
  • Assessment and recommendations
    The global financial crisis hit Norway less severely than many other OECD countries. The recession was shallower than elsewhere and consumer demand picked up relatively early. This relatively early and strong recovery can be ascribed to a number of factors. The dynamism of household demand and the direct effect of public expenditure growth were major factors in sustaining demand, while the bounce back in oil prices also supported investment in the petroleum sector. By Norwegian standards, there has been a significant rise in the unemployment rate, though it is not expected to exceed 4% and it will fall back as the recovery gathers strength. Good growth is expected for the mainland economy this year, strengthening somewhat in 2011. Amid global uncertainty, some downside risks remain, however, both for the world economy and within Norway.
  • Emerging from the crisis
    The Norwegian economy has been particularly resilient during the financial crisis with a relatively shallow recession and moderate increase in unemployment. As Norway moves into what is projected to be a strong recovery, the authorities need to plan how to unwind the extraordinary measures that were taken to confront the crisis. Interest rates have already been raised, the special liquidity measures have been progressively withdrawn and monetary policy will need to tighten further over the next two years. The appropriate pace of tightening will primarily depend on developments of the Norwegian economy and the outlook for inflation. Policymakers should also continue to pay attention to developments in the property market, which are fuelled by low interest rates, and trends in the foreign-exchange market, which could react to widening interest-rate differentials. An early consolidation of fiscal policy would reduce the need for monetary tightening and the related risk of exchange-rate appreciation. It is essential to maintain the basic fiscal framework, built round the "4% rule", and soon start the process of bringing down the non-oil structural deficit to a level consistent with the rule. The Norwegian financial sector came through the financial crisis without serious damage. In the aftermath of the crisis it is important to strengthen the macro-prudential approach, in co-ordination with European and other international initiatives. In addition, banks should be required to build up further their equity capital buffer, so as to prepare for possible losses in the future. Finally, aggressive bank lending practices should be discouraged.
  • Addressing the long-term challenges
    Despite substantial income from petroleum wealth, Norway is nevertheless confronted with fiscal challenges in the long term. The number of older persons (aged 67 and above) is projected to almost double by 2060, making this age group as large as 40% of the working-age population. Because the bulk of net public transfers goes to older people, government expenditures will increase sharply in the absence of reform. On this basis, the Norwegian authorities currently estimate a long-term fiscal gap, defined as the difference between the structural non-oil deficit and the expected return on the Government Pension Fund Global, of about 6% of mainland GDP in 2060. In other words, by 2060, fiscal measures to increase revenues or reduce expenditures in the amount of 6% of GDP are needed to secure the sustainability of public finances. These estimates are surrounded with uncertainty and rely on a number of stylized assumptions, but taken at face value they imply that major policy changes are required, so as to avoid an undesirable increase in the tax pressure. Completing the pension reform and reforming the disability and sickness leave schemes, which are both crucial for achieving strong labour participation in the future, would make important contributions. In addition, this chapter argues that there is a large unexploited potential for providing effective public services at lower costs, notably in the areas of municipal services, such as education, health but also in tax expenditures.
  • Sustainable development
    Sustainable development is a key theme in policy making in Norway. Although it owes a considerable part of its wealth to the carbon-based economy, Norway gives priority to the objectives embodied in the OECD Green Growth Strategy and sees itself as a pioneer in some areas. The sustainable development strategy, an integral part of the documentation for the 2008 budget, spelt out the key principles that were intended to guide policymaking and a set of quantitative indicators that are intended to give an indication of progress. Its focus on preserving natural capital and the precautionary principle can indeed be seen to be reflected in Norway’s policy aims on climate change and on fisheries, two otherwise rather different problems. Another principle is the use of cost-efficient means to achieve these policy objectives. In many ways Norway has pioneered the use of such measures, introducing a CO2 tax early on and adopting individual quotas in fisheries. But in other ways policy prevents them from playing their full role, exempting significant sectors from the CO2 tax and now from the emission trading system, and restricting the tradability of quotas in fishing. This chapter explores these issues, noting that some potential conflicts between sustainable development objectives could be given fuller recognition, and that Norway can and should follow through more strongly the logic of its pioneering use of economic incentives to further sustainability goals.
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