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 Interest rates have already been raised, the special liquidity measures have been progressively withdrawn and monetary policy will need to tighten further over the next two years.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.

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