“It’s too early to talk about a crisis in the Norwegian economy. A normalization of the economic situation can’t be called a crisis,” says Erling Holmøy, research leader for public economy at Statistics Norway.
On Tuesday, the finance minister, Kristin Halvorsen will present next year’s national budget.
”It is wise to plan how the public sector will correct an abnormally great decline by increasing public investments. But this should not be implemented before it is established that the economic decline is more than just normalization. The market must first have the opportunity to correct itself,” says Holmøy.
Even though an interest rise and the fall in property prices can have consequences, he reminds us that property prices are falling from a very high level.
“Views on the Norwegian economy vary greatly, and in some cases go from one extreme to the other. There are those who shout that we don’t have enough hands, and then say we must introduce crisis measures. This creates unnecessary drama,” he thinks.
”Norway has had a rising conjuncture beyond comparison since 2004. There has been such strong pressure on the labour market that many have said this was a problem. Growth in salaries has been strong, and we have had a lot of labour immigration. Even though the conjuncture development has turned around this year, it hasn’t started to decline so much as yet. There is still a good temperature, plenty of activity and low unemployment,” says Holmøy.
Oil revenues flooding in
Statistics Norway-researcher, Torbjørn Eika, estimates that the oil revenues in 2008 will reach 394 billion kroner. In comparison, oil revenues last year lay at 316 billion kroner
”The growth is due to high oil prices,” he says.
When it comes to the national budget, it is the price of oil in kroner that counts. If the present price of oil continues for the rest of the year, the average price will be 570 kroner a barrel, according to Eika.
In 2007 the average price of oil lay at 423 kroner a barrel.
The price of oil measured in dollars reached a height of 147 dollars a barrel in July and has declined to a price of around 90 dollars today. Since then, the dollar has been strengthened.
”When it comes to the national budget, it is of little significance alone whether the dollar is strengthened or whether it is the price of oil in dollars that is higher,” says Eika.
Saving for the elderly wave
The state’s oil revenues are deposited first in the Government Pension Fund – Global, which is managed by the Bank of Norway. The so-called budgetary rule requires that withdrawal from the national budget shall lie at four per cent on average of the fund’s expected total capital at the start of the budget year. But the budgetary rule opens for deviation determined by the conjuncture situation. Some years, a little more is used, and some years, a little less.
“I think we should be careful about breaking the budgetary rule. If we look further ahead, there are strong reasons why we should save even more today,” says Holmøy.
According to Statistics Norway’s calculations, public finances will be relatively substantial until around 2020. From then on, the elderly wave will hit big time. This will increase state expenditure greatly.
Money is used only once
”The ageing of the population, and thereby the higher expenditure on pensions and welfare benefits, will lead to a public need for finance, which is growing much faster than tax revenues,” says Holmøy.
He points out that public expenditure will not be lower by withdrawing from the pension fund today.
“This merely entails a displacement of the tax burden or cuts in other areas. This kind of financing camouflages the costs and unpopular decisions are transferred into the laps of future politicians. Altogether, money used today is money that won’t return. Taxes need then to be increased, or public welfare benefits cut,” he says.