The Norwegian National Budget for 2013

Senior Economist Kyrre Aamdal, DNB Markets

(08.10.2012) The Norwegian Government has today presented the National Budget for 2013. Senior Economist Kyrre Aamdal in DNB Markets gives a snapshot on the budget.





The government spends less than the guideline
  • The structural non-oil budget deficit is projected in the budget to NOK 116 billion in 2012 and NOK 125 billion in 2013.
  • As a percentage of the trend growth in mainland GDP the deficit is 5.2% this year and 5.3% next year. This is an increase of 0.1 percentage points and suggests that the budget is marginally on the expansive side. Model calculations indicate that the budget contributes to increase mainland GDP by 0.1%.
  • For 2013 the non-oil budget deficit is 3.3 percent of the capital of the Pension Fund and the government is planning thus to spend NOK 26 billion less than the fiscal guideline of 4% for next year. For the current year "underspending" is estimated to NOK 16 billion as stated in the Revised National Budget for 2012.
  • Real underlying spending growth is projected at 2.4% in 2013. This is lower than the predicted growth in mainland GDP. For 2012, growth is projected at 3.0%.

Sustained high growth
:
  • Mainland GDP is expected to rise by 2.9% next year. For the current year, growth is revised upwards from 2.7% to 3.7%.
  • The unemployment rate is projected at 3.1% this year and 3.2% next year.
  • Wage growth in 2012 is now estimated at 4.1%. In the revised budget from May the wage growth in 2012 was revised down from 4% to 3 ¾%, which contributed to some turmoil in the public wage negotiations. For the next year the government forecast an increase in annual wages of 4%. Core inflation is projected at 1.3% this year and 1.7% next year.
  • The price of crude oil is estimated to 637 NOK / Brl this year (down from 650 in RNB) and to 625 NOK / Brl next year. The current price is about 634 NOK / BRL.

Assessment:
  • The budget's impact on the economy is neutral to slightly expansionary. Government is withholding the use of oil money in relation to the fiscal guidelines.
  • Norges Bank assumed a structural non-oil deficit of 126 billion in its June Monetary Policy Report. Government plans to spend one billion less. This difference is so small that the Bank is unlikely to change the interest rate path as a result of the budget proposal.

Interest rate and exchange rate movements:
Leaks from the budget was published in advance of the presentation, but it does not appear that the budget has affected the interest rates or exchange rates.
 
Figure: Norwegian Fiscal Budget