Prepared by Birgir Arnason.
Ministry of Finance, Nationalbudsjettet 1996, October 1995; Norges Bank, Penger og Kreditt 1995/4, December 1995; Statistics Norway, Okonomiske analyser 9/95. December 1995.
Norges Bank also looked at cases in which fiscal policy was somewhat tighter and wages rose more moderately. The differences between the respective cases were not large.
According to Norges Bank, the mainland economy is already at, or very close to potential. With the mainland economy expanding by 2.8 percent in 1996, mainland output could well rise above potential. The growth of potential output has been estimated at 2-2.3 percent.
According to the Government’s Long-Term Program for 1994-97 fiscal policy in the medium term is premised on keeping expenditure growth below that of mainland output while preserving the basic elements of the tax system introduced in the early 1990s.
Purely for technical reasons, the exchange rate against the ECU was assumed to remain stable over the projection period at its average level over the three-month period September-November, 1995, and current interest differentials were assumed to be consistent with that stable exchange rate.
Regarding the factor payments abroad, it is worth noting that Norway became a net creditor to the rest of the world in the course of 1995 but that significant dividend payments abroad on the heavy foreign investment in the petroleum sector will continue.
These projections assume oil prices of around US$17 per barrel (1996 prices) through the projection period.
A measure of the vulnerability of the Norwegian economy to an oil price shock is that a 10 percent reduction in the price would reduce exports by around 3 percent and reduce the net cash flow from the petroleum sector to the budget by around 0.8 percent of GDP.