The pandemic still weighs on the Norwegian economy. However, growth may be strong from the second half of this year. Lower infection rates and a rising share of the population being vaccinated give reason for optimism, although uncertainty remains high, the Ministry of Finance noted.
How fast economic activity picks up is largely a function of infection rates, the speed of vaccination, and how early containment measures can be phased out.
To illustrate this uncertainty, the government presents three scenarios for the economic development in the Revised National Budget.
The main scenario indicates that Norway gains control of the virus through vaccination over the next months and that mainland-GDP grows by 3¾% both this year and the next. In this situation, unemployment will come back down to low levels over the next year.
Use of oil money
Spending of oil revenue is now estimated at NOK 402.6 billion, almost NOK 90 billion more than originally proposed in the 2021 budget last autumn.
Extraordinary economic support measures related to the pandemic account for a large bulk of the increase.
The fiscal rule guides fiscal spending in Norway. According to this rule, transfers from the Government Pension Fund Global to the central government budget shall, over time, equal the expected real return on the Fund, estimated at 3%.
In the Revised Budget, oil revenue spending in 2021, as measured by the structural non-oil fiscal deficit, is estimated at 3.7% of the value of the Fund at the beginning of the year. This compares to the estimated 3.0% in the National Budget.
The fiscal impulse, measuring the difference in spending of oil revenue from 2020 to 2021 as a share of mainland Norway trend GDP, is estimated to be 0.6%.
Selected key figures in the Revised National Budget 2021
Source: © NTB Scanpix / #Norway Today / #NorwayTodayFinance
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