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Norway’s finance minister expects inflation to ease

Many Norwegian households have struggled this year due to a chain of crises. Norway's Finance Minister Trygve Slagsvold Vedum believes things will improve in 2024.

Published: 29 August 2023 16:24 CEST
Stavanger
As we approach the year's final quarter, the inflation outlook in Norway doesn't seem rosy. Is there room for optimism for 2024?Photo by Gunnar Ridderström on Unsplash

Many in Norway have felt the pinch of rising prices so far this year. 

From June to July this year, there was a 0.4 percent jump in the consumer price index, and by July 2023, it was 5.4 percent higher than the same time last year, according to the latest data from Statistics Norway (SSB).

Meanwhile, Norway’s central bank (Norges Bank) has been bumping up its key interest rate to control inflation. This move has caused regular banks in Norway to up their rates on mortgages, making them pricier to pay back.

READ MORE: Interest rates and inflation slow Norway’s economy

Norway’s current Finance Minister, Trygve Slagsvold Vedum, believes that things will be better next year.

“Things are good. We are in a completely different and safer place than last year. Now we have to achieve lower price growth without unemployment rising too much,” Vedum said in Bergen on Tuesday, according to the newspaper VG.

Vedum visited Bergen to give a lecture at the University of Bergen on the topic of next year’s state budget.

“We will probably have high price growth for a few more months, but we are past the peak and on the way down,” he said.

The next state budget

Later this week, the Norwegian government will finalise its state budget proposal for next year.

While Vedum didn’t want to share budget details on Tuesday, he said that the economic situation in Norway – and the world – was challenging, saying that the state budget will have to account for tough times.

He highlighted the rise in prices as the most difficult aspect that needs to be considered during the budget-related work.

“Inflation must come down. We are the first government since the beginning of the 1990s to have that as its main task,” Vedum said, adding that inflation is high in all countries – regardless of the political party in power.

The fact that Norway has slightly lower price growth than the rest of Europe is primarily due to the electricity support measures for households and businesses, the finance minister added.

No large tax increases on the horizon?

Vedum has previously told the Norwegian media that the governemnt had no plans for significant tax increases.

“This year, there will be less (budget-related) headlines – because we don’t have to take such drastic measures as we had to last year.

“There will be no major changes in the tax system this autumn. There are always some changes, but no major, new measures, such as we had last year…” Vedum said.

Electricity prices are also likely to be significantly lower compared to last winter. With that, the minister noted that the state’s expenditure on electricity subsidies will also decrease in next year’s budget.

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POLITICS

Four key things to know about Norway’s revised budget for 2024

The revised national budget was unveiled by the Norwegian government on Tuesday. Here are the key takeaways you need to know about the fiscal plan. 

Published: 14 May 2024 12:50 CEST
Four key things to know about Norway's revised budget for 2024

The government continues to tap the oil fund for public spending 

The current government isn’t the first to use the country’s oil and gas wealth to cover public spending costs. However, the revised budget will take public spending drawn from the oil fund close to the limit. 

Subsequent governments have limited themselves to using 3 percent of the value of the sovereign wealth fund where Norway’s oil and gas revenues are invested to top up public spending. 

The extra 9 billion kroner the government plans to spend from oil revenues will bring the total spending from the fund to nearly 419 billion kroner, which equates to around 2.7 percent of the fund’s value. 

This also means that the use of oil money in Norway will be 34 billion kroner higher this year than last year. 

Norway’s finance minister, Trygve Slagsvold Vedum, said that staying under the 3 percent threshold was important for the government. 

“It has been important that we are now under the action rule, even though we are making a heavy defence and security lift. The oil fund must be a generational fund,” he said. 

However, some analysts have previously suggested that the 3 percent limit is too generous and could deplete the fund. 

The increase in oil spending comes after a couple of cautious years where the government tried to limit spending from the fund to curb inflation. 

READ ALSO: Could Norway’s 1.3 trillion dollar oil fund run dry? 

Significant increase in defence spending 

The revised budget’s main focus is increased defence spending. The Norwegian Armed Forces will receive around 7 billion kroner more in defence spending as part of the revised national budget.

In the months leading up to the revised budget, PM Jonas Gahr Støre said that Norway would hit the NATO “two percent target”. 

The two percent refers to member countries allocating at least two percent of their GDP to defence spending. 

Some 2 billion kroner will increase immediate operational capability, while 5 billion would be spent on a long-term defence plan. 

The cost of living increases to ease, but interest rates to remain high

The Norwegian government has noted that the economy had outperformed its expectations and forecasts from last autumn when the initial budget was presented. 

Furthermore, unemployment has remained low at 1.9 percent and the government expects this to rise to 2 percent during the rest of 2024. 

It also expects the consumer price index to rise by 3.9 percent for 2024. The good news for consumers is that a real wage rise, meaning salary increases outpace the cost of living, is looking more likely as the year progresses. 

Looking ahead to 2025, inflation is expected to slow to 2.8 percent. 

Overall, the government expects the mainland economy in Norway to grow by 0.9 percent this year. 

Despite the optimistic outlook from the government, the figures are unlikely to move the needle regarding interest rate cuts. 

Norway’s central bank has brought the key policy rate to a 16-year high of 4.5 percent to curb inflation, and it isn’t expected to cut rates until December at the earliest. 

“Today’s budget gives no reason for Norges Bank to change the interest rate plans, which now point towards an interest rate cut in December,” DNB’s chief economist Kjersti Haugland told public broadcaster NRK.

The government doesn’t have a majority for its budget 

The most interesting side plot of every budget and revised budget is that the minority coalition comprised of the Labour Party and the Centre Party will rely on the support of the Socialist Left Party to get majority support for its proposals. 

This means the budget’s contents usually change throughout negotiations between the government and its budget partner. 

The Socialist Left Party has said it will advocate for an increase in the child benefit for the oldest children and a new tax on oil companies that would fund investment in offshore wind. 

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