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Fast Comment NorwayNeutral fiscal budget for 2019; still a positive trend in manufacturing output

  1. Neutral budget proposal for 2019; fiscal impulse calculated to be 0.0 p.p
  2. Neutral for the outlook for the key policy rate path
  3. Slight decline in manufacturing output in August; trend still positive
Neutral budget proposal for 2019
The key figures behind the budget proposal for 2019 were just released. The main message is that revenue spending has turned toward a neutral stance. The outcome was well in line with our and Norges Bank’s expectations, thus it is neutral for the outlook for the key policy rate path. The government is proposing to increase revenue spending by NOK 4.5bn, which is in line with the underlying growth path for the mainland economy. Hence, the budget impulse, measured as the change in the structural deficit as share of trend GDP, is calculated to be exactly 0.0 percentage points. Norges Bank had assumed an impulse of 0.1 p. p. The deviation is too small to affect the outlook for the policy rate. To sum up, revenue spending, which gave important stimulus to the economy during 2014-16 in particular, has turned to a pace that is in line with the potential for the mainland economy (i.e. neutral). That suits an economy that is about to return to full capacity utilisation. In this regard, Norges Bank has assumed that the negative output gap will close by the end of the year.
Slight decline in manufacturing output in August; trend still positive
Turning to manufacturing output, we had anticipated a slight decline in August (-0.5 percent m-o-m), following a sharp increase in July (+1 percent). The outcome was -0.1 percent. As stated in the preview, we would normally have expected a positive reading for August, as manufacturing is currently supported by solid fundamentals. But we had made a technical assumption about a slight downward correction, as August has seen significant output declines over past years. As such, our expectation of a slight decline was a “compromise” between this peculiar pattern and the underlying trend remaining positive. The outcome was even more benign than we had anticipated. The upshot is that the upward trend remains intact.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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