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Fast Comment NorwaySlightly contractive fiscal budget; below Norges Bank's expectations

  1. Slightly contractive fiscal budget; below Norges Bank's expectations
  2. If anything, it strengthens our call for Norges Bank to keep its policy rate unchanged
  3. Manufacturing output softening
Slightly contractive fiscal budget; below Norges Bank's expectations
The fiscal budget will be released later today, but the key figures are already known. The government proposes revenue spending of NOK 243.6bn in 2020, which is down by NOK 2.6bn from this year. Measured as a share of the Government Pension Fund Global, revenue spending constitutes 2.6 percent, well below the 3-percent fiscal rule. The key figure in this regard is the fiscal impulse, which shows the budget’s effect on the economy. The fiscal impulse is calculated as the change in the structural non-oil deficit as a proportion of trend GDP. According to the government, the fiscal impulse is now calculated at -0.2 percent for 2020; i.e. a slightly contractive budget. Norges Bank has instead forecast a slightly positive impulse, of 0.1 percent. The deviation is not large, but overall the budget will have a dampening effect on the key policy rate path. We have already assumed a base-case scenario with Norges Bank leaving the policy rate unchanged at 1.50 percent for the foreseeable future. If anything, we believe this call is strengthened by today’s budget proposal.
Manufacturing output softening
Manufacturing output fell by 1.1 percent in August, following +1.0 percent in July. The outcome was well below expectations (-0.2 percent). According to the details, output among the oil-supplying industries has levelled out over the past few months, whereas the non-oil manufacturing sector is already down from peak levels. We maintain our call that overall manufacturing output will slow considerably throughout 2020.


Marius Gonsholt Hov

Senior Economist


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