Norway has weathered the economic crisis well thanks to its oil riches but must be careful to avoid a property bubble, the OECD said yesterday.
“Norway continues to benefit from its well-managed petroleum wealth and sound macroeconomic policies,” the Organisation for Economic Cooperation and Development said.
“The strength of the economy and prudent supervision have helped the financial system to weather the financial crisis well,” it added, noting that “the macroeconomic policy challenge has shifted towards preserving the momentum of growth.”
Norway, the world’s seventh-biggest oil exporter and second-largest natural gas exporter, places its oil and gas riches in a huge pension fund, which is in turn invests in international stocks and bonds.
Under current rules, the government can use only a limited amount of that money – four per cent of the total value of the fund –to balance its budget, which would otherwise post a deficit.
Noting that Norway was to use “just under four per cent” this year, the OECD said in a review of the economy that “there would be room within the fiscal guidelines to go for stronger expansion should economic activity turn out to be significantly weaker than projected.”
Norway, which is not a member of the European Union, is expected to show growth of 2.7 per cent this year excluding oil and gas and shipping revenues and of 3.6 per cent in 2013.
In 2011, growth was 2.6 per cent. However, in the event of an intensification of the eurozone crisis, Oslo should use monetary policy – rate cuts – as its main weapon, the OECD said.
The organisation hailed Norway’s Central Bank which last year suspended a cycle of tightening its key rate, then lowered it by half a point in December. It now stands at 1.75 percent.
The relatively low rate could however lead to a rise in housing costs, and the OECD, like the International Monetary Fund last week, warned against high household debt and elevated housing prices.
“The strong supervision system should be maintained, including by ensuring that banks comply with higher capital requirements,” the OECD said.