Yet at the same time, he saw possibilities: “Successfully solving them in a satisfactory manner will undoubtedly have far-reaching consequences in the economic and financial spheres, and the year might end better than it began.” While times are difficult abroad in our day too, there are bright spots. Growth in Asia remains robust and some figures for the US economy have been positive recently. Europe is facing the challenge of remedying economic imbalances in the face of weak growth prospects. For many countries, demographic developments will in a few years add to the pressure on fiscal budgets. While austerity measures will improve government finances, in the short term they will stifle activity and delay a recovery. This is a very difficult balancing act. But euro area countries have no choice. There is a need to agree on measures to restore confidence in financial markets. Just like 80 years ago, it is difficult to predict where we are heading. The Norwegian economy should be able to hold a steady course. But we will have to take into account that the return on the Fund’s investments may be lower than expected a decade ago. And wage and price inflation is likely to be low for some time to come. Rygg’s hopes were partly realised. In Europe the crisis bottomed out in 1932. Cycles and confidence may shift rapidly and when we least expect it. After hard times come good times. Come what may.
If the return on the Fund actually proves to be 3 percent, we will have drained almost NOK 1 trillion from the Fund over the next 20 years with the current 4 percent rule. This corresponds to the value of the large North Sea oil discovery in the Johan Sverdrup field. The phasing-in of petroleum revenues through the public sector has the effect of crowding out exposed sectors. Even though petroleum revenues are phased in gradually, a phasingout of manufacturing and other private industries may not be as smooth. Entire industries could be lost. If spending proves to be excessive, such structural changes may be difficult or impossible to reverse. The conclusion is that a more robust approach would now be to base fiscal policy on an annual expected real return on the Fund of 3 percent. Such an adjustment would underpin the main principles that were behind the establishment of the fiscal rule – stability and sustainability. (Chart 10: Structural non-oil deficit and different rules for withdrawal from GPFG) In 2011 the structural non-oil budget deficit was about 3 percent of the Fund, which is close to such a new path. Adapting petroleum revenue spending to a lower expected return should not therefore be particularly demanding. If we wait, a necessary policy adjustment could be far more painful at a later date. 3  See Norges Bank Staff Memo 6/2012.