In the US, the key rate is expected to increase by a further 50 basis points before peaking. In the UK, the key rate is expected to remain virtually unchanged in the period ahead. Interest rate developments and buoyant growth have led to a sharp rise in credit growth in the past few years. Property and equity prices are also rising sharply in many countries, including Norway. Debt developments in Norway through the 1990s can probably be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers immediately after the deregulation. At the same time, the credit market has deepened. New loan products have emerged, and it is easier to raise loans. Borrowers can choose their repayment schedule. Credit and housing market liberalisation provides homebuyers with the opportunity to establish a high housing standard early in their adult lives and draw on this capital later in life. In recent years, household income growth has been solid, household confidence regarding the future has been strong and households probably perceive higher income levels as permanent. This may have resulted in a further rise in house prices and debt. In addition, low real interest rates are currently contributing to this.
The Norwegian authorities have been successful in ensuring that the bulk of the petroleum wealth benefits society as a whole. Both the state’s ownership interests through the State’s Direct Financial Interest in petroleum activities (SDFI) and the tax system have contributed. The companies that extract oil earn a reasonable return on their investments and have incentives to invest, but the economic rent has essentially accrued to the general public. The authorities have so far also been successful in smoothing the use of petroleum revenues over time. This is important for several reasons. First, it is misleading to look upon the cash flow from petroleum activities as income. The appropriate economic perspective is to see the transfer of cash flow to investments abroad as a way of transferring capital from one account to another – from petroleum to foreign securities. By doing so, we diversify risk. Second, the size of the cash flow from petroleum activities varies. If petroleum revenues were to be used as they accrue, this would lead to wide fluctuations in demand in the Norwegian economy. Third, the use of petroleum revenues has an impact on competitiveness in Norwegian business and industry. A high level and substantial variations in the use of petroleum revenues would have a negative impact on internationally exposed industries. The establishment of the Government Pension Fund and the spending guidelines for petroleum revenues are intended to meet these challenges.