In our assessment, Norges Bank gave weight to the weakening of the growth outlook for the Norwegian economy and attached importance to countering the risk of a pronounced downturn due to lower oil prices. Last week, Norges Bank presented its latest Monetary Policy Report with updated projections for developments in the Norwegian economy and a new assessment of the orientation of monetary policy. Developments in the Norwegian economy this winter have been broadly in line with expectations. Inflation remains close to 2.5 percent and unemployment has remained stable. So far, the effects of the fall in oil prices on the real economy have been relatively small. However, the outlook for the Norwegian economy has weakened somewhat. Oil prices have continued to fall and activity in the petroleum industry appears to be declining more than previously assumed. Wage growth in 2014 was lower than projected and there are prospects that wage growth will also be lower ahead than projected earlier. This will lead to lower inflation further ahead. At the same time, house prices continue to rise rapidly. This may increase household vulnerability and may trigger or amplify an economic downturn further ahead. The Executive Board decided to keep the key policy rate unchanged at 1.25 percent. If developments in the economy ahead prove to be broadly as projected, there are prospects that the key policy rate will be lowered.
Measured by GDP per capita, Norway now ranks close to the top. Even if we disregard the oil sector’s contribution to growth for a moment, Norway’s mainland economy has shown relatively robust developments. The ripple effects from activities on the continental shelf to the wider economy have been wide-ranging. A growing number of firms have targeted the oil industry. A state-of-the-art oil service industry has emerged. For many firms, the contracts on the Norwegian continental shelf have been a springboard to new export markets. Although Norway’s oil age began 40 years ago, the past 15 years stand out. From the end of the 1990s to 2013, the price of North Sea oil rose from about USD 10 to over USD 100 per barrel. High oil prices and a profitable petroleum production industry have been accompanied by record-high oil investment in recent years. Increased spending of petroleum revenues over the fiscal budget has provided a growth impetus to domestic demand. Employment has remained high and unemployment low for many years, even when the financial crisis hit in 2008. It was made clear at an early stage that Norway’s oil and gas resources belong to the Norwegian people and should be managed on their behalf. The tax system for private and state-owned oil companies and framework conditions for the petroleum industry were designed so that the bulk of the large resource rents generated by the industry would accrue to the Norwegian state. We have avoided making public sector budgets dependent on volatile income.