Norway has had room for manoeuvre because solid state finances secure credibility and because inflation expectations are firmly anchored. Even though oil prices fell from close to USD 150 per barrel in summer 2008 to almost USD 30 at the end of the year, Norway’s state finances were not called into question. In addition, oil prices increased markedly as early as spring last year. The oil fund mechanism curbs the effects of oil price fluctuations on demand and output – as well as on inflation and the krone exchange rate. The Government Pension Fund Global is also an important source of funding for public spending in the next decades. Reductions in government welfare spending, which will probably be a matter of necessity with an increasingly ageing population, will be smaller than would have been the case without the fund. 10  BIS Review 69/2010  5. Challenges to the Norwegian economy  In the period 1992–2008 the Norwegian economy experienced a long upturn. In the 2000s, the cost level started to rise, partly reflecting a sharp improvement in our terms of trade. Prices for Norwegian goods, such as oil, gas, metals, minerals and fish increased sharply while import prices fell. Looking ahead, the impact of these driving forces cannot be expected to be as favourable. It is hardly likely that export prices will show a renewed surge. Moreover, our economy has become vulnerable. Norwegian labour has never been as costly as today.
The key policy rate was reduced substantially in order to mitigate the effects of the financial crisis on the Norwegian economy. This contributed to a pickup in economic growth. There are prospects that inflation over some time will remain fairly close to the inflation target. The downturn in Norway proved to be mild and unemployment has not moved up to a high level. Developments in Europe are also amplifying the uncertainty concerning the outlook for the Norwegian economy. Thank you for your attention. 12  BIS Review 69/2010