The good times on the state budget is over. Norges Bank predicts a new reality with less oil money every year.
– I have a clear recommendation that the use of oil revenues should have peaked this year.
Governor Øystein Olsen recommends a painful break with the economic policy over the past 15 years.
Successive governments have had very good times and used increasingly more oil money in the state budget every year. It has always been fresh money on the table for good purposes.
Olsens message in annual address is crystal clear: There is an end to the delicious, extra oil money!
In annual address throughout Thursday evening he warns politicians against to continue to increase the use of oil money.
– A sensible adaptation to risk is that one does not aim to increase the use of oil revenues from the current level, says the governor.
– The era of the escalation of the use of oil revenues may be behind us, Olsens grim message to government officials and other leaders of society in the hall.
From unique position to restructure
Olsen also touches restructuring economy faces .
– Norwegian economy must now adapt to a clearly lower Demand from the oil sector. We go from unique position to adapt, says Olsen.
This has consequences for Norwegian wage growth.
– The transition to an oil-driven economy has been a pleasant journey, he said.
Now turn this all around.
– The return, where the supplier industry will shrink and other konkurrasneutsatt business is to grow, it becomes more demanding, says Oslen.
He says this can happen in two ways: at lower wages than in utalndet and by a weaker exchange rate.
No snuggling in the audience
It was Norwegian snuggling in the two telysene which fluttered outside his office Thursday evening. But the message of the speech was not particularly cozy for government members in the dimly lit hall at Norges Bank.
The use of oil money has just about every year since the millennium risen faster than mainland Norway’s economy. At this year’s state budget sums the annual extra money over the past ten years to just over 70 billion.
On a budget of 1,200 billion this much money. Just this year came 16 billion fresh oil money into the budget.
End of lubrication
Olsen believes it should be an end to lubricate the state budget with fresh oil money from next year. Given an oil price of 50-60 dollars per. barrel forward and the expected return on the Oil Fund is the rather depends to less use of oil money in years to come.
If the politicians do not pull on the brakes, they begin to eat the actual fund . There will be a dramatic break with the whole basic idea that the fund should maintain its real value for the enjoyment of future generations.
Olsens court
Olsen are based on a path for the return of the Oil Fund in past and future, as a percentage of the size of the Norwegian economy.
Since 2000, the percentage skyrocketed with rising oil prices. Oil Fund has grown in rocket speed and much faster than the mainland economy. Even with careful use of fiscal rule has new money flowed into the state budget every year.
Olsen focuses on this top. Once it is reached, begin tightening times in the state budget.
Connected with the fiscal rule if only to use the fund’s return means increasingly less oil money to spend on the state budget, calculated as a percentage of the economy.
– We knew we would reach this peak sometime in the future, but it was far forward and the period of systematic tightening lay far forward. Now this top might be right around the corner, says Olsen.
Tightens into now
Therefore he will begin adaptation to lower to lower oil revenues already now.
– It means that we should not increase the use of oil revenues from the current level, says Olsen.
His curve with expected returns in the Oil Fund and still low oil prices shows cuts in the use of oil revenues in the coming years.
Bad times for savers
Two factors have changed in recent years:
- Wall Street fails Norway. Norges Bank expects that the real annual return of the Oil Fund is “perhaps under 3 percent”, not 4 percent as previously thought.
- 1 percentage point underperformance is 65 billion less each year .
- Oil prices more than halved since summer. The flow of new oil money into the fund will be much smaller than expected.
Both conditions go to appreciably lower value of the Oil Fund and clearly lower annual returns for the fund than estimated before.
Tighter now – whatever
After Olsens vision is of little help to believe in higher oil prices and high yields of oil money. We should start tightening now, anyway.
– Common sense dictates that you should cut through the top. If you hold back on spending now, so it reduces the need to tighten much little further into the future, he said.
Power in the opposite direction
Higher pension expenses will add extra pressure on the state budget from the years around 2020. It comes on top of the failure on Walls tree and low oil prices.
The pension costs are determined by pension reform rules and the number of pensioners. Cutting ability is basically very small
– I mean increased pension expenditure strengthens the recommendation I come with. There will be extra demanding to tighten every year when we know that sharply rising pension expenditure is inside your budget and pull in the opposite direction, says Olsen.
Published:
No comments:
Post a Comment