Norway

Politics:

• Analysis

  Norway politics: Quick View - Government considers military involvement in

  Event

  In an attack by Islamist militants on a gas processing plant, In Amenas, in south-east Algeria on January 16th, four employees of Statoil were killed and one remains missing. Statoil is two-thirds owned by the Norwegian government. The minister of foreign affairs, Espen Barth Eide, subsequently announced that Norway would consider contributing to an EU training mission in Mali, where the terrorists who staged the Algerian attack came from. Islamist militants have taken control of parts of Mali and threaten to expand further across the country.

  Analysis

  Norway's prime minister, Jens Stoltenberg (Labour Party), faces strong protests against military involvement in Mali from its pacifist junior coalition partner, the Socialist Left Party (SV). This reflects a wider division among the government parties over military involvement abroad, with the Labour Party and the Centre Party supportive of NATO action abroad such as in Afghanistan and Libya, and the SV opposed.

  In parliament, a strong majority supports participation in NATO action. In this case too, Mr Barth Eide has received opposition support for Norway contributing to an EU or Nordic training mission in Mali. However, Mr Stoltenberg appears reluctant to take action contrary to the SV's programme, because of the latter's low poll ratings and the likelihood that support among its core electorate would be further eroded if it formed a part of a government that extended overseas military action. As the SV is at risk of falling below the 4% threshold of support required to enter parliament, and its support would probably be necessary for Labour to secure another term after the 2013 election, Labour is wary of alienating core SV voters. In addition, the general public appears to be cautious about extending military involvement abroad, with recent opinion polls suggesting that less than half would support military action in Mali and one-third oppose it.

  However, in the meantime Mr Stoltenberg's thoughtful approach to the In Amenas crisis has improved his approval ratings temporarily and the pacifist response of SV may yet push up its poll ratings in the coming weeks. Given the controversy over military action, we expect the issue to remain unresolved until the September 2013 election. Thereafter, a potential centre-right government would be likely to military favour involvement abroad.

  January 29, 2013

• Background

  Norway: Political and institutional effectiveness

  Norway will continue to score highly for the effectiveness of its governmental system in policy formulation and implementation. The government delivers high-quality services, and corruption is largely absent from political and business life. However, one downside of Norway's system of government can be an excessive degree of bureaucracy.

  Legislation passes through the committee system of the Storting (parliament), where the aim is usually to build a cross-party consensus, with only the most controversial measures leading to a parliamentary vote. One exception concerns EU legislation transposed into Norwegian law through the country's membership of the EEA. In the past, the Storting often did not examine this legislation, but since 2007 the government has subjected it to more stringent scrutiny. In 2011 Norway announced that it would seek not to implement the EU's third postal directive; negotiations on this are continuing with the European Commission. As EU affairs gradually impinge more on the Norwegian political process, this has fostered wider debate on EEA legislation, especially after an independent report in 2011 highlighted the lack of parliamentary scrutiny. Norway is unlikely to apply for full EU membership during the forecast period (see International relations).

  Piecemeal reform of local government is expected

  Although policymaking is mainly centred in the capital, Oslo, policy is implemented by a well-functioning decentralised governmental system. Local government was expected to be reformed during the forecast period, but the political parties have not yet agreed on the details and, without broad cross-party consensus, thorough reform is likely to be delayed. Norway is currently divided into 18 counties (in addition to Oslo) and 430 local municipalities ranging in population from Utsira (215 inhabitants) to Oslo (over 600,000, and containing one-fifth of the working population). Plans for reform aim to create stronger regional bodies that will take over the powers of the county councils and some extra powers held by county governors and central government, thus becoming the main regional development actors. Their responsibilities would include roads, business development, the environment, agriculture, aquaculture and food, research and development, culture, and regional planning. Local authorities took on greater responsibility for health services in January 2012, and this may provide an incentive for unifying existing smaller authorities.

  September 13, 2012

• Structure

  Norway: Political structure

  Official name

  Kingdom of Norway

  Form of state

  Constitutional monarchy

  Legal system

  Based on the constitution of 1814

  National legislature

  Storting (parliament) of 169 members directly elected by proportional representation (modified Sainte-Laguë system) for a four-year term; for the purpose of discussing new legislation, the Storting sits as a single body. There is no right of dissolution between elections

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  Last general election held on September 14th 2009; the next general election will take place in September 2013; next local elections (regional and municipal) due in 2015

  Head of state

  King Harald acceded to the throne in 1991

  National government

  Council of State (Statsrad) headed by the prime minister, who is responsible to the Storting. A majority coalition government consisting of the Labour Party, the Socialist Left Party and the Centre Party took office on October 17th 2005 and was reappointed on October 16th 2009

  Main political parties

  Labour Party (A, 64 seats); Progress Party (FrP, 41 seats); Conservatives (H, 30 seats); Socialist Left Party (SV, 11 seats); Centre Party (Sp, 11 seats); Christian Democrats (KrF, ten seats); Liberals (V, two seats)

  Council of State

  Prime minister: Jens Stoltenberg (A)

  Chief of staff, prime minister's office: Karl Eirik Schjott-Pedersen (A)

  Key ministers

  Agriculture & food: Trygve Slagsvold Vedum (Sp)

  Children, equality & social inclusion: Inga Marte Thorkildsen (SV)

  Culture: Hadia Tajik (A)

  Defence: Anne-Grete Strom-Erichsen (A)

  Education, research & higher education: Kristin Halvorsen (SV)

  Environment: Bard Vegar Solhjell (SV)

  Finance: Sigbjorn Johnsen (A)

  Fisheries & coastal affairs: Lisbeth Berg-Hansen (A)

  Foreign affairs: Espen Barth Eide (A)

  Health & care services: Jonas Gahr Store (A)

  International development: Heikki Holmas (SV)

  Justice, police & immigration: Grete Faremo (A)

  Labour: Anniken Huitfeldt (A)

  Local government & regional development: Liv Signe Navarsete (Sp)

  Petroleum & energy: Ola Borten Moe (Sp)

  Reform & church affairs: Rigmor Aasrud (A)

  Trade & industry: Trond Giske (A)

  Transport & communications: Marit Arnstad (Sp)

  Speaker of the Storting

  Dag Terje Andersen (A)

  Central bank governor

  Oystein Olsen

  March 14, 2013

• Outlook

  Norway: Key developments

  Outlook for 2013-17

  • The risk that the Socialist Left Party or the Centre Party will leave the centre-left coalition with the Labour Party (the senior partner) before the election in September 2013 is low. However, tensions within the coalition will persist.
  • Four centre-right parties-the Conservatives, the Progress Party, the Liberals and the Christian Democrats-have a big lead in opinion polls. The Economist Intelligence Unit expects them to form a government after the election.
  • The government's centrist programme focuses on supporting employment, environmental policy, infrastructure, and education and healthcare reforms. It may act to reduce early retirement in the public sector over the medium term.
  • Real GDP growth is estimated at 3% in 2012, as the economy was supported by high oil prices and domestic demand. Growth is forecast to remain strong at 2.3% in 2013, and to average 3% in 2014-17.
  • Norges Bank (the central bank) reduced the policy rate-the sight deposit rate-to 1.5% in March 2012 and is expected to keep it low throughout 2013. It may be raised gradually during the year to limit strong household credit growth.
  • We forecast that the krone will remain strong against the euro in 2013, driven by safe-haven considerations, and that it will depreciate gradually thereafter, despite possible short-term volatility.

  Review

  • A report from a Parliamentary Scrutiny and Constitutional Control Committee on the terrorist attacks of July 2011 highlighted numerous failings in government security policy. The government has accepted the criticisms.
  • Retail sales rose by 1% month on month (seasonally adjusted) and 2.5% year on year in January, continuing strong year-on-year growth of 2% and 2.7% respectively in November and December 2013.
  • However, unemployment rose to a new high since 2010, at 3.6% in December 2012 and January 2013. This is still very low by international standards.
  • The central bank governor has called for greater incentives on the labour market to attract foreign workers and raise productivity, in order to address the risk of labour market shortages in some sectors.
  • GDP growth in 2012 accelerated to 3%, up from 1.3% in 2011. Fourth quarter GDP growth of 0.4% quarter on quarter improved from a contraction of 0.6% in the second quarter, owing to greater offshore activity.
  • Inflation exceeded 1% for the fourth consecutive month in January, at 1.3%, after weak inflation averaging only 0.7% in 2012.

  March 14, 2013

Economy:

• Background

  Norway: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	5.0	Population growth	1.1
  GDP (US$ bn; market exchange rate)	501.2	Real GDP growth	0.6
  GDP (US$ bn; purchasing power parity)	325.2	Real domestic demand growth	1.4
  GDP per head (US$; market exchange rate)	100,050	Inflation	2.1
  GDP per head (US$; purchasing power parity)	64,914	Current-account balance (% of GDP)	14.0
  Exchange rate (av) Nkr:US$	5.82	FDI inflows (% of GDP)	2.5
  a The Economist Intelligence Unit estimates.

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  Background: The Labour Party governed almost without interruption in 1935-65 and largely dominated politics until 2001, when a minority coalition comprising the Conservatives, the Christian Democrats and the Liberals swept to power. Following the 2005 election, Labour returned to power in a centre-left coalition with the Socialist Left Party (SV) and the Centre Party-the first majority government for two decades. The coalition was re-elected in September 2009.

  Political structure: A general election is held every four years and there is no right of dissolution between elections. The 169 members of the Storting (parliament) are elected on the basis of proportional representation, with 4% of the national vote guaranteeing automatic representation. The Storting has only one chamber.

  Policy issues: Fiscal rules allow a portion of oil wealth to be spent each year; the current government has used this to fund higher public spending in areas such as infrastructure, education, healthcare and local government. In response to the economic downturn, the government increased spending of petroleum revenue in 2009, but it returned slightly to fiscal tightening in 2010 and has remained fiscally prudent in 2011-12. The government is strongly committed to maintaining state ownership where this already exists. Environmental policy is high among its priorities, but, despite a cross-party agreement on tackling climate change, there is tension between the coalition partners over the balance between industrial development and environmental protection.

  Taxation: Corporation tax is levied at a flat rate of 28%. Oil companies pay an additional flat-rate tax of 50% on income derived from the extraction, processing and transport of oil, but benefit from a 78% tax refund on the costs of exploration of oil and gas. The capital gains tax is 28%. The ordinary rate of value-added tax (VAT) is 25%. There are two reduced VAT rates: 14% for food and 8% for transport, cinemas, public broadcasting and hotel accommodation. The top marginal income tax rate is 54.3% (including employers' social security contributions).

  Foreign trade: Oil and gas output and prices greatly affect Norway's trade flows. The petroleum sector contributes around half of total export revenue. Higher oil prices boosted the merchandise trade surplus to an estimated US$80.3bn in 2012; the trade balance will remain in substantial surplus throughout the forecast period.

  Major exports 2011	% of total	Major imports 2011	% of total
  Mineral fuels, lubricants & related materials	67.9	Machinery & transport equipment	38.3
  Manufactured goods	8.6	Manufactured goods	14.8
  Machinery & transport equipment	7.8	Miscellaneous manufactured articles	14.5
  Food & live animals	6.2	Chemicals & related products	9.8
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  UK	27.1	Sweden	13.4
  Netherlands	11.5	Germany	12.0
  Germany	11.0	China	9.0
  France	7.1	Denmark	6.3
  EU	80.9	EU	62.8

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  March 14, 2013

• Structure

  Norway: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 14, 2013

• Outlook

  Norway: Country outlook

  Norway: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The red-green coalition of the Labour Party, the Socialist Left Party (SV) and the Centre Party was returned to office at the general election in 2009 with a slim overall majority. An earlier risk that one of the smaller coalition parties (the SV or the Centre Party) could leave the coalition before the September 2013 general election, owing to policy disagreements and poor ratings in opinion polls, now appears unlikely, and the coalition is trying to demonstrate its viability for the next electoral term.

  ELECTION WATCH: With some opinion polls putting public support for the current government coalition at only around 36% since late 2012, the Economist Intelligence Unit's central forecast is that a centre-right coalition will enter office after the September 2013 election. The junior government coalition partners, the SV and the Centre Party, are both at risk of falling below the 4% threshold required to enter parliament. The Centre Party has suffered from failing to obtain an agricultural settlement on subsidies and pricing that farmers--the party's traditional supporters--sought in 2012. Support for the Labour Party has also fallen, from around 35% in January 2012 to closer to 27% in March 2013, partly because it alienated its core trade union constituency by calling a national emergency in July 2012 to end strikes by oil and gas workers.

  INTERNATIONAL RELATIONS: Relations with the EU will remain one of the main foreign policy issues for Norway. The country is a member of the European Economic Area (EEA) and must implement most EU single-market rules. The current coalition agreement states its commitment to the EEA, and we expect Norway to remain a member throughout the forecast period, despite occasional disagreements. Strains on the EU relationship include Norway's failure to implement a postal directive since 2011 and its introduction in 2012 of higher tariffs on some food imports, which contravene the EEA agreement. These actions may incur sanctions, such as limits on Norwegian salmon exports to the EU, later in the forecast period. Alternatives to the EEA set-up would be an agreement with EU members based on bilateral treaties, similar to that between Switzerland and the EU, or full EU membership, both of which are unlikely.

  POLICY TRENDS: The government will continue to implement a centrist programme, with an emphasis on employment, the environment, education and healthcare. Policy is increasingly encouraging petroleum companies to make new discoveries and to extend the life of existing hydrocarbon fields, to help to offset a long-term trend of falling oil production. The government allows exploration in already open areas and the delineated area of the Barents Sea, and an environmental impact assessment in the "unopened" Lofoten-Vesteralen region may start this year. Financing for offshore investment in the midst of the euro zone crisis is maintained through government loans provided by the Export Credit Norway agency.

  ECONOMIC GROWTH: Real GDP growth averaged 3% in 2012, but slowed markedly from over 4% in the first half to below 2% in the second half. As some of the recent deceleration is likely to be counterbalanced by a pick-up of euro zone export demand later in 2013 and ongoing domestic consumption growth, we expect full-year GDP growth of 2.3%. We forecast external demand growth to accelerate more strongly from 2014, and expect average annual growth of 3% in 2014-17.

  INFLATION: The strong krone kept inflation low in 2012, at an average of 0.7%. We expect the strength of the currency to keep headline inflation below the central bank's 2.5% target for some time, with the average rate forecast at 1.8% in 2013, and expected to continue rising to reach 2.5% in 2017. A slight economic deceleration in 2013 will contribute to subdued inflation at the margin. From 2014 we expect pressure on the krone to ease gradually and the central bank to raise interest rates only slowly, giving inflation more scope to rise. Ongoing wage growth and the strong economy will put upward pressure on prices.

  EXCHANGE RATES: The krone has appreciated steadily since December 2008, from a peak of Nkr9.75:EUR1 to Nkr7.3-7.5:EUR1 since September 2012, as the solid fundamentals of Norway's economy--together with the euro zone crisis and limits to the appreciation of the Swiss franc--underpinned appetite for "safe haven" Norwegian bonds and currency. The exchange rate is expected to retain its strength, at close to Nkr7.4:EUR1 in the next few months, as Norway maintains its status as a safe haven. Policymakers will seek to limit appreciation by keeping interest rates--and the interest differential with the euro zone--low. In line with our forecast of a modest EU and OECD recovery from 2014, we expect gradual weakening of the krone against the euro towards the end of 2013 and in 2014-17, as other assets become more attractive. Given our assumption of a weakening euro against the US dollar, the krone is also forecast to depreciate against the US currency.

  EXTERNAL SECTOR: The current account will remain comfortably in surplus throughout the forecast period. Over the longer term, oil exports will gradually decline as production is past its peak, but gas exports will continue to rise over the forecast period. The current-account surplus is forecast to average 13.5% of GDP in 2013-17.

  March 07, 2013

• Forecast

  Norway: Country forecast summary

  Country forecast overview: Highlights

  • The coalition of the Labour Party, the Socialist Left Party (SV) and the Centre Party was returned with a slim overall majority at the 2009 election. Holding less than 40% of voter support, and with the SV and the Centre Party struggling close to 4% (the threshold to enter parliament) in opinion polls, another term for the coalition after the September 2013 election seems unlikely. If the coalition were returned to office, the risk of an early split over internal disputes would be likely to persist. Nonetheless, a minority government would probably be able to broker deals with other centrist parties or its former partner. Political stability will be facilitated by a broad consensus between the main parties.
  • The opposition Liberals and Christian Democrats would be prepared to support a Conservative-Progress Party coalition after the election. As the four parties have a solid opinion-poll lead over the governing coalition, the Economist Intelligence Unit expects a new centre-right government after the September election. Nonetheless, the Conservatives and the Progress Party have yet to demonstrate their ability to unite around a common policy platform.
  • Real GDP growth is forecast at 2.3% in 2013, supported by private consumption and offshore investment growth. Private consumption growth was an estimated is forecast at 2.7% in 2013, given low (albeit rising) unemployment and vibrant wage growth. Investment is expected to continue expanding strongly, by 5.7% in 2013, to exploit new oil discoveries and extend the life of existing fields. We forecast that annual GDP growth will average 3% in 2014-17.
  • Our GDP forecast is subject to several risks. One stems from an uncertain investment trajectory in the petroleum sector, which, given the scale of projects, has an important influence on the overall growth rate. Another stems from the potential for a deeper euro zone recession than currently predicted, brought about by a euro zone break-up, which would have an adverse effect on Norwegian exports. Nevertheless, Norway's substantial sovereign oil wealth will continue to provide a buffer to cushion the economy in times of distress.
  • Norges Bank (the central bank) reduced the sight deposit rate to 1.75% in December 2011 and 1.5% in March 2012. We expect the interest rate to remain close to that level in 2013 in an effort to contain currency appreciation, despite risks from high household debt and rising house prices. As the global economy recovers and pressure on the krone abates, we expect the policy rate to rise slowly, to around 2-3% in 2014-17.

  

  March 14, 2013

View detailed map

Country Briefing

Total land area

323,758 sq km plus the Svalbard (Spitzbergen) islands (61,020 sq km) and Jan Mayen Island (377 sq km), making a total of 385,155 sq km. Of the total mainland area, 3% is agricultural and 22% is forest

Population

5,038,100 (October 1st 2012)

Main towns

Population in city-regions (January 1st 2012):

 Oslo (capital): 1,256,554

 Bergen: 388,565

 Stavanger: 312,584

 Trondheim: 259,719

Climate

Temperate, cold inland and arctic in the north

Weather in Oslo (altitude 94 metres)

Hottest month, July, 16.4°C (average daily temperature); coldest month, January, -4.3°C (average daily temperature); driest month, February, 36 mm average rainfall; wettest month, September, 90 mm average rainfall

Language

Bokmal (influenced by Danish) and Nynorsk (based on dialects) are both officially recognised

Weights and measures

Metric system

Currency

Norwegian krone (Nkr) = 100 ore

Fiscal year

January-December

Time

One hour ahead of GMT

Public holidays

January 1st; April 5th, 6th, 9th; May 1st, 17th, 28th; December 25th, 26th. There is no compensation if a public holiday falls on a Saturday or Sunday

January 10, 2013