Norway

Politics:

• Analysis

  Norway politics: Quick View - SV minister brokers deal at Doha climate talk

  Event

  The minister of the environment, Bard Vegar Solhjell, of the Socialist Left Party (SV) returned from the Doha climate talks with an agreement brokered by himself and his Brazilian counterpart. The "Kyoto 2" agreement bound some states to continue cutting carbon emissions until 2020, but excluded large polluters such as the US, China and Russia. Domestically, the deal is unlikely to sway voter opinion much in favour of the SV.

  Analysis

  Mr Solhjell and the Brazilian environment minister were co-leaders of the negotiations for a "Kyoto 2" agreement that would bind Australia, the EU, Norway and Switzerland to continue cutting carbon emissions in 2013-20. These states account for only about 14% of world emissions, but the deal is seen as necessary to persuade larger polluters such as the US, China and India (that promised non-binding emissions cuts until 2020) to join the agreement later.

  In Norway's domestic politics, the Doha deal is in line with a climate policy agreement between the three governing parties-the Labour Party, the SV and the Centre Party-and the Conservatives, Liberals and Christian Democrats in January 2008, which committed Norway to becoming carbon neutral by 2030. The SV hopes that its successful negotiation will help raise its standing in advance of the September 2013 general election, after recent polls placed the party's support well below its 2009 general election result.

  A survey for Aftenposten, Norway's largest newspaper, showed that 21% of the SV's 2009 voters were uncertain about which party to support, putting pressure on the SV to show policy successes after being perceived as failing to deliver on many of its core issues. In addition to the environment, these policy areas include foreign affairs, where the SV has a strong stance that is anti-NATO and against Norwegian membership of the EU, as well as education and social welfare.

  In both these core areas, the SV has not scored clear victories in the current coalition. On foreign policy, the SV has for seven years been part of a government that has acted against its beliefs in accepting EU regulations through the European Economic Area (EEA) arrangement and in sending armed forces to support NATO in Afghanistan and Libya. Meanwhile, in education, Norway's ranking has only recently started to climb in international tables and gains have tended to be claimed by Labour, the coalition's dominant party.

  The SV thus sees its distinct environmental profile as an important area of electoral appeal, especially after the Centre Party-long regarded as the party most heavily promoting environmental issues-was tarred by the enthusiasm of its petroleum minister in supporting offshore development in North Norway. Mr Solhjell's modest victory in Doha may help the party gain more credit from voters looking for a centre-left environmental party to support. An opinion poll in mid-December showed the party's support rating improving marginally from 5% to 5.5%, still below its 2009 election figure of 6.2%; nonetheless, the resilience and further improvement of the party's ranking is questionable.

  December 18, 2012

• 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

  December 01, 2012

• 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 opposition parties-the Conservatives, the Progress Party, the Liberals and the Christian Democrats-have a strong lead over the government coalition, and we expect 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 to accelerate to 3.2% in 2012, as the economy remains supported by high oil prices and domestic demand. Growth is forecast to remain strong at 2.4% in 2013 and to average 2.2% 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 reduce the rate further in an attempt to contain currency appreciation.
  • The Economist Intelligence Unit forecasts continued strength of the krone against the euro in 2013, driven by safe-haven considerations, and gradual depreciation thereafter, despite possible short-term volatility.

  Review

  • Denmark and Sweden have criticised the government's decision to raise tariffs on certain meat and dairy imports from January 1st 2013. A potential centre-right government from 2013 would be expected to repeal the tariff rise.
  • Construction output rose by 8.1% year on year in the third quarter, driven by civil engineering works. Work on new residential flats also increased sharply and house prices rose further, so concern about a property bubble persists.
  • Despite strong manufacturing output and employment growth in the third quarter, allowing mainland GDP to grow by 0.7% quarter on quarter, industrial confidence is declining as orders fell and inventories are on the rise.
  • Overall GDP dropped by 0.8% quarter on quarter owing to a 7.7% contraction in crude oil and gas extraction-a result of strikes, maintenance work and technical problems in the third quarter. Overall exports dropped by 3.1%.
  • Employment has been on a relatively steady growth trajectory over the year and continued to grow by 0.5% in the third quarter. Hours worked also rose.
  • The trade surplus reached Nkr358bn (US$61bn) in January-October, as export earnings (up by 7% year on year) have outpaced import costs (up by 2.5%). The UK received about one-quarter of exports, primarily because of gas demand.

  December 01, 2012

Economy:

• Background

  Norway: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	5.0	Population growth	1.2
  GDP (US$ bn; market exchange rate)	490.5b	Real GDP growth	0.6
  GDP (US$ bn; purchasing power parity)	309.7b	Real domestic demand growth	2.1
  GDP per head (US$; market exchange rate)	98,701	Inflation	2.1
  GDP per head (US$; purchasing power parity)	62,315	Current-account balance (% of GDP)	14.0
  Exchange rate (av) Nkr:US$	5.61b	FDI inflows (% of GDP)	2.4
  a Economist Intelligence Unit estimates. b Actual.

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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 election in 2005, 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, and 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 2009-10, but it returned slightly to fiscal tightening in 2012, for example by reducing early retirement. 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 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 US$75.2bn in 2011; it will remain in substantial surplus throughout the forecast period.

  Major exports 2011	% of total	Major imports 2011	% of total
  Mineral fuels, lubricants and related materials	67.9	Machinery and transport equipment	38.3
  Manufactured goods	8.6	Manufactured goods	14.8
  Machinery and transport equipment	7.8	Miscellaneous manufactured articles	14.5
  Food and 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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  December 01, 2012

• Structure

  Norway: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• 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. There is a risk that one or both of the smaller coalition parties (the SV or the Centre Party) could leave the coalition before the next general election, in September 2013, owing to policy disagreements and poor results in opinion polls. However, the risk has eased for both parties since they renewed their ministerial teams in early 2012. Internal disagreements result from the divergent priorities of the SV on education and the Centre Party on rural policy, as well as contention with the Labour Party over oil and gas development, where the junior coalition partners give greater weight to environmental concerns, and over membership of the European Economic Area (EEA). Nonetheless, Labour should generally be able to broker a deal and the coalition is expected to hold together until September 2013.

  ELECTION WATCH: The bombing in Oslo and shootings on Utoya island by a right-wing extremist in July 2011 (the worst act of violence in Norway since the second world war) boosted support for the government coalition, while among the opposition bloc, support for the populist Progress Party fell severely to the benefit of the Conservatives. However, support for the Progress Party is showing signs of returning as the party has distanced itself from some controversial statements made in 2011, and the government coalition is again under pressure.

  INTERNATIONAL RELATIONS: Relations with the EU will remain one of the main foreign policy issues for Norway. The country is a member of the EEA and must implement most EU single-market rules. The current coalition agreement states its commitment to the EEA, and the Economist Intelligence Unit expects 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 the government's 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 is expected to start in 2013. To maintain financing for offshore investment in the midst of the euro zone crisis, the government will provide loans through the state-owned Export Credit Norway agency.

  ECONOMIC GROWTH: After economic growth slowed sharply in July-September based on lower offshore output, we have revised down our 2012 estimate to 3.2% and our 2013 forecast to 2.4%. Private consumption has been stable or even growing over the year and investment has remained robust, whereas exports dropped sharply in the third quarter. Our estimate is that private consumption will continue to hold up, resulting in average growth of 3% in 2012 and only a slight slowdown to 2.8% in 2013. Government consumption growth decelerated slightly over the year so far, but should pick up again over the next 12 months in the run-up to the September 2013 election, resulting in an estimated 1.9% growth in 2012 and 2% in 2013. We expect exports to recover from a third-quarter contraction in the fourth quarter of 2012 and 2013, averaging 2.1% growth in both years. Imports, supported by strong domestic demand, are estimated at 3.4% growth in 2012 and are forecast to slow slightly to 2.9% in 2013, as we expect investment in onshore sectors to decelerate. Overall, we expect gross fixed investment growth of 8.1% in 2012 and 6.5% in 2013.

  INFLATION: The strong krone has kept inflation low, averaging 0.6% in the first ten months of 2012, although it shot up from 0.5% in September to 1.1% in October as electricity prices increased sharply. Core inflation measured by the CPI-ATE index (excluding energy and taxes), however, remained roughly stable at 1.1%. We expect the strong krone to keep headline inflation at 0.5% in 2012 on average and have revised our 2013 forecast down slightly to 0.8%, based an expectation of continued strength of the krone but more of an economic slowdown. From 2014 we expect pressure on the krone to ease gradually and the central bank to raise interest rates slowly. Economic strength and ongoing wage growth should drive up inflation to reach the central bank's target of 2.5% by 2017.

  EXCHANGE RATES: The krone appreciated steadily from late 2010, as the economy's solid fundamentals, weaker global growth prospects, the euro zone crisis and limits to the appreciation of the Swiss franc underpinned appetite for "safe haven" Norwegian bonds and currency. It reached its strongest rate for nearly a decade, Nkr7.27:EUR1, in August 2012. The krone has since weakened slightly but remained strong, averaging Nkr7.34:EUR1 over November 1st-20th and Nkr7.49:EUR1 during the year to date. The exchange rate is predicted to remain close to that level in the short term as Norway maintains its status as a safe haven. Policymakers will continue to seek to limit krone appreciation by keeping interest rates and the interest differential with the euro zone low. We estimate an average rate of Nkr7.49:EUR1 in 2012 and Nkr7.54:EUR1 in 2013. Given our assumption of a weakening euro against the US dollar, the krone will also depreciate against the US dollar. We expect the krone to continue depreciating against the euro from 2014, as other assets become more attractive in a gradual global recovery.

  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 growing. The current-account surplus is estimated to expand slightly in 2012 to 13.4% of GDP and to stay large, averaging 15.5% of GDP, in 2013-17.

  December 01, 2012

• 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 to office with a slim overall majority at the election in September 2009. The risk that the coalition will break up before the election in September 2013 remains low, but the SV and the Centre Party continue to struggle in opinion polls. All three governing parties replaced their ministerial teams in 2012 in a bid to represent their voters' interests better. The Economist Intelligence Unit expects the coalition led by Labour to continue governing until the general election in 2013. Political stability will be facilitated by the broad consensus between the governing and opposition parties.
  • The opposition Liberals and Christian Democrats would be prepared to support a Conservative-Progress Party coalition after the election. As the four centre-right opposition parties have a solid lead over the government coalition in opinion polls, we expect a new centre-right government after the election in 2013. Nonetheless, the Conservatives and the Progress Party have yet to demonstrate their ability to unite around a common policy platform.
  • Real GDP growth is estimated at 3.2% in 2012 and forecast at 2.4% in 2013, driven by strong private consumption and offshore investment growth. Private consumption is expected to grow by 3% and 2.8%, respectively, based on low unemployment and vibrant wage growth. Investment should also grow rapidly at 8.1% and 6.5% to exploit new oil discoveries and extend the life of existing oilfields. GDP growth is forecast to remain strong at 2.2% on average 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 euro zone break-up, which would have an adverse effect on 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 low 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 currency abates, we expect the policy rate to rise slowly, to around 2-3% in the second half of the forecast period.

  

  December 01, 2012

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

4,973,029 (October 1st 2011)

Main towns

Population in city-regions (January 1st 2011)

Oslo (capital): 906,681

Bergen: 260,392

Trondheim: 173,486

Stavanger: 126,021

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

1 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

March 15, 2012