Oecd Economic Surveys : Norway 1985-1986.

72 Pages·4.386 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION ANO DEVELOPMENT
ORGANISATION DE COOPERATION ET OE D E V E L 0 P P E M E N T ECONOMIQUES
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NORWAY
JANUARY 1986
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle 1oftheConventionsignedinParison 14thDecember,
1960,andwhichcameintoforceon30thSeptember,1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promote
policiesdesigned:
- toachievethehighestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus tocontribute to thedevelopment ofthe
worldeconomy;
- to contribute to sound economic expansion in Member as well as
non-membercountries in the processofeconomicdevelopment;and
- to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international obliga¬
tions.
TheSignatoriesoftheConvention on theOECD are Austria, Belgium,
Canada, Denmark, France, the Federal Republic of Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain,Sweden,Switzerland,Turkey,theUnited Kingdomand the United
States.ThefollowingcountriesaccededsubsequentlytothisConvention(the
datesarethoseonwhichtheinstrumentsofaccessionweredeposited):Japan
(28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune,
1971) and New Zealand (29th May, 1973).
TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof
theOECD (agreement of28thOctober, 1961).
©OECD, 1986
Application for permission toreproduce ortranslate
all or part ofthis publicationshould be made to:
Head of PublicationsService,OECD
2, rue Andre-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I. The current recovery and short-term prospects 8
The current recovery in historical perspective 8
The short-term outlook 16
II. Policies and the medium-term perspective 19
Fiscal policy 19
Monetary policy 25
Supply-side policies 28
The Long-term Programme 1986-1989 31
HI. Financial market deregulation 31
The financial system before deregulation and the nature ofcontrol 31
The process ofderegulation 34
Effects ofderegulation 37
a) The impact on monetary policy 37
b) Efficiency gains in financial markets 38
c) Other resource allocation effects 41
d) Effects on income distribution 43
Remaining problems 43
IV. Conclusions 45
Annex: Chronology ofmain economic events 49
Statistical annex 55
TABLES
Text
1. The cyclical recovery in historical perspective 9
2. Selected background indicators 14
3. Short-term prospects 17
4. Foreign trade and current account projections 18
5. Fiscal policy indicators 21
6. General government revenue and expenditure 23
7. Actual and projected monetary growth 27
8. Subsidies: comparative statistics 29
9. Subsidies to the business sector 29
10. Wage growth in different sectors 30
1 1. Actual and planned contribution to liquidity supply from different sources 34
12. Interest rate declarations 36
13. International comparison ofoperating cost/asset ratios 40
14. Stock market indicators 41
15. Tax treatment of household and corporate interest expenditure 44
Statisticalannex
A. Supply and use of resources (current prices) 55
B. Supply and use ofresources (constant prices) 56
C. Gross domestic product by industry oforigin (current prices) 57
D. Gross domestic product by industry oforigin (constant prices) 58
E. General government income and expenditure 59
F. Production by sector 60
G. Labour market and employment 61
H. Balance ofpayments 62
I. Foreign trade, total and by area 64
J. Prices and wages 64
K. Money and credit 65
DIAGRAMS
1. Cyclical comparison ofdemand components 10
2. Cyclical comparison ofoutput, employment and prices 11
3. Current external account 15
4. General government financial balance 20
5. Norwegian and foreign interest rates 26
6. Output-inflation split 28
7. Composition ofdomestic credit supply to the private and municipal sector 39
8. Investment/output ratio and GDP growth 42
BASIC STATISTICS OF NORWAY
THELAND
Area(IOOOxi.km) 1983 324 Majorcities(1.1.83):
Agriculturalarea(I000sq.km) 1983 9 Oslo 448747
Productiveforests(I000sq.km) 1983 65 Bergen 207232
THE PEOPLE
Population(31.12.84) 4145845 Civilianemployment. 1984 1 970000
No.ofinhabitantspersq.km 13 ofwhich:Industry(%) 28.3
Nclnaturalincrease(average 1975-1984) 10528 Agriculture,forestryandfishing(%) 7.1
Per I 000inhabitants(average 1975-1984) 2.6 Otheractivities(%) 64.6
PRODUCTION
Grossdomesticproductin 1984(millionsofKr.) 446618 Grassfixedcapitalformation(1984):
GDPperhead(USS) 13202 PercentageofGDP 24.9
Perhead.USS 3289
THEGOVERNMENT
Publicconsumptionin 1984(percentageofGDP) 18.8 CompositionofParliament(No.ofscats):
Generalgovernmentcurrentandcapitalexpenditure Labourparty 71
in 1984(percentageofGDP) 44.4 Conservativeparly 50
Generalgovernmentcurrentrevenuein 1984 Christiandemocraticparty 16
(percentageofGDP) 53.5 Centre(Agrarian)party 12
Progressparly 2
Thesocialist leftparly 6
Total 157
Lastgeneralelection: 1985 Nextgeneralelection:September 1989
FOREIGNTRADE
ExportsofgoodsandservicesasapercentageofGDP Importsofgoodsandservicesasapercentageof
(average 1980-1984) 46.9 GDP(average 1980-1984) 39.5
vfwhich: Mainimportsin 1984(percentageoftotal
Grossfreightandoildrillingearnings(1980-1984) 8.8 commodityimports):
Mainexportsin 1984(percentageoftotal Ships 2.4
commodityexports): Machinery,apparatusandtransportequipment
Forestryproducts 2.8 (excl.ships) 18.9
Basemetalsandproductsthereof 9.1 Rawmaterials(non-edible) incl.fuelsand
Fishandfishproducts 2.9 chemicals 13.1
Machinery,apparatusandtransport Basemetalsandproductsthereof 6.1
equipment(excl.ships) 4.8
THECURRENCY
Monetaryunit: Krone CurrencyunitsperUSS,averageofdailyfigures:
Year 1984 8.16
October 1985 7.91
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
theannualreviewofNorwaybytheEconomicandDevelopment
ReviewCommitteeon 18th December 1985.
Afterrevisionsinthelightofdiscussionsduringthereview,
final approval ofthe Surveyfor publication was given by the
Committeeon 17th January 1986.
INTRODUCTION
Activitygrowthinthefirsttwoyearsofthecurrentrecovery,whichbeganinearly 1983,
was moderate compared to past experience and for some time relied mostly on foreign
demand. Inflation continued to fall during this period. With domestic demand picking up
vigorouslyoverthelastyear,theupswingmayturnouttobethelongest-livedinthepasttwo
decades. A favourablefeatureofthecurrentrecoveryistheperformanceofthetraditionally
weak manufacturing sector, where output, productivity and investment have revived
markedly. Output growth is likely to continue in the near term and unemployment should
remain low. However, there are some areas ofconcern. In contrast to trends in many other
countries, inflation has remained relatively sticky in 1985 and, in view ofthe high degreeof
resource utilisation, there is a risk of rising cost and price pressures. The current external
accounthasremainedinlargethoughdecliningsurplus,butexcludingoilrevenueithasbeen
moving into increasing deficit. If the trend of deteriorating international competitiveness
continues,theoil-adjustedcurrentaccountdeficitmaysoonexceedoilexportreceipts. Part I
of the present Survey reviews these recent economic trends and presents short-term
prospects.
Strong growth and low unemployment by international comparison owe much to
expansionary demand management policies made possible by growing oil revenues. Fiscal
support to the economy has been maintained even after the recovery gained momentum.
Publicexpenditurehascontinuedtoexpand fasterthan GDPwhilethetax burden has been
reduced.Thecreditexpansion hasacceleratedsharplysincemid-1984,stronglyovershooting
targets.Sometighteningofmonetarypolicyisplannedfortheperiodahead,butitremainsto
be seen whether the credit expansion can be curbed enough to outweigh the liquidity
contribution ofthe projected rise in fiscal deficits. Notwithstanding the emphasis placed on
supply-side policies in the Government's economic strategy, the speed with which these
policies are implemented has continued to be moderate; in particular, not enough has been
done to reduce high subsidisation of State firms and agriculture and improve the wage
formation process. These policy developments are discussed in PartII.
In recent years the financial sector of the Norwegian economy has changed markedly
towards less regulation and increased competition. The deregulation process had started
alreadyinthelate 1970s,buthasbeenunevenacrossdifferentpartsofthefinancialsystem.In
some areas, such as capital controls and the bond market, the liberalisation has proceeded
relativelysmoothly. In the credit market, however, thederegulation had been hesitant until
recently. While the credit market share of State banks was significantly reduced, direct
controls were reintroduced in 1982 on bank lending and maintained until 1983. Since then
therehasbeen a renewed effort toachievea moremarket-orientedsystem. Aftera reviewof
previous controls, PartIII of the Survey describes the process of deregulation, assesses its
impact, and discusses remaining problems. Finally, Part IV concludes the Survey with a
discussion ofmain policy issues.
I. THE CURRENT RECOVERY AND SHORT-TERM PROSPECTS
The current recovery in historical perspective
TheNorwegianeconomyhasbeenonaclearupwardtrendsincethebeginningof 1983.
Confined at first to the export sectors, the upswing gradually broadened to the rest of the
economyandisnowmainlydrivenbydomesticdemand.Comparingrecentperformancewith
previous cycles, one has to keep in mind Norway's becoming a net oil exporter since the
mid-1970s,aswellastheimportantchangesintheexternalenvironmentand inthestanceof
economicpolicythathavetakenplaceoverthelasttwodecades.Thefirsttwobusinesscycles
in this period (with troughs in 1968 and 1971) took place againstthe background ofstrong
growthintheinternationaleconomyandacautiousstanceoffinancialpolicyinNorway,with
thegovernmentbudgetusuallyinsurplus.Thefollowingtwocycles(withtroughsin 1975and
1978) occurred in the context of slowing international growth, the impact of which an
expansionaryeconomicpolicytriedtooffset. However,mountingdomesticcostpressuresand
largeexternal deficits,even takingintoaccounttheprospectiveearningsoftheoilsector, led
toare-orientationofeconomicpolicyin 1978. Becauseofrapidlyincreasinginflationthrough
1980and 1981, a relativelycautious stanceoffiscal, and in particular, monetary policywas
maintained during the international recession of the early 1980s, and more emphasis was
placedonmeasurestostrengthenthesupplysideoftheeconomy.Butinthelasttwoyearsorso
the stance of demand management policy has again become more expansionary (see
Part II).
Comparingthecurrentcycletothefourpreviousones (Table 1, Diagrams 1 and 2), the
following features stand out:
a) Although,contrarytowhathappenedinmanyotherMembercountries,realGDP
(total as well as Mainland) kept growing in the early 1980s, the downswing
preceding the present recoverywas fairly long. Only temporarily interrupted by a
pick-upinforeigndemandand investmentin 1981,itlastedforalmostthreeyears.
Therecessionreflectedabovealltheprolongedweaknessofforeigndemandbutalso
accumulated cost and structural problems in the traditional sectors. Growth of
domesticdemand slowed markedlywith both privateand publicdemand compon¬
ents expanding less than in corresponding phases of previous cycles.
b) In mid-1985 the recovery was already among the longest-lived in the last two
decades,itspredecessorslastingbetweenoneandtwoandahalfyears.Ontheother
hand,during thefirsttwoyearsorsooutputgrowth remained belowthatachieved
inearlierupturns,inparticularifoilactivitiesareexcluded.However,through 1985
GDP, in particular excluding oil and shipping, has grown strongly. The initial
weakness ofthe recovery in comparison with most earlierepisodes wasassociated
with avirtual stagnationofdomesticdemand, real GDPgrowth in thefirstyearof
theupswingbeingattributablesolelytoariseinnetexports.Thissituationhasbeen
reversed subsequently.
c) Private consumption expenditure remained sluggish in the first two years of the
presentrecovery,expandingatalowerratethanhouseholddisposableincomeand,
asapercentageofGDPdroppingtothelowestlevelrecordedsinceWorldWarII.It
was only in the second half of 1984 that consumer demand revived vigorously,
catchinguponlevelsreachedatthisstageofearliercycles.Thestrongacceleration
in private consumption growth, which reversed the earlier rise in the saving ratio,
Table I. Thecyclical recovery In historicalperspective
Seasonallyadjusted annual ratesofchangeatconstant prices
Averageoffirst
I969Q4 1971Q2 1972Q4 I974Q2 I976Q4 I978Q2 I979Q2 1980O2 1983Q4 I985Q2 fourcycles
1968Q4 196804 1971Q4 197104 I975Q4 I975Q4 I978Q1 1978Q1 1982Q4 I982Q4
Quarters Quarters
fromthrough
Privateconsumption 13.8 4.9 1.4 3.3 5.0 3.1 1.0 1.9 1.7 3.2 5.3 3.3
Governmentconsumption 3.2 5.5 4.4 4.5 2.3 4.1 3.2 4.1 3.9 2.9 3.3 4.6
Governmentexpenditure 4.5 5.7 7.2 4.7 2.7 4.6 1.0 2.7 3.5 2.8 3.9 4.4
Grossfixes investment 23.5 20.4 11.2 10.6 24.3 -5.6 -25.8 -0.9 -18.4 -0.9 8.3 6.1
Excludingoil and shipping 9.5 15.0 10.7 9.6 10.3 -4.7 -11.7 6.9 -15.7 1.8 4.7 6.7
Residential construction - - - - - - -5.7 0.1 -17.1 -6.6 - -
Private non-residential excludingoiland shipping - - -. - - - -15.7 13.0 -19.2 4.3 - _
Manufacturing 15.5 16.5 -9.4 7.1 -9.5 1.8 -34.5 -5.3 -4.4 4.8 -9.5 5.0
Stockbuilding' -3.3 5.7 -1.1 7.3 -4.0 6.7 1.8 7.2 -1.4 5.7 -1.7 6.7
Exportsofgoodsand services -2.0 0.1 13.8 9.0 0.9 10.0 10.6 2.8 12.1 4.7 5.8 5.5
Excludingoil and ships -0.6 2.1 9.2 6.9 5.6 9.6 4.2 3.0 2.6 1.8 4.6 5.4
Goods -I.I -1.4 19.0 11.3 -3.3 14.5 19.4 3.7 19.6 7.8 8.5 7.0
Goodsexcludingoil andships 2.0 2.6 10.9 7.8 3.4 16.6 13.9 4.8 8.3 5.4 7.6 8.0
Importsofgoods andservices -1.9 10.7 3.6 6.9 10.0 -2.1 -8.2 -1.5 -2.8 2.7 0.9 4.6
Excludingoil and ships 8.3 6.6 4.3 8.5 4.5 1.0 -8.6 -1.9 -4.6 3.3 2.1 3.6
Goods 22.9 16.7 4.0 6.9 13.7 0.6 -3.9 3.0 -4.4 3.9 9.2 6.8
Goodsexcludingoil andships 13.9 8.2 5.6 10.6 6.4 -1.1 -3.4 3.4 -5.2 5.0 5.6 5.3
Grossdomestic product 7.5 4.5 9.1 6.0 5.5 4.7 4.7 3.9 4.3 3.5 6.7 4.8
Mainland Norway 8.8 5.0 5.2 5.1 3.0 2.2 5.3 3.3 3.7 3.0 5.6 3.9
Industrial production 5.3 4.6 4.5 4.5 8.2 5.7 3.3 4.0 11.8 5.6 5.3 4.7
Manufacturing 8.5 5.4 4.5 4.3 2.2 -0.9 -0.3 1.2 3.0 2.8 3.7 2.5
Productivityexcludingoil andshipping 4.7 3.0 9.7 5.7 2.5 1.7 3.9 1.9 4.1 2.5 5.2 3.1
Manufacturing 3.4 2.6 3.5 3.2 3.0 -2.7 -2.6 0.8 9.0 1.6 1.8 1.0
Employment (manyears) 2.7 1.4 -0.5 0.3 3.0 3.0 0.8 2.0 0.3 0.9 1.5 1.7
Manufacturing (manyears) 4.9 2.7 0.9 1.0 -0.8 1.8 2.4 0.4 -5.5 1.2 1.9 1.5
Unit labourcostsexcludingoil and shipping 1.4 7.5 5.1 7.7 13.8 11.4 2.0 5.5 3.8 4.2 5.6 8.0
Manufacturing 1.5 7.5 5.3 8.7 12.0 14.3 8.1 5.4 -0.6 2.4 6.7 9.0
GDPdeflator 7.3 9.5 5.4 8.4 10.9 8.0 5.0 10.1 5.7 6.8 7.2 9.0
Consumerprices 3.2 7.1 7.7 8.2 8.0 8.8 5.3 8.0 7.2 6.7 6.1 8.0
1. ContributiontoGDPgrowth.
Sources: CentralStatisticalBureau.OECDSecretariat.