By David Ibison in Oslo Published: December 14 2008 22:17 | Last updated: December 14 2008 22:17 Norway is poised to dip more deeply into its $332bn (€248bn, £222bn) sovereign wealth fund to finance a new fiscal spending package. The oil-rich Norwegians will use the fund, the world’s second largest after Abu Dhabi, to offset a rapid slowdown in economic growth next year. Jens Stoltenberg, Norway’s leftwing prime minister, said in an interview the government will unveil spending measures in January on top of its previously announced expansionary budget for 2009. “We have held back and been restrictive in our use of oil revenues in strong times but we can start to spend more now that we see a downturn coming,” he said. “We have already adopted a budget that will stimulate the economy by 0.7 per cent of GDP [gross domestic product] and we will announce a new package with added stimulus in January. “It will be very direct. We will target sectors where we see the sharpest downturn, such as building.” Norway’s central bank is widely expected to cut interest rates on Wednesday, with private sector analysts expecting a 100 basis point reduction to 3.75 per cent. The prime minister said he would welcome “a stronger reduction in interest rates than had been predicted by Norges Bank”. The extra fiscal spending, combined with the expected cut in interest rates, highlights the severity of the expected downturn in Norway as the effects of the global crisis undermine this hugely wealthy, open and well-managed petro-state. Norway, which is not a member of the EU, has enjoyed its strongest period of economic expansion since the 1950s in the past four years with average annual growth of 5 per cent. But growth is now expected to slow to about 1.5 per cent. Unemployment is expected to double to 4 per cent, equity prices have already fallen around 60 per cent from their peak and house prices are down about 7 per cent. Exports are expected to suffer as international markets slow, residential construction declines steeply and consumption slows as household spending drops. But Oslo is one of the best placed governments in the world to spend its way out of the downturn. Norway uses oil revenues to finance its non-oil budget deficit and invests the rest overseas via its Global Pension Fund, or Oil Fund as it is commonly known. The terms of the fund restrict the amount that the government can spend at home, insisting that “over time, the non-oil budget deficit does not exceed the expected real rate of return of the fund, estimated at 4 per cent”. But the government has flexibility to support growth, as the fund’s guidelines “allow fiscal policy to be used actively to counter fluctuations in economic activity”. Mr Stoltenberg would not discuss the size of January’s spending. He said it would only be decided after new economic forecasts are available next year. The premier said the new funds would be used mainly for pump-priming. “We will invest more in public buildings, schools and infrastructure, we will give more to municipalities and we will improve labour market measures,” Mr Stoltenberg said. Copyright The Financial Times Limited 2008Norway set to dip into $332bn oil fund
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