Norway’s total public spending growth likely to accelerate 3.2% in 2016

Norway published its 2016 revised budget yesterday. The revised budget suggests additional fiscal policy expansion. The Norwegian government has increased the non-oil structural budget deficit by 1.1 percentage points of the mainland GDP as compared to the projection of 0.7 percentage points in the budget from 2015.

The alterations in the budget deficit partially indicate lower income tax. However, the real underlying spending growth was also upwardly revised to 3.5% from 3.2%. According to the Finance Ministry, total public spending growth is likely to expand by 3.2% this year, as compared with the central bank’s projection of 2.8%.

Additional expansionary budget lowers the requirement for monetary stimulus. However, the central bank is unlikely to make “too much out of the increase in the budget indicator”, said Nordea Bank in a research note. The Norges Bank usually focuses more on the increased spending. The central bank had revised up its public spending forecast in December 2014 by around 0.9 percentage points.