AUSTRALIA/ ITALY/JAPAN/ G /TURKEY/UNITEDKINGDOM/UNITEDSTATES/ AUSTRALIA/ /GEIttlANY/GREECE/ICELAND/DtELAND/nAlY /SWEDEN/ /TURKEY /AUSTRAUA/ /DENMARK/FINLAND/FRANCE /NORWAY/PORTUGAL/SPAIN /BELGIUM/CANADA /YUGOSLAVIA/ / /GREECE OECD *>.-'.- .-sj-y-ti^vi "f**' :«,'Y-j-r-,--~''- URVEY! -'j,Vv-4,»T~. .4-'A^. -v."-! ' -**1:--" / a I UGAL/SPAIN/ DENMARK ND/NORWAY AUSTRIA/ PAN/L G DOM/ RELAND/ITALY/ KEY/UNITED REECE/ICELAND/ WITZERLAND NCE/GERMANY/ SPAIN/SWEDEN UK/FINLAND/ WAY/PORTUGAL/ CANADA/DENMARK/ WZEALAND STRIA/BELGIUM ETHERLANDS/NEW (cid:9) JUGOSLAVIA/ LUXIU«flK)URG/NinTiQlI>NDS/NEWZEALAND/NORWAY/IVRTUGAL/SPAW/SWEDEN fUNITEDSTATES/YUGOSLAVIA/AUSTRIA/BELGIUM/CANADA/D /HNLAND/ /G ND/ITALY/JAPAN/LUXEMBOURG/NETHERLANDS/NEWZEALAND/ /PORTUGAL/SPAIN UNITEDKINGDOM/UNITEDSTATES/YUGOSLAVIA/ ICELAND/I«l^j\ND/rrALY/JAPAN/LiJXEMBOURG v i!*;,i: ZEALAND/ /PORTUGAL/SPAIN KLAND/TURKEY/UNITEDKINGDOM/UNITEDSTATES BELGIUM/CANADA/ / GERMANY/GREECE/ICELAND/IRELAND/ITALY/JAPAN/ i.SWEDEN/SWITZERLAND/TURKEY/UNITEDKINGDOM/ /YUGOSLAVIA/ MLAND/FRANCE/GERMANY/GREECE/ICELAND JiV"; /LUXEMBOURG rX)RTUGAL/SPAIN/SWEDEN/SWITZERI>ND/TURKEY/ f DA/DENMARK/FINLAND/FRANCE/GERMANY/GREECE/ /ITALY/JAPAN (HAND/NORWAY/PORTUGAL/SPAIN/SWEDEN/S /TURKEY/UNITEDIONCDOM/UNITEDSTATES/ \/BELGIUM/CANADA/DI^MAlU(/nMjtND/FRANCT^ / ERlJtNDS/NEWZEAL\ND/NORWAY/TORTUGAL/SPAM/iiWTOEN/SWITZERLAND DSLAVIA/AUSTRIA/BELGIUM/CANADA/DENMARK/FINLAND/1TLANCT/GERMANY/GREECE/ICELAND KEMBC^RG/NETHERLANDS/NEWZlu\Ij\ND/NORWAY/PORTUGAL/SPAIN/SWEDEN/S /TURKEY !>mEDSTATES/YUGOSLAVIA/AUST1UA/BELGIUM/CANADA/D /FINLAND/ ITALY/JAPAN/ URG/NEIHERLANDS/NEW /NORWAY /SWEDEN KINGDOM/UNITEDSTATES/YUGOSLAVIA/ OECD ECONOMICS .i-'JEYS £W "v/'.O/ O J* *" *, ^' X / T> NORWAY ORGANISATION FORECONOMIC CO-OPERATION ANDDEVELOPMENT Pursuanttoarticle1 oftheConventionsignedinParison 14lh December, 1960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation for Economic Co-operation and Development (OECD) shall promote policiesdesigned: - toachievethe highestsustainableeconomicgrowthandemployment andarisingstandardoflivinginMembercountries,whilemaintaining financial stability, and thus tocontribute to the development ofthe worldeconomy; - to contribute to sound economic expansion in Member as well as non-membercountries in theprocess ofeconomicdevelopment; and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obliga¬ tions. The original Member countries of the OECD arc 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. The following countries became Members subsequently through accessionatthedatesindicatedhereafter:Japan(28thApril, 1964),Finland (28thJanuary, 1969), Australia (7thJune, 1971) and New Zealand (29th May, 1973). TheSocialist Federal Republic ofYugoslavia takes part in someofthe workoftheOECD (agreement of28thOctober, 1961). Publicégalementen français. ©OECD, 1988 Application forpermission toreproduceortranslate allorpartofthispublicationshould be madeto: HeadofPublicationsService,OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France. Table of contents Introduction 7 I. The economy after the oil price fall 9 Overview 9 Demand and output 11 The labour market 13 Prices, wages and incomes 15 Balance of payments 17 II. The policy framework 20 Fiscal policy 20 Monetary policy 22 Incomes policy 26 Supply-side policies 27 III. Short-term outlook and medium-term policy issues 29 Short-term prospects 29 Risks and uncertainties 32 Medium-term adjustment 33 IV. The public sector and structural change 38 The size and scope of the public sector 39 The government and the supply side 53 V. Conclusions 69 Notes and References 72 Annex: Calendar of Main Economic Events 73 Statistical annex 79 Tables Text 1. Expectations and outcome 9 2. Supply and use of resources 12 3. Prices, wages and incomes 16 4. Government budget balances 21 5. Short-term prospects 31 6. Current external account projections 32 7. Contributions to changes in export market shares 36 8. General government expenditure, revenue and net lending 43 9. General government expenditure 44 10. The structure of general government expenditure 46 11. Government financial transactions 51 12. Gross and net debt of general government 52 13. Capital and labour use of general government 54 14. Tax/benefit situation of manufacturing production workers 57 15. Estimate of total marginal tax rates on capital in 1983 62 16. Public expenditure related to the implementation of agricultural policy 63 17. Employment trends in three ailing sectors 66 18. Industrial support 67 19. Industrial support to shipbuilding and state companies 67 Statistical annex A. Supply and use of resources, current prices 79 B. Supply and use of resources 80 C. Gross domestic product by industry oforigin, current prices 81 D. Gross domestic product by industry of origin 82 E. General government income and expenditure 83 F. Production by sector 84 G. Labour market and employment 85 H. Balance of payments 86 I. Foreign trade, total and by area 88 J. Prices and wages 89 K. Money and credit 90 Diagrams Text 1. Financial balances 10 2. Labour market developments 14 3. Competitiveness and trade performance 18 4. Interest and exchange rates 23 5. Persisting imbalances 34 6. General government expenditure, revenue and net lending 42 7. Government gross lending 43 8. Outlays of government enterprises 44 9. Tax structure 48 10. Tax structure relative to OECD average 49 11. Marginal tax rates on wages and salaries 58 12. Marginal tax rates on wages and salaries with and without standard deductions in 1984 60 13. Marginal tax rates on wages and salaries in the 1980s 61 14. Income support to farmers 64 BASIC STATISTICS OF NORWAY THELAND Area(I000sq.km) 1983 324 Majorcities(1.1.87): Agriculturalarea(I000sq.km) 1983 9 Oslo 449220 Productiveforests(1000sq.km) 1983 63 Bergen 208915 THEPEOPLE Population(31.12.86) 4175171 Civilianemployment, 1986 2086000 No.ofinhabitantspersq.km 13 ofwhich:Industry(%) 26.7 Netnaturalincrease(average 1981-1986) 8264 Agriculture,forestryandfishing(%) 7.2 Per I000inhabitants(average 1981-1986) 2.0 Otheractivities(%) 65.9 PRODUCTION Grossdomesticproductin 1986(millionsofKr.) 516022 Grossfixedcapitalformation(1986): GDPperhead(USJ) 16725 PercentageofGDP 27.5 Perhead,USJ 4607 THEGOVERNMENT Publicconsumptionin 1986(percentageofGDP) 19.8 CompositionofParliament(No.ofseats): Generalgovernmentcurrentandcapitalexpenditure Labourparty 71 in 1986(percentageofGDP) 48.2 Conservativeparty 50 Generalgovernmentcurrentrevenuein 1986 Christiandemocraticparty 16 (percentageofGDP) 56.9 Centre(Agrarian)party 12 Progressparty 2 Thesocialistleftparty 6 Total 157 Lastgeneralelection: 1985 Nextgeneralelection:September 1989 FOREIGNTRADE ExportsofgoodsandservicesasapercentageofGDP Importsofgoodsandservicesasapercentageof (average1982-1986) 44.4 GDP(average 1982-1986) 39.2 ofwhich: Mainimportsin 1986(percentageoftotal Grossfreightandoildrillingearnings(1982-1986) 7.6 commodityimports): Mainexportsin 1986(percentageoftotal Ships 0.9 commodityexports): Machinery,apparatusandtransportequipment Forestryproducts 4.9 (excl.ships) 35.9 Basemetalsandproductsthereof 13.0 Rawmaterials(non-cdible)incl.fuelsand Fishandfishproducts 6.1 chemicals 13.3 Machinery,apparatusandtransport Basemetalsandproductsthereof 9.3 equipment(excl.ships) 8.8 THECURRENCY Monetaryunit:Krone CurrencyunitsperUSS,averageofdailyfigures: Year1986 7.39 November 1987 6.42 Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable. This Survey is based on the Secretariat's study prepared for the annual review of Norway by the Economic and Development Review Committee on 17th December 1987. After revisions in the light ofdiscussions during the review, final approval ofthe Survey for publication was given bythe Committeeon 7thJanuary1988. TheprevioussurveyofNorway wasissuedinJanuary 1987. Introduction Since early 1986 Norway has been in a difficult phase oftransition to a lower pathofrealnationalincome.Theadjustmentprocess,enforcedontheeconomybythe declinein oil prices, has beenslowasevidenced bythepersistenceofa largeexternal imbalance. Asstated inlastyear'sSurvey,theoilpricecollapsecaught theeconomy bysurpriseinaperiodofoverheatinganddeterioratinginternationalcompetitiveness. Hence, a massive widening in the non-oil trade deficit was already under way when the oil price fall pushed the current external account into huge deficit. Thereorientation ofeconomicpoliciessince mid-1986 has been instrumental in arrestingthegrowthofeconomicimbalances(Part I). Weakerdomesticdemandhas reducedimportsandpressuresingoodsmarkets. Labourmarketconditions,however, haveremained extremely tight duemainly totheshortening ofworking hours atthe beginning of the year. Wage increases have continued at high rates despite a zero settlement in central negotiations. Inflation has come down from double digit rates recorded in early 1987 but continues to outpace that of main trading partners, therebyerodingthegain in competitivenesswhich had resultedfromthedevaluation in May 1986. Demand-management policies were progressively tightened in the course of 1986and have remained restrictivesince (Part II). Fiscal restraint has beenlimited, however, because ofthecontinued buoyancy oflocal authorities' spending. General government expenditure growth, though slowing, has significantly exceeded expec¬ tations and, according to 1988 budget plans, will continue to grow faster than national income. Efforts to tighten monetary policy have had some success even thoughtheexpansionofcredithascontinuedata rapidpace. Amoreflexibleinterest ratepolicyhasbeenpursuedoverthepasttwoyearsorsowithinterestratesbecoming an instrument rather than a target of monetary policy. On the basis of announced policies, domestic demand can be expected to stagnateduringthe nexttwoyears (Part III). Theassociatedfall in real net imports, while permitting some rise in real GDP, leaves, however, the current account in sizeable deficit. Inflation, though abating, is projected to remain higher than in tradingpartnercountries.Nonetheless,themedium-termoutlookhasimprovedsince last year due to the reorientation ofeconomic policy, some rebound ofthe oil price afterits 1986slumpandupwardrevisionsofenergyinvestmentandproductionplans. While these developments may reduce the external constraint, they risk comprom¬ isingeffortstostrengthen thenon-oil economy. Part IVoftheSurvey, which reviews long-term public sector trends, addresses the issue of how to increase efficiency in both exposed and sheltered sectors via expenditure shifting and changes in taxation. I. The economy after the oil price fall Overview Last year's Survey focused on the "high pressure" economy of the mid-1980s andtheneed forreorientationofeconomicpolicyaftertheoil pricefall inearly 1986 which reduced Norway's real disposable income by about one-tenth. By and large, developments since then have been in line with what was expected in last year's Survey. Reviseddatafor 1986show,however,thatdemandpressuresinthedomestic economy were even stronger than initially estimated (Table 1). Excluding items Table 1. Expectationsaodoutcome Percentagechange,volume 1986 1987 OECD OECD OECD NB87 Outcome NB87 NB88 86/87 86/87 87/88 Domesticdemand 7.8 7¥s 9.0 -0.7 -l'A -0.8 -l'A Privateconsumption 4.7 4% 6.1 0.4 -'A -2.0 -2'A Publicconsumption 2.0 2'A 3.1 1.7 l'A 2.2 2'A Fixedinvestment 22.3 25'A 27.0 -4.6 -6% 0.1 -2'A Stockbuilding1 -0.4 -* -0.9 0.5 'A -0.3 0 Exports 3.5 3% 0.6 1.8 4Vi 3.2 3'A Imports 11.7 10¥< 9.6 -3.7 -4 -2.8 -3 Foreignbalance1 -3.0 -2'A -3.6 2.4 4'A 2.3 3 GDP 4.2 4'A 4.4 2.2 3 1.5 1% MainlandGDP 3.8 3% 3.5 1.2 1 0.9 1 Employment 3.02 3 3.6 O.O2 1 0.42 2 Unemploymentrate(level) 2 2.0 2'A 2'A Consumerprices 7.0 VU 7.2 7.4 8 8.4 8'A Currentexternal balance (percentofGDP) -6.4 -6'/4 -6.4 -8.1 -7 -5.6 -5'A 1. ChangeasapercentageofGDPinpreviousperiod. 2. Man-years. Sources: NationalBudgets 1987and 1988(NB87andNB88);OECDEconomicSurveys,Norway1986/1987and 1987/1988 (OECD86/87andOECD87/88).