– Scope for increased use of oil money – E24

The economist believes the larger oil fund and “fairly new” forecasts from Norges Bank give more scope for action.

The use of oil funds is one of the key figures the government will present on Tuesday morning, before presenting the revised national budget later in the morning.

Last fall, the government and Finance Minister Trygve Slagsvold Vidum (Sp) proposed spending oil funds worth NOK 409.8 billion in the 2024 state budget, which is estimated at 2.7 percent of the value of the oil fund. The operating rule states that the use of oil funds should be limited to three percent of the fund over time.

Since then, two things have happened that “made way for greater use of oil money,” says chief economist Marius Gunsholt Hof at Handelsbanken.

The oil fund has grown, partly due to the weak krone, to a higher level than expected in the original budget. So the same ratio means more krone and ore.

In addition, Norges Bank raised its forecast for the use of oil funds this year to 2.8 percent.

Norges Bank has a fairly healthy assumption for using oil funds this year, says Hof.

-It must continue to have an impact

Kjersti Hoogland, chief economist at DNB Markets, also points out that the increase in the value of the oil fund gives more room to spend money.

– I think it will be difficult to curb spending, whether in this budget or the next, without thinking that there will be a very expansionary budget.

One of the big questions for the Norwegian economy at the moment is when interest rate cuts will start.

When it comes to the national budget and interest rates, the question is how spending will contribute to stimulating the economy, and whether it can have a say in price growth and setting interest rates.

Since the introduction of the national budget last fall, the country's interest rate has been raised another notch to 4.5 percent. Central Bank Governor Ida Wolden-Basch said in March that the most likely cut would be in September, but earlier this month the signal was that “there may be a need to keep interest rates high for a little longer” than Norges Bank had previously envisaged.

Even if spending increases for 2024 compared to what the government proposed in October, Hof doubts that would change interest rate expectations.

– I would say that it has much less influence than you get in everyday debate. Well-known calculations indicate that the effects are minimal. It's not completely irrelevant, but they would have to spend a few tens of billions for it to have any significant impact.

– The argument against lowering interest rates

At the same time, DNB's Hoogland points out that the government is aware of discussions about what excessive spending can do to interest rates, and that it wants to curb it.

Both economists also suggest that increased defense spending was something Norges Bank could have factored into its estimates as early as March.

But even if the budget isn't at the top of the interest rate's joking list, Hoagland and Hof don't want to dismiss its importance entirely.

– It is not among the factors that have the greatest ability to influence the setting of interest rates. But when you look at the balance, fiscal policy ends up being an argument against interest rate cuts, says Hoagland.

Even marginal effects now that point in the direction of later interest rate cuts are observed, Hof concludes.