Norway needs to rein in budget spending to prevent slowdown

Bloomberg

Norway needs to rein in budget spending to prevent a sudden slowdown of an economy that is now booming, Finance Minister Trygve Slagsvold Vedum warned.
A potential overheating could lead to “even faster interest rate tightening than the Norges Bank has already signalled,” the finance ministry said in a statement on Monday ahead of the government’s conference on next year’s budget.
Wage and price pressures in the oil-rich Nordic country have grown as its economy is now clearly above its pre-pandemic level, leading to a bigger-than-expected acceleration of inflation and a slump in unemployment. Even as the uncertainty linked to Russia’s invasion on Ukraine has grown, Norway’s central bank plans to move ahead with its planned hikes in March and three more times this year.
“Now that the Norwegian economy is booming, we must hold back on fiscal spending,” Vedum said. “If not, the economy could overheat and give even higher inflation and call for even higher interest rates. That would increase costs for households and firms alike, and must be avoided.”
Unemployment is now approaching the low level seen during the boom preceding the financial crisis in 2008 and the tight labour market puts upward pressure on wages and prices, the finance ministry said. It forecast the mainland economy will slow to 3.6% from 4.2% last year, with a further slowdown to 2.5% next, assuming that the global economy avoids long-term damage from the war in Ukraine.