Norway II

Following yesterday's blog post on Norway it is worth highlighting that the government announced the 2009 revised budget today. This is the most expansionary fiscal budget in 30 years and comes on top of the 475bp cut in rates to 1.5% only since October 2008. The fiscal and monetary stimulus now present is enormous. The fiscal spending is financed with oil revenues. Key takeaways are:

- Unemployment is expected to rise from currently 3.5% to 3.75% in 2009 and up to 4.75% in 2010.
- GDP is expected to fall 1.9% in 2009 and rise 0.75% in 2010. Note these numbers are highly dependent on oil price developments.
- Retail spending is expected to rise 6.75% in 2009.

The budget is accompanied by a statement that the global financial crisis is affecting Norwegian economy 'hard' and that Norway's trading partners are affected severely.

In my opinion the politicians are offering far too much far too late... I continue to believe this to be policy overkill and expect now is a great time to invest in Norway. Embedded in this view is a bullish oil price view. As noted in the previous blog fiscal and monetary stimulus is likely to achieve the highest efficacy in economies with solid financial standing. Chances of policy overkill is present when size of stimulus appear to be modeled on Anglo Saxon efforts. I favour domestic equities, NOK and short end of the interest rate curve.

Here's a link for further details:

http://www.statsbudsjettet.dep.no/Statsbudsjettet-2009/English/

Effects on financial markets looks pretty neutral with equities up in line with European markets and NOK trading steady versus USD and EUR.