March 20, 2020 / 11:16 AM / 20 days ago

UPDATE 2-Norway's economy set to shrink by 1% in 2020 after virus outbreak

(Adds details)

By Terje Solsvik

OSLO, March 20 (Reuters) - The Norwegian economy could shrink by 1% in 2020 due to the coronavirus pandemic, the government said on Friday, despite it pumping massive amounts of economic stimulus into the country’s companies and households.

In its original budget, released late last year, the finance ministry had predicted growth of 2.5%.

The Norwegian government has invoked emergency powers to close a wide range of public and private institutions and warned against foreign travel, while the central bank has poured money into banks.

The number of confirmed coronavirus cases in Norway rose to 1,742 on Friday, up 184 from a day earlier, with seven confirmed deaths, the Public Health Institute said.

The government has proposed a range of measures in recent days to mitigate the crisis, amounting to a combined 280 billion crowns ($25.7 billion) in the form of spending, loans to companies and deferred tax payments, it said.

“These measures will help viable firms through this difficult time, so that people still have jobs when the crisis is over,” Prime Minister Erna Solberg said in a statement.

But in the near future, economic activity in the private sector excluding oil production was expected to fall by some 15%-20% before rebounding.

The new forecasts were highly uncertain, however, the government said, and the finance ministry has not yet calculated its usual budget indicators, such as the percentage of spending from the country’s oil fund.

“There is great uncertainty with regards to how long the virus outbreak will last,” it added.

But the so-called non-oil fiscal budget balance will be weighed down by a whopping 111 billion Norwegian crowns as spending is ramped up and government income drops, according to the new forecasts.

The Norwegian economy is also suffering from a sharp drop in the price of crude oil, the country’s most important export, which could in turn hurt a wide range of yards and services companies working as suppliers to the oil industry.

“If the oil price were to remain at today’s level, the government will consider introducing targeted measures like it did following the oil price drop in 2014,” the finance ministry said.

Earlier on Friday the central bank cuts its key policy interest rate to a record low 0.25% from 1.0%, the second reduction in a week, and said it may still cut more. ($1 = 10.8909 Norwegian crowns) (Reporting by Terje Solsvik; Editing by Gwladys Fouche and Hugh Lawson)

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