January 16, 2015 / 11:51 AM / 5 years ago

UPDATE 1-Norway can help economy counter oil price drop: government

(Adds central bank chief, PM, quotes)

OSLO, Jan 16 (Reuters) - Norway can afford to stimulate its economy if necessary, top government and central bank officials said on Friday, dismissing the risk of a crisis after the collapse in prices for its oil exports.

Crude oil prices have fallen more than 50 percent since mid-2014 and Norway’s oil sector is expected to cut investments by 15 to 20 percent this year, cancelling or delaying projects as oil firms struggle with dwindling cash flows.

The offshore oil and gas sector generates about a fifth of Norway’s gross domestic product (GDP) and the industry’s contraction is expected to cut economic growth on the mainland, or excluding offshore oil, to 1.5 percent this year from last year’s 2.5 percent, the central bank has said.

“Should the situation get worse throughout the winter and spring, we are of course ready to come up with measures if needed,” Finance Minister Siv Jensen said after meeting Prime Minister Erna Solberg and central bank Governor Oeystein Olsen.

“For the moment we think the fiscal budget is well adjusted to the economic situation,” Jensen told a news conference.

The annual budget can use up to four percent of Norway’s $845 billion saved-up oil wealth but the 2015 budget puts this spending at three percent, giving the government an $8.5 billion leeway within its own self-imposed spending cap.

“Altogether, there’s nothing dramatic in what we see now,” Olsen told the same news conference. “As earlier forecast, growth in 2015 will be weaker, but we still see growth picking up over the next years.”

Their comments helped the Norwegian crown reverse most of the losses it made before the meeting.

The central bank cut rates in a surprise move in December and analysts expect another cut in March, possibly followed by one more reduction in June.

But as oil prices have fallen, the Norwegian crown has also tumbled, helping exporting industries outside the oil sector. This is already providing some economic stimulus, Olsen and Solberg said.

“A lower exchange rate stimulates our other export industries,” Solberg told Reuters. “As long as there is demand for the goods they sell, this is a positive, a good boost and a buffer.” (Reporting by Camilla Knudsen and Joachim Dagenborg; Writing by Balazs Koranyi)

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