May 15, 2018 / 6:46 AM / 9 months ago

UPDATE 1-Norway cuts spending from wealth fund as economy thrives

* Government cuts spending from oil fund by NOK 5.6 bln

* Maintains forecast of above-trend growth in 2018/2019

* Above-forecast Q1 GDP points to Sept rate hike -DNB

* Crown currency strengthens vs euro (Adds quotes, comments, background, currency, bullets)

By Camilla Knudsen and Ole Petter Skonnord

OSLO, May 15 (Reuters) - Norway will spend less money than planned from its $1 trillion sovereign wealth fund in 2018 as growth accelerates and state income rises, the government said in its mid-year budget revision on Tuesday.

A sharp rise in the price of crude has helped trigger an economic recovery for western Europe’s top oil and gas producer as energy firms boost exploration and investments.

Norway’s structural non-oil deficit, a key measure of public spending, is now estimated at 225.5 billion Norwegian crowns ($28.10 billion), down from 231.1 billion crowns seen last October.

The revised plan corresponds to an estimated 2.7 percent of the oil fund’s value, down from 2.9 percent in the original budget plan and below the 3.0 percent that Norway aims to spend in a year of average growth.

“The revision should be read in the light of a substantial rise in the fund’s market value by the end of last year,” the finance ministry said in a statement.

Statistics Norway separately released growth data that showed the country’s non-oil gross domestic product expanded by 0.6 percent in the first quarter from the fourth, beating forecasts of 0.5 percent growth in a Reuters poll.

“Mainland GDP growth surprised on the upside, and the fourth quarter was revised up by one tenth of a percent. That’s what we focus the most on,” Danske Bank chief economist Frank Jullum said.

“This means that growth is in line with Norges Bank’s estimates and that a rate hike will follow after the summer, in line with its previous announcements,” he added.

DNB Markets also predicted a rate hike.

“Underlying growth in the economy is good and contributes to higher capacity utilisation, which means that rates can be hiked. We still expect the first hike in September,” DNB economist Kyrre Aamdal said.

The government maintained non-oil growth forecasts of 2.5 and 2.6 percent for 2018 and 2019 respectively.

“This is above the historic trend, and capacity utilisation will increase and remain close to normal levels next year. The labour market has improved faster than projected,” the finance ministry said.

Statistics Norway meanwhile revised up 2017 mainland growth to 1.9 percent from 1.8 percent previously.

The crown currency initially strengthened against the euro to 9.5550 shortly after the 0600 GMT release of GDP and budget data, from 9.5802 just ahead of the publication. It later weakened slightly to trade at 9.5750.

$1 = 8.0258 Norwegian crowns Writing by Terje Solsvik, editing by Gwladys Fouche

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