By Victoria Klesty and Terje Solsvik
OSLO (Reuters) - Norway plans to spend less money next year from its $1.1 trillion sovereign wealth fund, the world's largest, as economic growth remains strong and unemployment declines, the centre-right majority government said on Monday.
"The Norwegian economy is in its third year of economic expansion. Activity is expanding throughout the country and in most sectors. The strong performance of the Norwegian economy is expected to continue," the Finance Ministry said in a statement.
The country's growth is fuelled by large investments in its offshore oil and gas production, and the central bank has raised interest rates four times in the last year.
Under its 2020 draft budget, cash spending from the fund will decline to 243.6 billion Norwegian crowns ($26.79 billion) next year from 246.2 billion crowns in 2019, the Finance Ministry said.
Unemployment is now expected to decline to 3.4% next year, below the government's previous prediction of 3.6% and down from 3.8% in 2018.
The so-called budget impulse, which measures the spending plan's impact on economic growth, is anticipated to be minus 0.2 percentage points in 2020, down from a positive 0.5 in 2019 and below the 0.1 boost predicted by Norges Bank, the central bank, last month.
"It was a bit of a surprise, we had expected the budget indicator to increase by 0.2 while it actually fell by 0.2, so the budget is tight, and it's even tighter than Norges Bank had expected," Nordea Markets economist Erik Bruce said.
"It seems like the government is really holding back on spending. If anything, it argues for a lower rate path - not that much, but it's slightly tighter than Norges bank had expected," he added.
Unlike most other nations, which must take on debt if they seek to spend more than they earn from taxes and other revenues, Norwegian governments can instead use up to 3% each year of the saved-up wealth fund to plug deficits.
The 2020 budget would spend 2.6% of the estimated Jan. 1 value of Norway's wealth fund, down from 2.9% in 2019.
The crown currency weakened slightly against the euro, trading at 9.9864 at 0629 GMT against 9.9825 just ahead of the 0600 GMT budget release.
Built since 1996 to save petroleum revenues for future generations, the size of the sovereign wealth fund has grown to almost three times that of Norway's annual gross domestic product, far exceeding original projections.
The government's forecasts for economic growth in 2019 and 2020 remain unchanged from May, when it predicted expansion of 2.7% and 2.5% for the two years respectively.
(Editing by Alex Richardson)
