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UPDATE 2-Norway government eyes slower 2021 recovery from pandemic

(Adds detail, background)

OSLO, March 16 (Reuters) - The Norwegian economy will probably recover at a slower pace this year than originally envisioned, although outcomes significantly depend on the speed of vaccine rollouts, the finance ministry said on Tuesday.

Mainland gross domestic product (GDP), excluding the impact from Norway’s oil production, is now expected to grow by between 0.5% and 4.5% in 2021, with a middle forecast of 3.7%, down from a 4.4% forecast made in October.

Last year the economy contracted by 2.5%.

In 2022, mainland GDP is predicted to grow by between 3.4% and 5.3%, with a middle forecast of 3.6% as recovery from the COVID-19 pandemic continues, the government said.

Norwegian unemployment is meanwhile expected to decline, but will still be higher than pre-pandemic levels in 2022, it added.

“How fast the economy will grow depends to a large degree on the speed of vaccine rollouts and how quickly restrictions can be lifted,” the ministry said in a statement ahead of a two-day cabinet meeting.

The government conference will lay the initial foundations for a 2022 fiscal spending plan, due to be unveiled in October.

The expected rate of economic growth will impact how much money Norway spends from its $1.3 trillion sovereign wealth fund, the world’s largest.

Spending from the rainy-day fund last year amounted to 3.9% of the fund and is this year budgeted at 3.3%, the government has said, exceeding a self-imposed guideline of 3%.

While Norway has maintained one of Europe’s lowest per-capita rates of COVID-19 infections, it has recently tightened restrictions to quell an uptick in the number of cases, shutting non-essential stores in the capital as well as many schools.

The Norwegian central bank is due to announce a rate decision on Thursday, and is expected to keep the cost of borrowing unchanged at a record low 0.0% for the time being.

Norges Bank may warn however that a rise in rates could begin towards the end of this year, according to a Reuters poll of economists.

A temporary halt in the country’s rollout of the AstraZeneca coronavirus vaccine, as announced last week, highlights continuing uncertainty to the economy however. (Reporting by Terje Solsvik, editing by Gwladys Fouche, William Maclean)

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