Norwegians have long considered themselves as annerledeslandet — the different country. With abundant natural resources from oil and fish to the water used in hydroelectric power, the Scandinavian nation’s enviable way of life has been underpinned by a massive sovereign wealth fund that helps support its generous welfare state.
That was until the coronavirus pandemic. The crisis, accompanied by a collapse in crude prices and Norway’s currency, has left economists asking whether western Europe’s largest oil producer is so different after all.
“After this, it will be a new reality for government, private sector and everybody in Norway. We will all have to tighten our belts. We will become much more like other Scandinavian countries,” said Kari Due-Andresen, chief economist for Norway at lender Handelsbanken.
The most dramatic indicator of the stress in Norway has been a surge in jobless numbers. Unemployment has more than quadrupled in just two weeks to its highest level since the second world war. Financial markets were stunned by US figures showing about 1 per cent of the population had registered themselves as unemployed in a week. But in Norway, more than 5 per cent of the population have applied for out-of-work benefits in the past two weeks.
“Norwegian business is in its toughest fight ever,” Iselin Nybo, Norway’s minister of trade and industry, said on Friday. The centre-right government in Oslo now forecasts the economy will contract this year by between 1.5 per cent and 7 per cent, depending on how long the acute phase of the pandemic lasts. It estimated that the crisis has already cost it NKr196bn ($19bn) in higher spending and reduced income.
“The worst is ahead of us,” said Hilde Bjornland, professor of economics at BI business school in Oslo. “We are going to be more and more similar to other countries. We cannot keep on expanding our budget deficits.”
She said the problems in store for Norway were worse than other nations as its biggest revenue generator, oil and gas, was suffering a parallel collapse in demand and prices that would have profound long-term effects. “In the short term, we are going to have an additional shock over other countries. Our main industries are going to be in a very difficult position,” she said.
“Annerledeslandet” was the title of a Rolf Jacobsen poem about Norway’s virtues, including the line “we pluck gold coins from the sea floor”, that became popular in 1994 as a slogan for the successful no campaign in the vote on whether Norway should join the EU. It has come to signify the way Norway’s economy has seemed to differ from its European neighbours. For example, the country’s economy barely suffered in the 2008 financial crisis and there was no suggestion of austerity.
Yet even before the coronavirus crisis hit, Norway’s central bank governor was warning that “we are becoming less different — because we have to become less oil dependent”. Since Oystein Olsen made those comments last month, he has cut interest rates by 1.25 percentage points to just 0.25 per cent, the lowest level in history.
“It is a storm that we have not experienced before. We will come through the storm,” Mr Olsen told the Financial Times. “There is an exit here. The timeframe is a bit uncertain.”
The Norges Bank governor argued that Norway had room in both monetary and fiscal policy as well as “extensive social security arrangements” that would allow the government to pay a large part of the wages of temporarily laid-off workers.
The Norwegian krone has fallen by about 15 per cent against the US dollar over the past month to close to record lows on the oil price weakness, forcing Norges Bank to warn it could intervene to prop up the currency.
One strength Norway has over almost all other countries is the world’s largest sovereign wealth fund, a $950bn savings pot that the government can use part of to boost spending. In normal times, the government can take out up to 3 per cent of the fund each year for its budget. But Ms Due-Andresen estimated it would take out double that amount this year.
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That could lead to the fund being forced to sell assets for one of the first times in its history with Yngve Slyngstad, its chief executive, saying it would offload bonds if it needed to fund government withdrawals.
This would mean Norway faces some tough spending choices just as it is working out how to diversify its economy away from hydrocarbons.
“The oil age, or the good days for the oil sector, is over,” said Ms Due-Andresen. “What sets us aside is that we have money saved up. We will have to reinvent the economy.”
Source: Economy - ft.com
