Economy prospers despite EU crises
August 4, 2011
UPDATED: Revised forecasts suggest that the Norwegian economy will do better than originally expected this year, giving many consumers more money than they may otherwise have had. Nonetheless, Norway is not immune to the destabilizing forces in the world economy as the Oslo Stock Exchange fell for the seventh day in a row on Thursday to its lowest level by far this year.
Figures from Statistics Norway (Statistisk sentralbyrå, SSB), reported by newspaper VG, suggest that the average family with young children will this year have NOK 11,000 (just over USD 2,000) more than in 2010. For an adult couple without debt, the number is NOK 15,000 (USD 2,757). Bank DnB NOR has suggested the figures for both could become even higher, with NOK 15,000 more to families with young children and NOK 20,000 (USD 3,676) more to an adult couple.
The chief economist of Nordea bank, Steinar Juel, told VG that the Norwegian economy is “sitting pretty.” Key indicators keep heading in the right direction for Norwegians – given lower price rises and sharper wage increases, real wage growth looks set to be three percent according to DnB Nor‘s projections, one percentage point further than previously anticipated. Kjersti Haugland, a senior economist at the bank, confirmed that they “expected that the weak growth in the USA and Europe would put a dampener on Norwegian wage growth, but the Norwegian economy was less affected by the outside world than we thought.”
Unemployment has also plateaued and may soon begin to decrease markedly. According to SSB, unemployment rose 0.1 percent points (within the margin of error) between February and May, with the unemployment rate standing at 3.3 percent at the end of that period. This compares with 9.4 percent in the EU-15 and 9.1 percent in the USA. Large decreases are not yet possible despite increasing demand for workers because of an influx of people into the available workforce. SSB’s Roger Bjørnstad summarized the situation to VG as showing “more people competing for jobs” with “more jobs to compete over.”
Market analysts Prognosesenteret also predicted in VG that house prices will begin to plateau in the autumn before rising again at the beginning of next year. The center predicts a 10 percent house price rise this year, and a seven percent average increase in 2012. Furthermore, electricity prices have also fallen thanks to a wet summer that has replenished reservoirs that were drying up in the warmer than average early Spring.
International problems give anxiety
DnB Nor‘s Haugland concluded to VG that “Norwegian consumers are probably going into a secure and good future during the next few years.” But Nordea’s Juel warned that the Eurozone and American debt problems could still grow into a full blown financial crisis, with both areas having the potential to impact Norwegian exports, and the USA in particular having the potential to hit oil prices. Norwegian interest rates could increase as early as next week, and are now expected to go up further to around three percent by the start of 2012. Juel nonetheless emphasized that “the uncertain situation internationally can perhaps lead to a postponement of one of these rate increases.”
Rolf Mæhle of the sector’s trade organization Finance Norway advised VG that “Norway has a small and open economy,” and that the current positives should be used to prepare for harder times ahead. He advised paying off debts, particularly given the likely rises in interest rates ahead.
Stock exchange falls again
The optimistic predictions about the country’s economy came as the Oslo Stock Exchange fell for the seventh straight day in a row, with the main index down 4.83 pecent to 375.36 points by the end of the day on Thursday. On Wednesday, the index fell before 400 for the first time since December 2010, with the index having dropped by 11 percent over the last week alone and 14.64 percent since the start of 2011. As well as the debt crises affecting the Eurozone and the USA, analysts with newspaper Aftenposten blamed poorer than expected growth in many major economies as well as the reticence of many important European banks to lend.
The price of oil was also having an effect, falling on Thursday to its lowest level since July (USD 111.61 per barrel). The price could fall even further if demand is affected by poor growth in major economies.
According to Aftenposten, many investors are moving to traditionally safer areas like Japan and Switzerland. Norway too has seen an increase in interest from creditors, with one analyst describing the country as the “world champion in credit.” Like Switzerland and Japan, Norway has seen a resultant increase in the value of their currencies, although the effect in Norway is not as sharp as in the other safe havens.
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