Finance Minister Siv Jensen, reacting to Thursday’s surprise cut in interest rates, claimed Friday that no one should be surprised that the Norwegian economy faces a major “readjustment” as the recent oil boom subsides. Jensen also claimed the government is following the situation closely and ready to offer new measures if needed.
“This is a readjustment that’s been warned about for a long time,” Jensen told newspaper Dagsavisen. She’s made similar comments earlier, not least during the autumn’s state budget negotiations and even during last year’s election campaign.
Headlines and newscasts warning of tougher times ahead dominated Norwegian media after the executive board of Norway’s central bank announced a quarter-point reduction in Norges Bank’s key policy rate. The rate reduction was based on a “considerably weaker outlook for the Norwegian economy,” after oil prices fell by more than half in recent months.
The interest rate cut led to an immediate fall in the value of Norway’s currency, the krone, and the decline continued on Friday. By mid-morning it cost NOK 7.33 to buy one US dollar, a level not seen for more than a decade. Norwegian Broadcasting (NRK) was running numerous reports Friday morning that Norwegian consumers will face even higher prices than normal in the weeks and months ahead, since all imports will become more expensive.
Jensen remained unruffled, though, by the prospect of higher prices, a marked downturn in Norway’s dominant oil sector and higher unemployment. “We have known about this for many years and it has been on the political agenda,” Jensen told Dagsavisen. “Norway will face adjustments when oil investments gradually taper off. That’s where we are now.”
With oil companies suddenly confronted with lower oil prices and high costs, exploration and new field development projects may be delayed or dropped. Oil and oil service companies, not least those specializing in drilling and other aspects of the rig business, have already been cutting back. Offshore industry veteran Kristian Siem, chairman of Subsea 7 and Siem Offshore, called the situation “dramatic” on Friday after seeing the value of his companies fall by NOK 5 billion since New Year. “It’s an entirely new day in the industry,” Siem told newspaper Dagens Næringsliv (DN). “Activity levels will be lower than we had expected, and that will continue.”
After years of raking in enormous profits on record-high oil prices, though, the oil industry should be well-oiled enough itself to weather the storm, with Jensen stressing that the current downturn is no crisis. “We were set to come over a point that would mean somewhat lower investment levels than we have seen during the last 15 to 20 years,” Jensen said. This doesn’t mean the oil age is over for Norway, she added.
“We will still have a considerable oil and gas industry in Norway for many, many years ahead,” Jensen said. “But it won’t come to provide the same impulses for the Norwegian economy as it has.”
Many economists and especially environmentalists think that’s a good thing. After months of political debate over whether much of Norway’s offshore oil and gas should stay under the sea floor, that may now happen. Jensen thinks the country will enter “a new normal situation” even though it may be painful for those who lose their jobs along the way. Many engineers who’ve already lost their jobs in the oil sector have quickly found jobs in other sectors, “but if the situation worsens, the government will of course offer new measures” to stabilize the economy, Jensen said. She didn’t detail what they might entail.