Norwegian wage-earners will have to settle for little if any increase in their purchasing power this year, and several thousand will need to find new jobs, but central bank boss Øystein Olsen is confident the economy will improve in the summer of next year. He agrees with both the prime minister and finance minister that despite some painful effects of lower oil prices, Norway is not in the midst of any economic crisis.
“It’s almost impossible to avoid rising unemployment in the midst of the omstilling (restructuring) now going on,” Olsen told newspaper Aftenposten on Tuesday. Olsen is heading into the final year of his six-year term as governor of Norges Bank, and sat for a lengthy interview with Aftenposten a month ahead of his annual address to Norway’s political and business elite.
It offered an idea of what Olsen, whose every word can move Norwegian markets, might say in the much-hyped address, which this year will also be held in connection with the Norwegian central bank’s 200th anniversary. Olsen provided a sober but surprisingly upbeat assessment of Norway’s economic situation, and insisted that he hasn’t entered into any private agreements with Prime Minister Erna Solberg and Finance Minister Siv Jensen to put a positive spin on things. Both Solberg and Jensen have downplayed or flatly rejected any suggestions of “crisis” following the dive in oil prices, and Olsen simply agrees with that.
“We think the economy will turn around in the summer of 2017,” Olsen told Aftenposten. “That’s when both exports and private consumption will start to rise. We aren’t drawing a gloomy picture.”
The year ahead, 2016, will likely be the most demanding, even “difficult,” in Olsen’s assessment. “Production growth will be weak and unemployment will increase from current levels,” he said. But he uses the current level of 3.2 percent as assessed by the numbers of people actually registering themselves as unemployed, not the 4.6 percent compiled by state statistics bureau SSB that includes employers’ plans for staff cuts. Olsen said the central bank expects unemployment will peak at 3.4 percent, “and that’s not a high level from an international standpoint,” he claimed.
He thus puts Norway’s economic situation into perspective, compared to what other industrialized countries are experiencing, and once again, Norway comes out well. He doesn’t discount the pain and uncertainty experienced by those actually losing their jobs in the once-booming oil and gas sector and in businesses feeling the ripple effects of that. Oil service company Aibel is the latest to report more job losses this week, and thousands of engineers, managers and support staff have lost their jobs during the past two years.
Olsen believes, though, that economic restructuring, low interest rates and eventual growth will help get people back to work, even though unemployment itself may not fall until 2018. He characterizes the Norwegian buzzword for restructuring towards a less-oil-reliant economy, omstilling, as the country’s greatest challenge and the currently weak currency, the krone, as its greatest comfort. The weak krone is boosting exports, not least of the salmon and other seafood that comprise Norway’s second-largest industry after oil, along with some other sectors such as hotels and tourism. Despite prices that are still high compared to other countries, hotel rates in Norway are now highly competitive compared to other countries, and even the dinner bill at restaurants has become less onerous for foreign visitors.
Interest rates may decline again
Olsen’s comments also seem to confirm widespread analyst speculation that the central bank board will cut its key lending rate once again in the course of this year. It’s been halved over the past year, from an already-low 1.5 percent to a record-low 0.75 percent. It’s expected to dip to 0.5 percent at some point, a move that’s likely to further weaken the krone.
Economic indicators are nothing to brag about at present, with oil investments falling, unemployment rising, pay growth falling and the currency plummeting from record strong levels. Politicians are also padding the state budget with more oil revenues, but the amount tapped this year is still well below the level deemed acceptable (4 percent of the size of Norway’s huge “Oil Fund,” where revenues have been stashed since the mid-1990s).
Oil fund ‘no solution’
Olsen repeated warnings, though, that the oil fund still shouldn’t be tapped too much. “Massive use” of oil money could, he said, stem rising unemployment “for a short period,” but he stressed that lower oil prices mean the state will have less money to deposit into the fund and therefore must use less oil money, not more. Tapping the oil fund “is not the solution in the long run.”
The oil fund nonetheless remains a huge and unique safety net for Norway, and the returns on its investments are now greater than the value of the oil going into it, according to the head of the Norwegian foreign policy institute NUPI, Ulf Sverdrup. He wrote in newspaper Dagens Næringsliv (DN) on Tuesday that Norway is now moving from being a “petrostate” to being one of the world’s largest global investors.
That has implications for the restructuring that Olsen, Solberg, Jensen and countless other Norwegian leaders are promoting at present. It remains unclear, though, whether Olsen will still be around to see it through. He couldn’t, or wouldn’t, answer whether he’ll apply to extend his term as central bank boss for another six-year term. “I have another half-year to think about it,” he told Aftenposten.