Parting thoughts from Norway’s central bank boss

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Svein Gjedrem is stepping down after 12 years as the boss of Norway’s central bank (Norges Bank). Farewell events are underway, and he’s sharing some thoughts on the state of the Norwegian economy — strong by most standards, but not without concerns.

Svein Gjedrem was celebrated last week as he wound down 12 years as Norway's central bank boss. He had a few parting points to make. PHOTO: Norges Bank

Gjedrem’s every word has been watched closely during his term as central bank boss, just like those of his counterparts in other countries. He’s had to be careful, since the slightest utterance can move markets.

Now he can be a bit more open, and even though he’s leaving his post with Norway’s economy still vigorous and the country boasting Europe’s lowest unemployment rate, he has some worries.

Among them is what will happen when Norway’s oil and gas supplies run down, and that Norway has among the highest prices in the world. Costs and pay levels in Norway are also “very high,” he told reporters this week, and they’ve increased a lot during the past 10 years.

Gjedrem told newspaper Aftenposten that he fears a “painful” period of crisis and high unemployment when oil revenues decline, even though the country has been saving the vast majority of current revenues for future generations in its huge pension fund known as the “Oil Fund.”

“I want to say one thing: At some point, when we’ve withdrawn what we can from from the Oil Fund, and when the oil industry becomes smaller, the oil supply industry will also become smaller, and then we will have to have a considerable reduction in cost levels,” he said.

“If you look around us, there’s a tendency for economies to develop too long with a high cost level,” he continued. “Then business will meet the wall. The labour market will weaken and you’ll have a crisis.”

He thinks Norway is prepared to meet such a crisis compared to other countries, “but the question is whether we have an economy flexible enough to accommodate our cost levels.” He hopes cost and price levels will decline, in time to meet any crisis that comes along.

He noted in a speech to nearly 200 invited guests last week that he has cut staffing levels within Norges Bank himself and now thinks the central bank should take on more assignments, including a role as a macroeconomic regulator. He said the global finance crisis has shown that it’s not enough to regulate or monitor individual banks – he supports so-called “macroprudential policy,” to ensure financial stability.

Gjedrem, who’s refused to sit for the traditional portrait done of his predecessors, has won generally high marks from politicians, bankers and economists. He’s been called “very important,” someone who has “made his mark” and hasn’t made many mistakes. Why no portrait?

“That’s a tradition from the last century,” he told Aftenposten. Gjedrem will be succeeded from January 1st by Øystein Olsen, current head of state statistics bureau SSB.

Views and News from Norway/Nina Berglund
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