Record-low interest rates, a weaker but far more competitive currency and even prospects for increased defense spending are shedding some new light on Norway’s sudden economic gloom. As speculation swirls around the government’s state budget, due to be presented on Wednesday, some key players think the Norwegian economy may already be turning upwards again.
A new survey among members of Norway’s national employers’ organization NHO indicates that business pessimism may be a bit exaggerated. While NHO members have the lowest opinion of prospects for the next year since the finance crisis in 2009, they’re not doing so badly right now. At some companies, sales are brisk and profits are up.
“There’s quite a large gap between the market situation and market prospects,” NHO boss Kristin Skogen Lund told newspaper Dagens Næringsliv (DN). She also sees some indicators that the economy may be adjusting to and recovering from the shock of the dive in oil prices last year.
That led first and foremost to an abrupt decline in the value of Norway’s currency, the krone, which had been record-strong for several years. The now-weaker currency has made Norwegian exports much more competitive, price-wise, and that’s boosting several industries, from seafood to metals. Exports of traditional products like salmon and have increased considerably.
Non-oil investment increasing
Investment in mainland businesses, meanwhile, has increased as offshore investment has slowed. “We’d been talking for years about the lack of investment outside the oil industry,” Lund noted. “It’s too early to say for sure, but there are things happening that indicate we’re seeing the increase in non-oil investment that we’ve been wanting for so long.”
Part of that may be fueled by a sudden supply of highly skilled labour and engineers who’ve been let go by the oil and oil supply companies. They’d had a lock on the labour market but now more talent is available for other branches. “This means a lot of competent labour has become available, and at a lower cost,” Lund said, allowing other businesses to move forward with delayed expansion.
The low interest rates that Norway’s central bank recently lowered yet again are also likely to stay low for a long time, according to economists like Erik Bruce at Nordea Markets. And that also lowers costs for businesses and spurs investment. The rates were dropped because of weakness in the Norwegian economy, he noted, but added that “we’re in a process now where we’re moving away from oil-related activity and towards other economic activity. During that period we will have higher unemployment and lower growth, but the lower rates can keep growth up.” Lower interest rates can also spur consumer spending, keep the krone weak and keep Norwegian exports more competitive in international markets.
Meanwhile, oil and gas investments haven’t dried up entirely, as witnessed by Statoil’s development of the huge new Johan Sverdrup oil field not far off the west coast. It’s providing business and jobs within the offshore industry, even as many firms continue to lay off workers. Prospects for more defense spending despite various cutbacks can also result in new business for contractors and new investment.
Now Lund and others hope the government doesn’t do anything that will halt the turnaround. Both the state budget and proposed tax reform measures due to be unveiled this week can have a major effect on business, and NHO has warned against any onerous tax changes.
“There are things that indicate the process (of moving away from oil, called omstilling) is actually functioning,” Lund told DN. “We’re seeing an increase in traditional (non-oil) exports and an increase in (non-oil) investment. What’s most important now, especially because it’s so critical to keep the krone stable and down, is not to use too much state funding on short-term efforts that could boost inflation and interest rates and the krone again.”
She stressed that it’s important to maintain confidence among the businesses that are investing now and seeing increased exports. Tax reform that’s broadly anchored within parliament is desirable but nothing drastic that would upset markets. “We need as much stability and calm as we can get,” Lund said.
That’s likely, given comments made by Oil Minister Tord Lien, who hails from the same Progress Party as Finance Minister Siv Jensen, who’ll be presenting the government’s budget. He told DN that the government will propose some measures to offset the pain of rising unemployment, but it will mostly be aimed at those losing their jobs and not the companies cutting back.
“The most important thing the authorities can do, is to contribute to stability and predictability,” Lien told DN. “Companies themselves need to come up with their own response to the business cycle.”