For the first time in years, prices may rise more than paychecks in Norway, while unemployment edges up. That means leaner but not necessarily tough times ahead, as Norwegians headed into 2016 on the first full working day of the year.
One local bank chief claims he’s actually “cautiously optimistic,” while other business leaders believe they simply must adjust to a world without sky-high oil prices and the boom they brought for an oil-fueled economy like Norway’s. Norwegians also have one of the world’s biggest economic safety nets in the form of their so-called “oil fund,” the sovereign wealth fund where oil revenues have been stashed to fund future pensions and augment the state budget.
Local media outlets began publishing economic outlooks several weeks ago, many of them relatively pessimistic as Norway’s oil economy stops gushing because of much lower prices for the country’s leading export product. On New Year’s Eve, newspaper Dagens Næringsliv (DN) ran the individual responses of a survey of 25 leading economists in Norway, and there was a surprisingly broad consensus among them:
** Most think unemployment will rise, but not dramatically, to around 4.75 percent.
** Interest rates will likely be lowered once again, to 0.5 percent or even as low as o.25 percent.
** Wages will rise but modestly, by around 2.5 percent.
** Housing prices will also keep rising, not as high as in recent years, but perhaps by as much as 5 percent.
** Prices for consumer goods will continue to rise as well, not least because Norway’s currency has weakened considerably against other currencies since oil prices sank. That makes imports more expensive, and most of Norway’s consumer goods are imported. State statistics bureau SSB reported last month that prices on average rose by 3.1 percent from Novermber 2014 to November 2015, while prices for food and alcohol were up 3.8 percent. That trend is likely to continue.
“I think everything is getting more expensive already,” retiree Ulf Olsen, age 75, told DN as he browsed the aisles of the large sporting goods store G-sport in Oslo just before Christmas. “I don’t buy a lot of clothes, but sports equipment is up, that’s very clear.”
Anniken Hauglie, Norway’s new government minister from the Conservative Party who’s responsible for labour and welfare, told Norwegian Broadcasting (NRK) Monday morning that the “situation is serious” in many areas. “There are wide variations among various parts of the country, but we see that in Southern-and Western Norway, people are struggling. There’s reason to believe it will continue to be tough.”
Gerd Kristiansen, head of Norway’s largest trade union federation LO, was also on the radio, promising more “moderation” in wage negotiations this year. Job preservation and creation is more important that income growth, Kristiansen said.
“We have a tradition for responsible wage settlements,” Kristiansen told NRK. “We showed that last year and it will be necessary to show it again in 2016.” Economists predict that wages won’t rise more than 2.7 percent this year.
That’s likely to be eaten up by higher prices, meaning that many Norwegians will need to adjust from more than a decade of heavy spending. It’s all relative, though: In Norway’s oil capital of Stavanger, restaurants aren’t regularly serving Champagne, lobster and meals priced at NOK 2000 any longer, and restaurants aren’t packed like they were, “but how many other cities could boast a full-house in restaurants even on Mondays?” mused the manager of Stavanger restaurant Hall Toll, Lavrans Gjønnes. He told local newspaper RA recently that “now we’re into a more normal” level of activity. “The market was too good to be true,” Gjønnes said, adding that his restaurant like so many other restaurants simply must adjust to leaner times.
Many Norwegian newspapers editorialized about the same “need to adjust” during the Christmas and New Year holidays. “Norway faces some major restructuring, after more than 30 years of rising oil production comes to an end,” wrote Aftenposten on Christmas Eve. Expectation levels need to be reduced, the paper wrote. The biggest challenge involves cutbacks in the oil industry that lead to economic slowdown and rising unemployment just when record numbers of Norwegians are reaching retirement age and tens of thousands of asylum seekers are arriving in the country.
“It’s important not to exaggerate the problems, though,” continued Aftenposten. “We will become less rich, but our economy will remain in the world’s first division.”
Rune Bjerke, chief executive of Norway’s biggest bank, DNB, agrees. While 2016 “won’t be much to brag about,” Bjerke told Aftenposten just before New Year that the situation is far from completely negative in Norway: Low interest rates will keep debt costs down, the weak krone continues to boost exports not least in Norway’s important seafood industry, and the country has dealt with dives in oil prices before.
“This isn’t the first time oil prices have sunk into the cellar, and if we look back over the last 30 years, the swings in the Norwegian economy have been much less than in other European countries,” Bjerke said. “We have managed that even without the oil fund,” he added, referring to Norway’s vast “piggy bank” where oil revenues have been saved and not spent since the mid-1990s.
The literal and figurative value of the oil fund remains a huge and unique safety net for Norway, fueled not only by revenues from oil but the prudence of the politicians who set it up. New figures released late last week show that even though not as much oil revenue is flowing into the fund at present, the returns on its investments have already boosted it to levels not expected until 2017. Despite low oil prices, Norway’s oil fund has never been bigger and its market value now amounts to a mind-boggling NOK 7,450 billion. It gained NOK 430 billion just between late September and late December, reported newspaper Bergens Tidende last week.
“I think ‘cautious optimism’ is the correct expression (for the year ahead),” Bjerke told Aftenposten. “We see that very many businesses in the oil and gas sector have very tough times … but on the other side, we’re seeing healthy adjustment and restructuring. There’s also a lot of innovation in the entire oil and gas sector.” Leaner times can also provide opportunity, Bjerke said. “And if we really need it, we can do more with monetary policy,” he added. “We have a tool box with more equipment in it than ever before.”