NEWS ANALYSIS: Thursday’s decision by Norway’s central bank to scrap another interest rate cut illustrates how the country is recovering from the economic shock of lower oil prices. The recovery is arguably not good for Jonas Gahr Støre’s opposition Labour Party, which is constantly trying to find fault with the conservative government’s expansive economic policies that seem to be working, but Labour is doing well in public opinion polls anyway.
Central bank governor Øystein Olsen, who was appointed by the former Labour-led government, threw some cold water Thursday on Labour’s complaints about higher unemployment and economic decline. By deciding to keep interest rates unchanged at 0.5 percent, and thereby rejecting the option of lowering them once again to stimulate the economy, Olsen and the bank board he leads sent a clear signal that such stimulation is no longer needed. The bank stopped short of raising rates, to cool down an overheated housing market, because no one seems to want Norway’s currency (the krone) to strengthen very much. It’s better for the country’s seafood, other exports and not least tourism to keep it relatively weak against most other currencies, to boost competitiveness.
Olsen’s announcement, though, shored up earlier forecasts that Norway’s economy has bottomed out after oil prices collapsed two years ago. Unemployment has of course risen from historically low levels during the oil boom to somewhere between 3-and 5 percent, depending on the varying calculations of state welfare agency NAV and state statistics bureau SSB, but it’s still low compared to many other countries. Olsen could also state that there are signs of new economic growth and business optimism in Norway. The fact that he expressed a belief that interest rates will remain at their current level “for the next few years” suggests a period of economic stability ahead. The central bank governor who borrowed a line from Game of Thrones in claiming that an economic “winter is coming” in his annual address in January, now doesn’t see any deep freeze setting in.
That does, however, put a chill on the Labour Party’s complaints about the current minority government coalition’s expansive economic policies, which have included tapping more heavily than Labour would into Norway’s still-huge oil revenue resources, to stimulate economic activity. No one is suggesting that Labour wants to see even higher unemployment or economic distress, but both would probably strengthen Labour’s arguments and boost its position. It’s harder to criticize a government that seems to be succeeding at guiding the country toward better times.
That became clear earlier this week, when researcher Ådne Cappelen delivered a commissioned report on how Norway’s most important players in the business and labour markets assess the current economic situation. As newspaper Aftenposten noted on Friday, Finance Minister Siv Jensen of the conservative Progress Party used it for all it was worth in a debate with Labour Party leader Støre when she quoted “from page 32” that the government’s expansive policies “contribute towards holding up employment and activity in a time where demand from petroleum activity has fallen a lot.”
In other words, noted Aftenposten’s commentator Ola Storeng, using more money in the state budget is a good thing. Norwegians, who also have been granted some tax relief since the conservative coalition took over in 2013, are generally avoiding a major and lengthy increase in unemployment like that seen after the last oil crisis in the late 1980s and early 1990s. And that was when Labour pretty much controlled Norwegian governments for years.
Norway has the tools it needs to ease the shock of lower oil prices, even though nearly 40,000 jobs have been lost in the oil industry since 2014. It has its Oil Fund, still the biggest sovereign wealth fund in the world, as the ultimate financial cushion. Norwegian officials can still steer interest rates and currency exchange rates when necessary. Employers- and labour organizations are cooperating on moderation in pay growth better than ever before, despite a noisy strike that broke out this week in the oil service sector. Norway was recently ranked among the most productive countries in the world, even though its workers spend among the fewest hours on the job. The so-called “Norwegian Model” for keeping business and labour on an even keel still seems to be working.
Støre and trade union confederations like LO that back him thus struggle to clarify how they might run the country better. There are signs of voter fatigue with the current government, however, with Labour currently riding high in public opinion polls. The latest, conducted by Sentio Research Norge and published in newspaper Dagens Næringsliv (DN) on Friday, shows Labour with 38.4 percent of the vote, compared to the Conservatives’ 22.9 percent and the Progress Party’s 14.7 percent. That gives Labour more voter support at present than the two current government coalition partners combined, and suggests it could easily form its own left-center government coalition if such numbers persist through next year’s parliamentary election.
There already are strong indications Labour will team up again with the protectionistic and regulatory-minded Center Party, which now claims 7.4 percent of the vote. Together they’re trying to lure the Christian Democrats (4.4 percent) over to their side. A lot can change over the next 11 months, though, as the election campaign shifts into higher gears.