NEWS ANALYSIS: Interest rates have started to rise, oil and gas exports have more than doubled and Norway will soon even have a Labour Party-led government again, just as most of the country’s Corona virus-related restrictions are likely to be lifted. Post-pandemic “normalization” is clearly underway.
Norway’s central bank confirmed on Thursday that it’s finally, if cautiously, boosting its key policy rate from zero to 0.25 percent. The increase has been widely expected for months, with Norges Bank Governor Øystein Olsen himself also hinting that more rate hikes will come:
“Based on the (bank’s) current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December,” Olsen said. The next rise will probably also come in the form of a quarter-point, with more such increases next year likely to bring the key policy rate up to 1.5 percent by late 2022.
It was the central bank’s Monetary Policy and Financial Stability Committee that unanimously voted in favour of the quarter-point rise. Olsen noted that “a normalizing economy now suggests that it is appropriate to begin a gradual normalization of the policy rate.” It had been slashed to zero in the spring of last year, shortly after the Corona crisis began and Norwegian officials were launching lots of economic stimulus measures.
The central bank noted how the “reopening of society” already has led to “a marked upswing in the Norwegian economy.” Norwegian Broadcasting (NRK) was also reporting this week that Health Minister Bent Høie was likely to soon announce a general re-opening of Norway through an end to most national Corona restrictions. Infection and hospitalization levels have been declining again, while fully 83 percent of the Norwegian population over age 18 is now fully vaccinated.
Good news for a new government
Norway, pumped up by its now-controversial oil and gas industry, has enjoyed a generally strong economy for several decades. Norges Bank could confirm on Thursday that economic activity “is now higher than its pre-pandemic level,” with unemployment falling further and “capacity utilization appearing to be close to a normal level.”
“The economic upswing will likely continue through autumn,” the central bank claimed. That’s good news for Labour Party leader Jonas Gahr Støre, who simultaneously was launching exploratory talks Thursday morning with the Center Party and Socialist Left party (SV) to form a new left-center government. Støre will be able to take over an economy likely to be as strong as normal, yet somewhat reined in by slightly higher interest rates aimed at keeping inflation at around 2 percent.
The rate hike means commercial lending rates will rise, too, not least home mortgages that had hit historic lows. Norwegian Broadcasting (NRK) was stressing Thursday morning that for some new borrowers who managed to buy homes during the recent housing boom, it will be the first time they’ve experienced an interest rate hike that will raise their monthly payments. For everyone who lived through the era of double-digit interest rates, it may be a healthy reminder that borrowing money entails risks.
Oil gushing again
Norway’s all-important oil, gas and offshore industries, meanwhile, are also getting back to normal. State statistics bureau SSB (Statistics Norway) reported this week that exports in general, of which oil and gas account for the lion’s share, have more than doubled since April of last year. That’s when production bottomed out because the pandemic paralyzed economic activity.
The value of Norway’s total exports rose from NOK 52 billion in the spring of 2020 to NOK 116 billion in August alone. Oil and gas accounted for NOK 70 billion, reports SSB, fueled by both higher prices and higher volume. The value of gas exports was five times higher than in August of last year, as prices skyrocketed and volume rose.
Norway is under new pressure on a variety of fronts, including the UN, to rein in its oil industry and at least oil exploration, for climate reasons. Norway is committed to slash carbon emissions, yet there’s broad public and political support to keep the oil flowing, with Norwegian officials constantly coming up with creative reasons to do so. Even though climate was one of the biggest issues in the recent national election campaign, the Greens Party didn’t even win enough votes to gain full representation in Parliament and the anti-oil SV didn’t do as well as expected either. SV will try to push through oil-curtailment measures during government negotiations, but Labour and Center support the industry because of all the jobs it creates.
Seafood and aluminum exports up, too
It’s not only Norway’s offshore industry that’s recovering, for better or worse. Prices for Norwegian seafood and aluminum have also hit “historic” highs, and the country’s salmon farming operations nearly set yet another record in August. Its value ticked in at NOK 5.4 billion, the next-highest for a single month ever. Volume rose more than price, as restaurants and hotels opened up again and orders flowed in.
“The business mood is quite good and getting steadily better,” Øystein Dørum, chief economist for the national employers’ organization NHO, told newspaper Aftenposten on Thursday. “We’re seeing a strong upswing in production, prices and trade all over the world. Norwegian exporters gain on that.”
In the midst of all the economic recovery, Norwegian households need to brace for what some are calling a “triple whammy” given the rise in interest rates, electricity rates and gasoline taxes all at the same time. Experts in private economy are warning consumers to prepare for much higher monthly bills that are likely to remain high: home mortgage payments will keep rising, record high electricity bills will rise as well during the colder months ahead and next year’s state budget will include much higher carbon taxes that will be reflected at the gas pump. Even though Norway produces oil and gas, it’s kept punitively expensive in the domestic market. Motorists now pay as much as NOK 19 per liter for gasoline at the pump (around USD 9 per gallon).
Higher bills may bring about a decline in overall household consumption. Norwegians accustomed to relatively cheap electricity are already being urged to drive less, turn off lights and heating in rooms that aren’t used, and not to waste hot water. That, at least, may contribute to the battle against climate change even as the gas and oil gush.