The value of Norway’s currency, the krone, was falling once again this week in a new sign of economic uncertainty tied to the Omicron strain of the Corona virus. State statistics bureau SSB (Statistics Norway) issued a report on Friday that suggests Omicron may become costly for the Norwegian economy.
The new strain of the virus made a stunning debut in Norway that by mid-week was grabbing international attention after a major outbreak at a company Christmas party (julebord) in Oslo. That finally prompted the Norwegian government to reimpose some national restrictions after weeks of infection statistics that had already been sharply rising.
By Friday afternoon, one US dollar was costing more than NOK 9, up from NOK 8 just a couple of weeks ago. Signs of a decline in economic optimism were already evident early in the week, and on Friday SSB researcher Thomas von Brasch confirmed the trend.
Von Brasch and his colleagues at SSB noted how Norway logged an “enormous” surge in economic growth after earlier Corona-related restrictions were mostly lifted in September. Society could reopen, both gas and oil prices climbed, consumer spending rose quickly and by October, Norway’s economy was humming along once again, even on the back of an energy crisis.
There’s also been a labour shortage in Norway in recent months, mostly because many foreign labourers moved back home during the Corona crisis. Several industries from construction to the hotel and restaurant business have been having trouble finding enough workers this autumn.
‘Facing a change’
Now, according to von Brasch, “we’re facing a change” in the tempo of economic activity that’s “partly because of Omicron and the restrictions announced yesterday.” He also noted, however, that Norway’s unemployment rate “is now down at the same level from before the pandemic began, and many businesses are operating once again at nearly full capacity.”
In a new prognosis from SSB released Friday, von Brasch and his colleagues predict the new measures will have a “limited and temporarily negative effect” on the economy. “That’s naturally extremely uncertain right now, though, since we don’t know how the situation will develop,” von Brasch stated in SSB’s report.
Omicron is, moreover, “a reminder that new mutations can suddenly appear and turn around the situation so that it becomes more serious again,” he said, adding that “it’s still more probable that things will get worse than that they’ll get better than our prognosis shows.”
The key word is “uncertainty,” and that’s generally not something that boosts economies. SSB also pointed to the pressure on the labour market right now, with a 3.6 percent unemployment rate that’s lower than the average from 2000 to 2019. That’s a good thing, with record numbers of jobs available and more Norwegians participating in the labour market, but it can also drive up wages and prices. SSB expects large swings in the inflation rate, at the same time soaring housing prices will settle down. SSB’s researchers expect Norway’s central bank to move ahead with modest interest rate increases, but thinks they’ll come slowly and that the bank’s board will be careful.
Omicron’s effect thus remains highly uncertain, but seemed to already be taking a toll on Friday, also as hotels and restaurants faced a new barrage of cancellations of Christmas parties that are so important for them. In a worst-case scenario, SSB thinks Omicron can cost the state billions because of lower economic activity and reinstatement of more state economic relief packages. It’s the low unemployment rate and production at high capacity now, however, that prompts SSB to expect “much more moderate growth in the years to come.”
For more details on the SSB report, click here (external link to SSB’s website).