The Norwegian government will tap into its wealth fund once again to sustain government operations, as the sting of a low-priced oil market burdens the Scandinavian country, according to Reuters. Officials have used the fund once before as a rainy day fund and may continue to do so as the economy lacks the necessary revenue. The economy is expected to expand 1.0% in 2016.
Norwegian officials met earlier this week to assess the state of Western Europe’s economy and Norway’s struggle in a low-priced oil market, according to Bloomberg. Leaders are choosing to highlight the positive aspects, which have enhanced Norway’s growth, such as a weaker kroner, increased stimulus, and low interest rates. Norway has a massive oil fund that sustains the welfare system, but the government is only allowed access to the fund’s investment returns.
According to recent reports from the government, Norway ramped up oil and gas production, increasing 2.4 percent year-on-year last month. Oil prices have gone up 25 percent since early 2015, giving more companies leeway to commence drilling. Natural gas sales amounted to 307 billion cubic feet, which is an improvement from the previous month.
Norway’s central bank cut rates to a record 1.0 percent as the world economy continues to deal with lower oil prices. Norway’s economy has been struck with rising levels of unemployment and waning consumer confidence, forcing the country’s central bank to consider further easing measures in the coming months.
Norway’s petroleum sector is its most important industry. The petroleum sector accounts for 21.5% of its GDP, and almost half (48.9%) of total exports. In 2013 Norway was ranked the 15th-largest oil producer, and the 11th-largest oil exporter in the world. It is also the biggest oil producer in Western Europe.
New oil projects are being scrapped in Norway amid falling production and low oil prices.
Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.
Typically considered one of the richest economies that exist in the world today, Norway is becoming increasingly vulnerable to the impact of external countries and regions. Throughout recent years, Norway’s oil-rich economy has experienced an unparalleled level of prosperity as the prices of crude oil fueled record-high investments and boosted activity.
The central bank of Norway has recently elected to keep its interest rates the same, at 1.5%, although they have announced that the economic outlook for the country has darkened. The concerns for the future of Norway’s finances have prompted some speculation that the schedule, outlined for rate increases, may be pushed back.
Although the central bank commented that inflation and growth have continued to develop as expected, and the unemployment levels within the country are stable, European growth has been slow this year and global interest are far lower than expected.
Norway’s sovereign wealth fund has sold off its entire holdings in Irish and Portuguese government bonds, and reduced their share of Spanish and Italian bonds, in order to cut its exposure to the European debt crisis and make more investments in emerging markets.
13 September 2011.
The Norwegian economy has thus far shown remarkable resilience to the global financial crisis. The Norwegian krone is seen as a reliable currency, while many investors consider Norway as a “safe haven” to park their cash. Yet, the surge in the value of krone may lead to economic problems in the future. Will Norway’s “safe haven” status negatively impact its economic health?
Few countries have been as well-cushioned from the global economic crisis as Norway.
