Submitted by Alexander Grover
Darkness is Upon Us: Norway’s Key Figures Going Into 2016
As we move into winter, darkness has fallen up on us. Oil, ca. 65% of the nation’s economy, will not see the required $70 barrel anytime soon. American innovation, once again, turns a scarce resource into an abundant commodity. Despite optimistic Norwegian media articles, the potential for $20 per barrel looms. Production overwhelms demand while inventories rise to record highs. Although, still considered the best place to live, the cracks, in the oil based economy, are forming.
This story, told in numbers, derived from Norges Bank (The Norwegian Central Bank) and SSB (The Norwegian Statistics Bureau), shows that 2015 is much different from previous years. Things are breaking out to the negative direction all over.
Key Budgetary and Economic Metrics
I wrote an article just over two months ago, “Norway: The Silent Crisis.” This story is a follow up, confirming the trends. Many of us immigrated here to live well. Only a few places in the US and Switzerland can compete with Norwegian life.
Drilling holes under the sea, sitting back, counting the billions is no longer viable. Although The Oil Fund can carry Norway for around ten years, filling budgetary gaps, it is not a sustainable approach.
- Budgetary revenues are declining while deficits attributed to oil revenue are widening.
- Unemployment is at a decades high along with consumer debt. A Norwegian friend of mine, working in the local financial sector, told me that a 1% key-rate hike would make 14% of households insolvent.
- The Oil fund’s value is peaking while surpluses turn into withdrawals.
- Real interest rates are at a record low, precipitating an inflationary environment, evident in the housing market. (This is a housing bubble!)
The average Norwegian is feeling the effects, reflected in the foreign exchange. Norges Bank (The Norwegian Central Bank), biased towards rate cuts vs. rate hikes, risk turning the Norwegian Krone into the Norwegian Peso. Falling exchange rates are inflationary. Trips abroad will cost more, even to Nigeria. Only Ukraine and Russia offer Norwegians a travel bargain.
What we can expect now?
Although reluctant as of late, Norges Bank will do everything possible to save the housing market, where most Norwegians parked their wealth. The Norwegian Central bank staff never experienced crisis. We can expect policy miscalculations, underestimating oil’s new reality. It is difficult to estimate how much more they will cut before suddenly raising rates to protect the currency. But we can expect this to be the likely scenario over the next 4-5 years.
We can expect unemployment to rise as public spending cuts are imposed, compensating for falling revenues. Socialist solutions will be proposed to solve free market problems, making things worse. Norwegian unions are already pushing for a 6-hour workday, aiming to increase employment. We will see foreign M&A pick up, foreign firms buying up Norwegian ones. There are many high companies in Norway, trading at a discount.
As a new resident, I am hoping that fellow residents and the citizens can figure out the difference between spending and investment, taking time to understand the financials. The stock and bond markets and collecting rent from high street properties cannot replace the oil industry. Although Norway has strong fishing and technology industries, their growth is relatively limited due to environmental limitations, strong unions (which are not a bad thing but they can limit a company’s ability to adapt during difficult times) and the high cost of employment. We need a new, difficult to duplicate, industry to carry us forward. Norway needs to be more Swiss and American and less European in their approaches to business and immigration. Otherwise, Norway will become a “Socialist Paradise Lost.” It will become just another European country instead the exception, like Switzerland.