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‘No Crisis’ Norway Holds Talks on Economic Cost of Oil's Plunge

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IMAGE: Descent in Currency has matched fall in Oil price »


Norway’s prime minister, finance minister and central bank governor are holding an extraordinary meeting to assess just how bad the deepening plunge in the price of oil will be for the overall economy of western Europe’s biggest petroleum producer.

The premier and the finance minister will also later meet with economists on Monday to “discuss the economic situation,” according to a statement from the prime minister’s office. The meetings start at 10 a.m.

Policy makers have so far avoided using the word crisis in describing the state of the economy, saying that stabilizers such as the weakening krone, lower interest rates and record fiscal stimulus are kicking in to pick up the slack. Yet they have lately acknowledged that the nation’s oil industry is in a crisis and that the almost 30,000 jobs now lost won’t all come back.

The government will probably stick to its message of there being no crisis and that monetary policy is the first line of defense, said Marius Gonsholt Hov, a senior economist at Svenska Handelsbanken in Oslo. “But they need to admit now that the situation has become critical and that downside risks have intensified,” he said. “They have to have some kind of emergency package in a situation like this.”

“We still have economic growth in Norway,” Prime Minister Erna Solberg said in an interview with Bloomberg Friday in Davos. “When the oil price falls our currency has depreciated, it means that other parts of our economy are picking up but of course it’s at a lower level than it has been in the last years.”

The economy is being helped by its weak currency, which is down about 15 percent from a high against the euro last year, to withstand a plunge in the price of oil. The country gets about one-fifth of its economic output from the petroleum industry. The price for the benchmark Brent oil blend reached a 12-year low of $27.10 last week, compared with a 2014 high of $115.

Solberg said that while the nation’s oil industry is in a “crisis,” the overall economy is not. The government is spending a record amount of its oil wealth this year to stimulate growth and is even dipping into its massive sovereign wealth fund for the first time.

The central bank has also said it stands ready to lower interest rates further, after last year halving its benchmark to 0.75 percent. Nordea Bank said lower rates, stimulus and weak krone will be enough keep the economy from an all-out crisis.

“Markets are already priced for further easing from Norges Bank,” Aurelija Augulyte, a macro strategist at Nordea Markets, said by phone Sunday. “That, with the current fiscal program and additional support from exports may outweigh the negative” aspects of the economy, she said.

Solberg even said on Friday that the currency had now weakened enough to help keep up momentum. Nordea also agreed that the economy could tolerate some krone strengthening.

Article Credit: Bloomberg

Updated 2 Years ago

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Tags:     Norway     Krone     Oil Price Plunge     Erna Solberg