The Struggling Norwegian Economy Illustrated in Charts
By Tyler Durden
Submitted by Alexander Grover in Oslo, Norway
The Norwegian Economy Illustrated in Charts
Norges Bank continues to hold rates at .5%, signaling an upward bias but willing to cut if needed, depending on unforeseen external shocks like BREXIT. In my opinion, they really don’t know what to do while the country heads for stagflation (simultaneous rising unemployment and inflation). They are in a “damned if they do and damned if they don’t situation.”
As the currency weakens, import prices rise. If they raise rates to quell inflation, they will slow down an already lethargic economy and may burn down the housing market in the process. If they cut, inflation will continue to accelerate. Staying put appears to be the best option, waiting for the oil sector continues to recover. However, then they are betting against the engineering profession, determined to drive down extraction costs or make oil irrelevant. Rising rig counts in America and the return of Iran and Libya to the marketplace further dim hope for North Sea oil.
Siv Jensen (Finance Minister) stated that the Norwegian economy is “Rock Solid.” Instead, it is more like ice (in reverse): solid only under specific (temperature and pressure) conditions and wobbly otherwise, unable to support a meaningful load. Above the $70/barrel threshold, the Norwegian economy is invincible, able to support generous social programs while making deposits to sovereign wealth fund (referred to as The Fund). Below $70, “the ice melts;” the rate of which depends on the ambient temperature above freezing. If the oil is only slightly below $70, The Fund could cover budget gaps indefinitely, replenishing the drawdown with capital gains, interest and dividend payments. Perhaps they could levy some new taxes as well. However, when substantially below the key threshold, the melting accelerates, drawing down the fund quicker than it can be restored.
Although, The Fund holds over $800 billion, covering near-term budget gaps with ease. Waiting for $70/barrel is like waiting for hell to freeze over or the Americans to join the EU. Also, The Fund carries various risks, investing mostly in US and European based assets. The big question is when will Norwegian housing prices peak and reverse course. That day is impossible to predict.
The goal of this article is to give normal hardworking people insight into what is happening around them, which is difficult to comprehend. The following charts and commentary examine the underlying economy:
Real Interest Rates:
Sources: Norges Bank (The Norwegian Central Bank) and SSB.no (Norwegian Statistics Bureau)
Sources: US Federal Reserve and Bureau of Labor Statistics
The real interest rate, which subtracts inflation from the nominal one, is already negative, meaning that saving is losing. The weakening currency also makes Norwegian companies susceptible to foreign takeover, sending the profits abroad. Real interest rates should be at least zero and ideally positive, enticing people to put their money into the …read more
Source: The Struggling Norwegian Economy Illustrated in Charts
