Economy: Norway is not unique

- We are not, Gjedrem said in his 12th and last annual address before retiring.

The Central Bank governor said that the emerging economies were hardest hit by the previous global crisis in the late 1990s. This time OECD countries were the most severely affected. But Norway seems to have largely escaped the crisis. Overall, output has fallen to a lesser extent in Norway than in other countries and it recovered more quickly. Unemployment has remained low. One might almost believe that Norway was immune to crises and that the country is unique.

But this is not the case. It is dangerous to believe that we will be able to manage every crisis as successfully.

- Norway is not unique, he said, and went on:

- We cannot expect driving forces to be as beneficial in the future. Real interest rates cannot be expected to fall. Another sharp boost to export prices is not likely. In addition, Norway’s economy is now vulnerable. Norwegian labour has never been as costly as it is today. Norwegian businesses may be at a disadvantage in tenders and competitions given the current high level of spare capacity in other countries. Moreover, it has never been more profitable to relocate activities abroad.

- During the upturn, Norwegian firms fared well in spite of high costs thanks to efficiency gains, high turnover volumes and price increases. The cost of Norwegian labour has been very high, but there has been full employment. Markets will be more demanding ahead. Despite Norway’s floating exchange rate, our cost level cannot be expected to fall to any great extent as economic conditions are even weaker in other European countries.

Gjedrem pointed out that the industry structure in Norway’s small economy is different from that of other advanced economies. The emergence of new Asian market economies is beneficial for Norway owing to its sizeable commodity exports and freight transport. This is also reflected in Norway’s equity market.

The value of Norwegian listed companies correlates closely with the value of companies in emerging market economies. Norway is vulnerable to a slowdown in growth in Asia. Commodity prices may then fall and the terms of trade may deteriorate. Norway’s high cost level may at the same time make it difficult for the business sector to shift to new markets.

Gjedrem called for tighter banking regulation and a better tax system to help stabilize the financial system.

- It is particularly important to develop structures and mechanisms that better enable the economy to regulate itself, the Central Bank governor said.

(NRK/Press release)

Rolleiv Solholm