Norway Stays Afloat in a Tougher Oil Market

January 28, 2016Norwayby EW News Desk Team

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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.

Finance Minister Siv Jensen stated that the economy is not in a state of crisis, and while that may be true, no one can deny the heavy toll lower oil prices are having on the Norwegian economy. First, the government is spending at record levels to maintain its stimulus program. Further, the lack of oil revenue has resulted in a loss of 30,000 energy jobs since 2014, and the unemployment rate has spiked over 4.0 percent, which is not necessarily a bad percentage when compared to other struggling nations, but it remains a troubling trend nevertheless.

In a rare occurrence, the downturn has forced the government to dip into the sovereign wealth fund, but the current government will only use 2.8 percent of the stash for 2016, due to the fund's rapid growth rate. Norway has the world's largest sovereign wealth fund, derived from the nation's massive oil industry; the fund is enhanced through various investments in the form of bonds and real estate. Policymakers maintain that the fund is designed to finance the budget, but it also acts as a rainy-day stash in the event of an emergency.

This puts Norway at an advantage compared to other European nations, as the Northern European country would be in a much more dire state without the fund and oil production. Overall, the total value of the fund stands at $796 billion, notes AFP. The problem is that the fund largely depends on oil revenue for further growth, and with oil prices hovering so low, it is only a matter of time before it diminishes significantly. While Norway itself remains in a stable condition, citizens struggling to adapt to harder times demonstrate that the energy sector slump has severely affected certain sectors.

Moreover, authorities can do little to improve the situation, and although Norway has placed emphasis on diversifying the economy, such reforms will not be made overnight. Additionally, Norway will need to allocate more money to alternative energy schemes as oil deposits dwindle, and producers face a harder time extracting deeper reserves.

The good news is that the nation intends to invest in renewable energy as a diversification strategy, while spending more on other sectors, such as fishing, but this will not be enough to provide relief in the short-term. The redeeming feature for the economy is a government that does not intend to spend the fund into oblivion, but it remains to be seen if Norway can ride out the storm.

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