According to Norway’s savings, every Norwegian is practically a millionaire. But Norway’s wealth did not happen overnight. Now it could be vanishing.
In the 60s, Norway still counted as one of the poor countries of Europe. Within 40 years, this Scandinavian country has risen to be one of the wealthiest nations. The Norwegians owe their opulent prosperity to their rich oil reserves. With high income, great benefits, manageable working hours and long vacations as a standard, Norway is an economic wonderland and job paradise.
But these certainties are disappearing. Growth prospects for the Norwegian economy have weakened. Activity in the petroleum industry is softening and the sharp fall in oil prices is likely to amplify this tendency. This will have spillover effects on the economy and unemployment may increase. The dominance of the energy sector in the Norwegian economy let the downturn draw wide circles. The dismissals weaken the buying power and the shrinking industry is therefore affecting the trade, hotel and cuisine industries. And that’s just the beginning. The Norwegians have to cut back in their standard of living and in their expectations for the future. Even Norwegian economists expect a long recession in the Norwegian oil industry, which accounts for 15% of economic power, more than half of exports and about 80% of government revenues. The success story of an entire country is at risk.
Time to rethink
The latest steep fall in oil price will undoubtedly make matters even worse. While in 2008 and 2009, the oil price recovered quickly, thanks to massive worldwide stimulus. The rebound we saw this spring turned out to be a so called ‘dead cat bounce’. So, in some ways the situation is already worse than it was seven years ago. As of yet, there are no signs of any big worldwide stimulus. The slump is centered on Norway and it is not expected – neither by Norwegian or foreign economists – to recede any time soon.
Norwegian politicians might think that it’s wise to make people think that there is no big crisis when there seems to be a bit too many reasons to think so and run. It is wise to try to prevent a panic. The problem is that it’s usually not wise to say to people: ‘there is no crisis’. Norwegians have reached the destination of this flight and they better get everyone out of the plane in one piece. It is fun to fly but it becomes boring if you never reach any destination. Even a very bumpy landing is million times better than no landing at all. The question is if all Norwegians really are aware of how important the oil industry has been for the welfare of Norway. You would expect the Norwegians to deal with the oil issue like it is a gift, instead of taking it for granted. The generation of young people, who were born into the wealth of the country, may not appreciate their luck as much as they should. Where is the questioning? Where is the farsightedness? Where is willingness to change something?
Hope for a soft landing
Norwegians can count themselves as extremely lucky that there are just 5 million people and that politicians decades ago were really smart with dealing with the income of the oil industry. Norway came up with a bold plan to save its oil riches for the future: The Government Pension Fund which is commonly referred to the Oil Fund. And that is the reason why the Norwegian dream is not abruptly threatened. But for the future generations, the country can no longer provide that which has been envied for so long around the world: fairytale-like conditions.
Norway is in a turnaround position and they better make it a good one by making sure there will be a relatively soft landing. Then one thing is for sure: there will be a lot of challenges and new experiences, but that may not be the worst.