Wealth fund saves Norwegian economy from falling oil prices
Business |
Norwegian economy remains safe despite falling oil prices, thanks to the wealth fund.
Norwegian economy, with oil revenues a major source of income, remains safe despite falling oil prices, thanks to the "wealth fund" created by the government.
The sharp depreciation of the Norwegian krone is a welcome result of the reduction in the oil price and the reduction in the interest rate, said Steinar Holden, professor at the University of Oslo's Department of Economics, in Norway's capital.
Norways central bank cut the main interest rate for the first time in the last two years in December as the krone lost 20 percent of value vis a vis dollar, and 8 percent vis a vis euro due to decrease in oil prices.
"Clearly, the lower oil price is bad news for the Norwegian economy. It will reduce the governments revenues from the oil production," Holden, adding it will lead to lower activity in the oil sector, and thus to lower output and employment in the firms that deliver goods, services to the oil industry."
Norway has an oil fund which currently is worth $885 billion.
The Norwegian government can spend only 4 percent per year, which is the expected real return on the fund, according to Norges Bank Investment Management, which was delegated by the country's parliament to manage the fund.
"We currently spend less than the expected return from the wealth fund, so we have handsome safety margin. Probably, the spending will increase, but it will remain below the expected return of 4 percent," he said.
"So the overall message is that the Norwegian economy is in good shape, even if the reduction in the oil price is likely to lead to a moderate increase in unemployment."
- Wealth fund, guarantee of stable economy
"Oil price drop has a significant effect on the governments petroleum revenues. However, Norway is in a pretty good position because of its large sovereign wealth fund," said Linda Nostbakken, Associate Professor of the Norwegian School of Economics.
She stated that the fund along with "4 percent spending rule" buffers against price fluctuations, and protects the general budget against such drops.
"Therefore, the impact on the Norwegian economy doesnt have to be that large even at todays oil prices. Also, some sectors benefit greatly from the weaker krone," she added.
"Some might even say that price fall will be good for the industry in the longer run, as there was a need to cut costs and increase efficiency," she added.
The price of Brent crude oil dipped below $50 per barrel, its lowest point since April 2009, on 7 January.
Norway is Europes largest oil producer and the worlds third largest natural gas exporter after Russia and Qatar, according to U.S. Energy Information Administration.
Anadolu Agency
The sharp depreciation of the Norwegian krone is a welcome result of the reduction in the oil price and the reduction in the interest rate, said Steinar Holden, professor at the University of Oslo's Department of Economics, in Norway's capital.
Norways central bank cut the main interest rate for the first time in the last two years in December as the krone lost 20 percent of value vis a vis dollar, and 8 percent vis a vis euro due to decrease in oil prices.
"Clearly, the lower oil price is bad news for the Norwegian economy. It will reduce the governments revenues from the oil production," Holden, adding it will lead to lower activity in the oil sector, and thus to lower output and employment in the firms that deliver goods, services to the oil industry."
Norway has an oil fund which currently is worth $885 billion.
The Norwegian government can spend only 4 percent per year, which is the expected real return on the fund, according to Norges Bank Investment Management, which was delegated by the country's parliament to manage the fund.
"We currently spend less than the expected return from the wealth fund, so we have handsome safety margin. Probably, the spending will increase, but it will remain below the expected return of 4 percent," he said.
"So the overall message is that the Norwegian economy is in good shape, even if the reduction in the oil price is likely to lead to a moderate increase in unemployment."
- Wealth fund, guarantee of stable economy
"Oil price drop has a significant effect on the governments petroleum revenues. However, Norway is in a pretty good position because of its large sovereign wealth fund," said Linda Nostbakken, Associate Professor of the Norwegian School of Economics.
She stated that the fund along with "4 percent spending rule" buffers against price fluctuations, and protects the general budget against such drops.
"Therefore, the impact on the Norwegian economy doesnt have to be that large even at todays oil prices. Also, some sectors benefit greatly from the weaker krone," she added.
"Some might even say that price fall will be good for the industry in the longer run, as there was a need to cut costs and increase efficiency," she added.
The price of Brent crude oil dipped below $50 per barrel, its lowest point since April 2009, on 7 January.
Norway is Europes largest oil producer and the worlds third largest natural gas exporter after Russia and Qatar, according to U.S. Energy Information Administration.
Anadolu Agency
