Persistently low interest rates mean that government borrowing appears to be on favourable terms. But at some point further ahead, interest rates will rise again. Central banks will have to consolidate their balance sheets. Some countries will then find themselves in vulnerable position. NORWAY WAS WELL POSITIONED Norway clearly stands out in this regard. We were well positioned to face the economic crisis triggered by the pandemic. Unlike many other countries, we have been able to pursue a very active fiscal policy without having to borrow. We also had room for manoeuvre in monetary policy. In a little over a month, it will be 20 years since the current framework for the division of responsibility in economic policy was established. Fiscal policy would be guided by the fiscal rule, while monetary policy would target inflation. Up until 2001, fiscal policy was responsible for stabilising employment and output. After the switch to inflation targeting, monetary policy has functioned as the first line of defence in stabilisation policy. The primary task of monetary policy is to ensure monetary stability. It must not pursue its primary objective to the exclusion of other relevant considerations. Monetary policy must also take into account the real economy. A monetary policy regime that ends up amplifying fluctuations in the real economy will fail the test of time. As long as confidence in low and stable inflation is well anchored, monetary policy can contribute to high and stable output and employment.
In some business sectors, unemployment remains very high. Other sectors have been shielded. Interest rate cuts have given households more money to spend. At the same time, there were fewer opportunities for them to spend it. So while some have faced a precarious job situation, others have used the occasion to save. We see the same impact and uneven effects in a number of other advanced economies. 3  NORGES BANK  Chart 2 Many countries have been harder hit than Norway  ECONOMIC PERSPECTIVES 18 FEBRUARY 2021 Total COVID-19 deaths per 10 000  GDP growth, percent  UK Italy US Sweden Japan Norway 0  5  10  15  20  Souces: IMF, OECD, OurWorldInData.org, Statistics Norway and Norges Bank  Many countries have been hit harder than Norway – in terms of both economic and health effects (Chart 2). The differences reflect in part how quickly countries locked down and put a brake on the first wave of infection. The design of support measures, organisation of the health sector and structure of the economy have also played a decisive role. In countries with a rudimentary welfare system and a large informal sector, the pandemic has had serious consequences. Unfortunately, 2020 proved to be the year when the global poverty rate showed a renewed rise. THE WAY AHEAD Pandemics are watershed events that leave behind long-lasting scars. They have claimed a multitude of lives through history.