Petroleum revenue spending over the central government budget had increased, but employment in traditional industries was still high. Despite Norway’s high cost level, merchandise exports and supplies of goods and services to the oil industry held up due to high demand. Instead of a gradual slowdown, economic growth came to an abrupt halt in autumn 2008 when the global financial crisis came to a head. Demand for Norway’s export goods fell markedly. Norwegian banks proved to be highly vulnerable to the credit freeze in global money markets and stopped providing new loans. 2 However, Norwegian banks were not as exposed to loan losses – at home and abroad – as banks in other countries. The downturn proved to be milder in Norway, but the banking industry may also have performed its craft fairly well. Government and central bank liquidity provision measures were effective. The liquidity crisis passed quickly and did not turn into a solvency crisis in Norway’s banking system. The rapid rebound in oil prices and a weaker krone provided a boost to the economy. The interest rate was lowered and public spending markedly increased. The downturn turned out to be milder than we had expected when the interest rate was reduced to a low level – partly because oil prices proved to be higher than expected and partly because the measures implemented were more effective than we had dared to assume. We therefore now expect to be able to raise the interest rate again at a gradual pace to more normal levels.
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. 2  IMF Country Report No. 10/24, January 2010. Norway: Staff Report for the 2009 Article IV Consultation. BIS Review 15/2010  7  Norway is not unique. 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.