None of us at that time could have foreseen that a virus would change the picture completely and lead the Norwegian and the global economy into a deep decline. Chart: A historically deep decline The economic outlook has changed dramatically in a short period of time. Activity in the Norwegian economy has fallen abruptly owing to the coronavirus pandemic. The virus outbreak and the extensive measures taken to contain it have led to production halts and lower activity across a range of businesses. Unemployment has risen to very high levels. Mainland GDP is projected to fall by around 5 percent in 2020. We have not seen a contraction like this since the war years. Chart: An abrupt and deep decline in the global economy The countries around us have also been severely affected. Measures taken to contain the spread of the virus, combined with changes in behaviour and uncertainty about developments ahead, have resulted in substantial declines in output across economies. In early March, we expected moderate economic growth among trading partners. Now a deep decline appears likely this year followed by a gradual rebound. The subsequent path of developments is, however, highly uncertain. The authorities in many countries have implemented powerful fiscal policy measures to alleviate the situation. Central banks have cut policy rates and taken extensive measures to stabilise financial markets. The sharp global downturn amplifies the challenges for a small open economy like Norway.
The fact that the current crisis – a public health and economic one – has not escalated into a financial crisis is because, since 2009, our prudential framework has strengthened banks’ resilience. And so, yes, France and Europe must remain committed to ensuring that the implementation of the Basel III Accord is fair, reasonable and definitive. It would be foolish to claim that Basel III will prevent lending to SMEs, when outstanding loans to SMEs in fact increased by 20% at end-November. We shall also use other tools to safeguard financial stability: the HCSF’s adjusted recommendation on real estate loans will be published this month, following our balanced and efficient decision in December. Our first “pilot exercises” or climate stress tests will be published in April. In insurance, the Solvency II normative framework has demonstrated that it is sufficiently flexible to deal with periods of tension. The review of this framework has already made progress, which needs to be continued, on two improvements that are in our view essential: i/ removing obstacles that are unjustified from a prudential point of view and that could penalise long-term investment; ii/ strengthening the countercyclical tools to better withstand a protracted low rate environment. Page 4 of 4  4/ That leaves the South, and the hope that its light inspires leads me to conclude by wishing our financial industry robust economic health. Given that it provides work for more than a million people, a strong financial industry is vital for employment.