2  BIS Review 115/2009  The financial crisis and the global economic recession have had a substantial impact on the Norwegian economy, and a range of measures have been implemented to mitigate the effects of the crisis. These measures prevented the liquidity crisis from developing into a solvency crisis in the banking sector and a crisis in the real economy in Norway. Norges Bank has supplied additional liquidity to banks and eased collateral requirements. The Bank has provided loans with longer maturities, used foreign exchange swaps for both USD and EUR to supply krone liquidity and provided loans to Norwegian banks in USD, which Norges Bank can now procure from the Federal Reserve. The key policy rate has been reduced by 4.50 percentage points since 15 October last year to 1.25 per cent. To facilitate banks’ funding, the government has given banks access to liquid government paper in exchange for mortgage-backed securities issued by the banks’ mortgage companies. The Government has also provided increased loans and guarantees to Norwegian export industries, and has raised lending limits for state banks. Folketrygdfondet (the Government Pension Fund – Norway) has also been permitted to increase its purchases of bonds. The authorities have arranged to supply risk capital to Norwegian banks through the Norwegian State Finance Fund to strengthen banks’ solidity. In order to curb the fall in activity in the Norwegian economy, government expenditure will increase by more than 10 per cent in 2009.
Svein Gjedrem: The outlook for the Norwegian economy Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), for Norges Bank’s regional network, Region East, Oslo, 25 September 2009. *  *  *  Please note that the text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 23 September and Monetary Policy Report 2/09. It has been a year since financial turbulence developed into a full-blown crisis. The result was the most severe downturn in the global economy since the Second World War. Key rates were set at historically low levels both in Norway and abroad. Government spending has increased considerably to support demand for goods and services. Global economic activity is now picking up, albeit from a very low level, and unemployment is high. Financial market conditions have improved, although liquidity remains tight in many markets. The financial crisis eroded confidence in banks, counterparties and contractual partners. Access to export credit came to a halt, international trade slowed sharply and manufacturing sales stalled. With financial markets improving over the past six months and an increase in the credit supply, global trade is now picking up slightly. Manufacturing output has recently increased in the US, the UK, Japan and many emerging economies, while it continues to fall – albeit at a slower pace – in Sweden and the euro area.