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Richest Nordic Economy Now Faces First Recession Since 2008

Oil Crisis Leaves Norway Facing Its First Recession Since 2008

(Bloomberg) --

Norway risks sinking into a recession for the first time since the financial crisis of 2008, after a collapse in oil prices added to the fallout of the coronavirus.

The government of western Europe’s biggest petroleum producer, which is also the richest Nordic economy, is preparing emergency stimulus measures to fight the effect of the virus on trade and travel. Prime Minister Erna Solberg said she’s also ready to counter the potentially more damaging fallout of an oil crisis if necessary.

“If the economy is lower, there could be room to spend more money. But we will come back to whether we do that, and how much the measures we’re now implementing will cost,” Solberg said in an interview in Oslo. She said her administration may need to revise its October budget, as assumptions of above-trend growth start to look badly out of step with reality.

Handelsbanken is telling its clients that Norway’s mainland economy will probably start shrinking next quarter. Norway depends on oil and gas for more than a third of its exports, and economists have responded to the latest panic by warning that Norges Bank will need to cut interest rates next week, potentially by as much as half a point from 1.5%.

Richest Nordic Economy Now Faces First Recession Since 2008

On Monday, investors dumped the Norwegian krone, sending it down about 5% against the euro into uncharted territory. Handelsbanken, Danske, Nordea and other Nordic banks now expect Norway’s central bank to cut its benchmark rate by at least 25 basis points at its next meeting March 19.

Norges Bank’s quarterly regional survey on Tuesday showed economic growth was already slowing before the impact of the virus outbreak and, crucially, before the disintegration of the production pact between OPEC and Russia blew a hole in the oil market over the weekend.

Getting Worse

Norway’s government will present emergency measures on Friday, Solberg and her finance minister, Jan Tore Sanner, said at a joint press conference on Tuesday. Though the details have yet to be spelled out, measures will target avoiding bankruptcies and firings in sectors hardest hit by the impact of the coronavirus, more specifically airlines, hotels and parts of the manufacturing industry. The government wants to:

  • Change lay-off regulations to move some of the cost from companies over to the government
  • Change tax regulations to make it easier for businesses to obtain short-term loans, and allow wealth-tax payments to be deferred for owners of loss-making companies
  • Adopt specific measures for the struggling airline industry

“It’s highly probable that it will get worse before it gets better,” Sanner told reporters. “We’re now presenting some measures designed to have a swift effect. If we see that the downturn in the economy lasts longer, we’re of course ready to implement new measures to stimulate the economy.”

The government will consider broader measures -- including stimulating demand directly in the oil industry if necessary -- as it works on its revised budget, Sanner said. The updated budget is due May 12.

Solberg’s Conservative-led government in October proposed cutting back so-called oil spending in its 2020 budget after years of record outlays. Norway’s self-imposed fiscal rule limits spending of its oil wealth to 3% of the value of its vast sovereign wealth fund, which it amassed through decades of oil and gas production.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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