Surviving the Oil Crash, Norway’s PM Builds Hope for Second Term

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Surviving the Oil Crash, Norway’s PM Builds Hope for Second Term


Category: Accounting / Financial

The economic recovery could be coming just in time for Norwegian Prime Minister Erna Solberg in her bid for a second term.

Trailing by more than 10 percentage points in July’s polls, Solberg’s Conservatives have narrowed the gap with the opposition Labor Party, according to, a poll tracking website. Analysts point to healthy economic numbers as a possible explanation.

“The economy is back on its feet, growth is in place and now employment is also rising,” said Erik Bruce, senior economist at Nordea Bank AB.

Bruce talks of “healthy” and “solid” mainland growth in the second quarter providing further evidence that the “oil related downturn is behind us.”

A regional survey by the central bank showed that businesses in June were the most upbeat they’ve been since before the crisis while consumer confidence has surged.

“Things are now looking different — unemployment is going down, growth is rising, more people are coming to work,” Solberg told reporters in Oslo on Wednesday. “Developments this year are turning out to be even stronger than what we expected in May. Business has belief in the future.”

Soon after assuming office, in 2013, the Solberg government was hit by a sharp drop in crude prices that sent shock waves through the economy (more than 50,000 lost their job in the oil sector alone, hitting the south-west region of Norway the hardest).

Fund Withdrawals

The government responded to rising unemployment and slowing economic growth with tax cuts, massive investments in infrastructure and by dipping into the country’s sovereign wealth fund for the first time.

The opposition Labor Party spent much of its time lambasting Solberg for raiding the country’s kitty and watching unemployment tick higher.

But with economic indicators now telling a different story, Labor’s arguments are losing their sting, turning the Sept. 11 vote into a tight race.

“It was correct that we spent a lot of money when needed,” Solberg said Wednesday. “Now it is right to take a step back now that it’s going better. We have to dare to modernize to get room to maneuver for the priorities in the future.”

While Labor may be wrong to paint a gloomy picture, the government should refrain from taking too much credit for the turn of events, said Bruce. The economist credits instead “a combination of a weaker krone, rate cuts and an expansive fiscal policy.”

“Any government would have taken the opportunity to spend money in a crisis,” Bruce said. To claim, as Solberg and her allies do, that “the government has made a great effort that no one else could have done isn’t true.”

Still, DNB Bank ASA senior economist Kyrre Aamdal concurs with Bruce that the economy is back on track and is skeptical about Labor arguments that a center-left government would have handled the crisis in a better way.

Regardless of who should prevail on Sept. 11, Aamdal predicts that the improvements in the economic outlook will reduce the pressure on raiding the country’s nearly $1 trillion wealth fund.

“There’s room for increasing oil-money spending further, but not at the same pace as before,” he said.

Source: Bloomberg