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Norway: Fjords, Oil, And Plenty of Jobs

A flood of stimulus cash has kept unemployment low—at worst, it may hit 4 percent—but some economists now fear overheating

(Removes reference to unemployed individual in first paragraph.)

The offices of NAV, Norway's national employment agency, may be one of the loneliest places in the country. With Western Europe's lowest jobless rate—3.7percent, vs. 10percent in the 16-nation euro zone—Norway doesn't have a lot of people looking for work.

Prime Minister Jens Stoltenberg was reelected last September after pledging to pursue "employment for all." Norway's energy riches have helped him come close to keeping that promise. Since crude was discovered in Norwegian waters four decades ago, the government has managed to set aside enough oil profits to create a sovereign wealth fund that is now worth some $450billion. When the economic downturn began, the government was able to create jobs by flooding the economy with cash to fix highways and railroads and for programs such as elder care.

That shielded Norway from the worst of the credit crisis and kept consumer spending alive. Some economists say the program was too lavish. To pay for the $3.6billion stimulus plan the government last year used 4.8percent of the sovereign wealth fund, violating a policy guideline that calls for a 4percent annual cap on spending from the fund. With the stimulus equivalent to 3percent of gross domestic product, some economists say Norway could overheat.

The Central Bank says that Norway's currency may be getting too strong. The krone has risen by 9percent against the dollar since June. Governor Svein Gjedrem has boosted the benchmark rate to 2percent from 1.25percent since October. The government has promised to bring the spending from the wealth fund back below the 4percent cap, though this year it is expected to withdraw about 5percent of the fund.

Stoltenberg's goal of low unemployment "is an admirable target, but it comes at a cost," says Petter Haas Brubakk, executive director for industrial affairs at the Confederation of Norwegian Enterprise, which represents 20,000 companies. "The price for this is that we lose export industries" as the krone strengthens, making Norway's goods costlier. His group says the private sector eliminated 34,000 jobs last year even as government bodies added 24,000. With labor costs 58percent higher than in its trading partners, Norway could see its jobless rate rise to 4percent next year, the group says.

Norwegians, used to being protected from the economic ills that afflict the rest of Europe, may reject anything that smacks of austerity—and might lower job security. "I don't think they are spending too much money," says Elin Demiraslan, an accountant taking a cigarette break outside her office in central Oslo. "They should spend more on roads, railways, schools, and health care."

The bottom line: Norway's oil wealth meant the government could protect jobs with a lavish stimulus program. Some economists now fear overheating.

Kremer is a reporter for Bloomberg News. With Jonas Bergman in Oslo.

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