Is Norway the Safe Haven in Euro Zone?

By Roberto De Primis

When the Eurozone is striving to find a pragmatic plan to recover, Norway, on its own pursue its lonely prosperous path.

Even if Norway is one of the few Western European countries not to be a European member, they contributed to safeguarding the European economy. At the end of December 2011, Norway decided to offer roughly 7 Bn EUR to the International Monetary Fund as a bilateral loan to stabilise the European economy. For some, it can be considered as selfish because Norwegian are just trying to safeguard their own economy and jobs. 

After the last European Council meeting on December 9th 2011, EU leaders decided to freeze a provision of 200 Bn EUR at the IMF in a way to reassure the markets that money invested in the Eurozone is safe.

Recently, confirming their healthy economy, Norwegian 10-year bonds have reached their lowest level ever seen. On Friday December the 13th, the 10-Y bond interest rate was at 1.83%. The Norwegian debt is actually rated AAA with a stable outlook. From 1992 until 2012, Norway's Government Bond Yield for 10 Year notes average was at 5.42 % reaching an historical 9.63% in November of 1992 (On Nov. 19 1992, the government approved an application for EU membership) and a record low of 2.09 % in early January 2012 (source: www.tradingeconomics.com). 

10Y Norwegian Bond: 1992-2012 trend

Additionaly, the Central Bank in Oslo cut its key interest rate for the first time in more than 2 years last December the 14th 2011. Inflation level stays low in the country but in an attempt to prevent it to sink lower, the interest rate was cut said the Deputy Governor of the Bank in Oslo, Jan Qvigstad. This move can also be interpreted as a fight against an overevaluation of the Norwegian Krone (NOK).

Strenghts :

1. low unemployement rate (3.2%). 
2. moderate GDP growth (2.6% in 2011, 2.7% in 2012 and 3.6% in 2013 according to the OECD forecast)
3. Government debt to GDP: 43.40 % (source: Die Welt)
4. Budget surplus: 9.87% (source: Bloomberg)
5. As an Oil country, Norway's half of exports comes from the petroleum sector (including Gas and Oil). 
6. Norway is the world’s second-largest Gas exporter and the seventh-biggest Oil exporter (source : Bloomberg)
7. Country's natural resources: hydropower, forests, fish and minerals
8. Norway has a 570 Bn USD Sovereign wealth fund. This healthy fund sees its revenues coming from petroleum taxes, ownership of petroleum fields and dividends from its 67 percent stake in Statoil. The fund invests outside Norway to avoid stoking domestic inflation.  

 Weaknesses :  

1. vulnerability to low export trend
2. vulnerability to a low trend in oil price
3. vulnerability from high household debt and elevated house prices
4. vulnerability in oil exports because production has started to decline recently in Norway. Marketresearch.com stated that between 2011 and 2020, norwegian Oil production will decline by 25% (source: www.marketresearch.com)

About The Author - Roberto De Primis is a business intelligence analyst with an M.A. in Political Science. from E.M. Solvay Business School. Writing from Brussels, he is the founder of Eurintelligence, linking economics, and finance with politics.  (EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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