The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge. As Bloomberg reports, Oeystein Olsen said today in an interview after a press conference in Oslo, “our job now is that we need to prevent a severe downturn in the economy… that is presently the major concern of the board.”
Olsen cut Norway’s main interest rate today by 0.25 percentage point to 1.25 percent, a move that shocked markets and sent the krone down almost 2 percent against the euro (weakest since July 2009). The decision came after almost three years of unchanged rates and marked a shift away from a policy that had sought to prevent excessive monetary easing from fueling house price growth.
Even after today’s cut, the bank sees a “50-50 chance” for another rate reduction next year, Olsen said.
Oil prices have plunged 44 percent from a June high, the worst decline since the financial crisis erupted in 2008. Norges Bank estimates oil investments will decline by 15 percent next year, with the risk of “spillover” effects on the rest of the economy and rising unemployment.
And as Nick Cunningham via OilPrice.com, this is why… since Norway depends on the oil industry for almost a quarter of its economic output and has built an $860 billion wealth fund from its offshore revenue.
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