Norway central bank chief optimistic on growth, warns on oil fund returns

Norway's economy is set to recover from the COVID-19 pandemic but faces the risks of higher unemployment and lower returns on its massive sovereign wealth fund in the wake of the health crisis, the country's central bank governor said on Thursday. "While uncertainty remains, we're seeing clear signs of light emerging at the end of the tunnel and that the pandemic will end," Oeystein Olsen said in an interview ahead of his annual policy address.

Reuters | Updated: 18-02-2021 22:31 IST | Created: 18-02-2021 22:31 IST
Norway central bank chief optimistic on growth, warns on oil fund returns

Norway's economy is set to recover from the COVID-19 pandemic but faces the risks of higher unemployment and lower returns on its massive sovereign wealth fund in the wake of the health crisis, the country's central bank governor said on Thursday.

"While uncertainty remains, we're seeing clear signs of light emerging at the end of the tunnel and that the pandemic will end," Oeystein Olsen said in an interview ahead of his annual policy address. "So there is reason to be optimistic for the time ahead, and also for the near-term economic outlook," he said.

When Norway shut schools and businesses last March, Olsen's policy committee flexed its muscles to back the economy, cutting rates to a record low 0% and intervening in currency markets for the first time since 1999. As vaccinations are now well underway and growth has resumed, Olsen in prepared remarks reiterated his position that Norway should avoid setting negative rates, but that some level of monetary stimulus is still needed.

"I'm not saying that the interest rate will be at zero all the way, but I'm highlighting the need for an expansive monetary policy for as long as the pandemic lasts," Olsen said. "There is a danger that unemployment will be stuck at a higher level than at the start of the crisis," he said.

Norway's parliament last year boosted spending from the country's $1.3 trillion sovereign wealth fund, the world's largest, a trend that must be reversed if the fund is to remain a vehicle for sharing wealth between generations, Olsen said. Built by investing income from the oil and gas industry in foreign stocks, bonds and real estate since 1996, the fund is now worth more than three times the country's annual gross domestic product.

With global interest rates at ultra-low levels, the expected real return of the fund is now probably no more than 2% per year in inflation-adjusted terms, below a previous assumption of 3% expected return over time, Olsen said. "The extraordinary spending, which was necessary in 2020, should be reversed, both for the sake of stability in the short and medium term but also in relation to future generation and of maintaining the fund's value over time in real terms," he said.

Normally held before a crowd of government and business leaders and followed by a banquet dinner, Thursday's annual address was reduced to an online streaming event. (Editing by Gwladys Fouche and Bernadette Baum)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)


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