This is my first blog. Ever. I'll try and update the blog as often as possible hopefully once every week. But I'm not making a promise. Anyways, I'll start my blogging career with this update on how the Norwegian economy will prevail (or not) from the current crisis.Norway has roughly the same number of inhabitants as the Caribbean island of Puerto Rico. Still Norway is an important piece of the puzzle that makes up the world. However, the picture is about to fade. Although Norway contributes in large parts to peace processes, philanthropy and a stable energy inflow to many countries world wide, without any action, our position at the top won't last for long.
The stock market crash in 1929 in the US lead to a depression, which lasted for about a decade. Whether Norway will face the same dismal era in the forthcoming years depends on completely different profiles than the Minister of Finance, Kristin Halvorsen, and the Head of the Norwegian Central Bank, Svein Gjedrem. When push comes to shove, they will be looking for the consumers. That includes yourself and the author.
Japan is there. The interest rate has not budged much from its level at 0.5% in the past, few years (providing incentives for the carry traders). The problem with the Japanese economy is that the consumers are too smart to be lured into consumption. If the interest rates are decreased (to 0% which was the case a couple of years back and is definately a scenario that the Japanese Central Bank will be discussing at the moment) then this should stimulate spending. After all, about 55% of the total consumption in Japan comes from households. However, the Japanese realize that if they then increase consumption and borrow more, they will find themselves worse off later on when interest rates increase again. Instead, they save more in order to prepare for such an outcome and retirement (John Mauldin explains the Paradox of Thrift: what is good for the individual is hard on the economy, as by definition increased savings reduces consumer spending).
USA were there. Although the FED chose not to intervene in 1929, which is in stark contrast to the current crisis, the current financial packages are only aimed to aid liquidity, not to stimulate growth.
I am not saying that Norway will find itself in a deep recession with zero interest rates and zero growth. In fact, the world's leaders have coughed up packages estimated to be worth over $3000 bn. But, there shouldn't be any doubt that the crisis is in any way over. The initial credit crunch as a result of the US sub-prime market lead to the more recent banking crisis. Obviously, banks, financial institutions and stock markets around the world will be the first to get hit by the problems. This has yet to culminate into an economic crisis.
A crisis where the unemployment rates will rise, real estate values will drop, interest rates will fall and where the fall in demand from oil from the large, industrialized countries will far outweight the rise from countries such as China. We have started to see signs of the economic crisis surfacing. GM is finding itself in a slump after having gone through the second worst quarter of sales, post-war adjusted for population increases. The same tendency will be seen in Norway. The only light at the end of the tunnel is that the supposed fear for hyper-inflation has been called off.
Tourists will stop coming to Norway (at least a lot fewer than in previous years). Restaurants, travel agencies, hotels and manufacturing companies, existing purely on the mercy of government subsidies for cheap power, will go bust. Maybe a weakening krone may be able to save them. I think not. The only companies/sectors that will survive are those that are competitive and have an international, competitive edge. Those are few and far between, but some IT companies and the salmon-exporters should do fine. Despite how bad the state of the economy in the world, people will still enjoy their plate of fresh, Norwegian salmon (or Japanese sushi). Tobacco companies and alcohol companies will make record profits this quarter. Hurtigruten will go belly-up during 2009 unless the government throws it a lifeline again. So will Color Line with its introduction of the Color Fantasy (talk about bad timing).
It's difficult to discuss the future of the Norwegian economy, without mentioning the shipping industry. Shipping companies will struggle the next few years. The fleet is about to double as we head into 2009/2010 (number of new vessels entering the market should worry most investors). In addition, the increase in demand for exports around the globe will fall. Said plainly, there are no positive catalysts for the shipping industry. Only those with an international, competitive advantage will prevail (I am not mentioning company names, but stock picking will be more important than ever in the shipping industry)
So, after presenting this gloomy outlook for Norway's economy (for those that are wondering if we are in a secular bear market...I am guessing that's the BIG question everyone's asking), what does Norway need to do to avoid the worst case scenario? Norway's GDP per capita growth since the the oil-age of the 1960's has been unparalled (contrary to what most Norwegians believe - we were far from being the poorest country in Europe in the 50's). This is obviously due to the welcoming tax-income from oil operations, which has yielded one of the largest state-owned fund's in the world - The Norwegian Pension Fund.
Unfortunately, although the comfort of the fund has been warmly welcomed as a saftey net, it has had a devastating effect on our appetite for perfection. We now find ourselves in a state of apathy towards most issues relating to growth and prosperity. Norwegians take the great welfare of this country for granted. What are we going to occupy ourselves in 30-50 years time? Our competencies are concentrated around oil and the offshore business, which will have lost its position as the most important source of energy within the next 50 years.
Mark Nucera ("The Bergen Brief"), a former hedge fund manager in the US, now situated in Bergen, Norway, makes quite a few valid points in his letter posted on Developing Trader (http://developingtrader.com/071107.php). The growth in Norway (and the world) will be marginal, at best, in the next few years. Why not use such a slump in the economy to boost the infrastructure? Research and development? Education? This will stimulate growth and counteract the downward-facing trend we find ourselves in. Also, it will create jobs for the entrepreneurs who are facing a tough year ahead.
In order to fully grasp the extent of the Norwegian apathy, let's make a comparison (most Norwegians hate being compared to the Swedes - and vice-versa). But for the sake of the comparison, let's look at how Sweden is doing (similar size, strength of work-force, neighboring country. The only difference really is that Norway is blessed [cursed] with a lot of oil). Sweden, without any income from oil activities, has had an impressive growth since the WWII. Although, neither Ericsson, Volvo nor SAS are on Swedish hands anymore, most people would deem these companies successful. In addition, there is AstraZeneca, IKEA, Skype and TetraPak. All companies started by Swedes. The common denominator being innovation, technology and research. They are fantastic at doing one thing, really well. Even Warren Buffet would have turned down an offer from Ingvar Kamprad (IKEA founder and still acting CEO) to take IKEA public when it was still fairly unknown. "Sell furniture? Cheap? I don't think so."
Having said that, Sweden are facing serious challenges of their own. Their banks have spearheaded the growth in the Baltic states (Nordea, Handelsbanken, Swedbank, etc). The real estate market in Sweden is on the brink of a collapse. Still, Sweden is more prepared for an economic slump. Why?
It's about time I conclude and come full circle. Our government is only reacting, instead of being proactive. The manufacturing industry has historically been important for Norway (like the car manufacturing industry has for Detroit). The manufacturing will never reach its peak again, unless one of the factors of production becomes a lot more competitive (for instance, a fall of 50% in the wages for workers would be thought of as such an improvement in one of the factors of production). Still we are subsidizing manufacturers, educating steel workers and giving state contracts to uncompetitive, Norwegian businesses. A solution would be to hire steel workers from less developed countries and let our education system produce more engineers (which are in high demand in Norway). It's a win-win situation.
Let me me finish up with one final example. Norway has the third, largest reserves of Thorium (may be used instead of Uranium in nuclear reactors), after the US and Australia. In other words, two of the largest countries in the world (both are net-importers of energy today) have an incentive to research on how to utilize their Thorium reserves in nuclear reactors. Why shouldn't this be a focus area for Norway? Specialists (the author attended a Thorium conference in September 2008) say that Thorium can be used in special reactors without the possibility of a meltdown (one of the two major advantages of Thorium against Uranium. The other being that it has a signficiantly lower half-life). However, the government has put a lid on the project. 2000 kg of oil produces the same energy as 0.7 kg of Thorium. Wouldn't this be a nice solution to end both Global Warming and a possible, dire economic slump in Norway?
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This blog is intended for the interest of the readers only and the blogger bears no liability as a result of investments undertaken from advice given in this blog. I have used citations that are accurate to the best of my knowledge, information that is correct and I apologize in advance for any spelling errors.
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