The Norway Report

The next time you meet a Norwegian in a pub, ask him to pay for the beer. He should be able to afford it:

The Norwegian Government Pension Fund Global, also known as the National Oil Fund has now reached the value of NOK 5000 billion, or USD 818 billion. This was announced Monday, 17 years after the Finance Department deposited the first NOK two billion in the Fund in 1996.

But don't wait for too long - even the owners of  the world’s largest sovereign wealth fund have their problems:

In only 12 years, the oil production in Norway will slow down, and so will the growth of the oil fund. Today's youth will have to pick up the bill.

"When the oil age is over we may have to cut down on our benefits. That could be painful, but it will most likely have to be done sooner or later. The rest of Europe, including our neighboring countries, are already cutting their spending, whereas we simply continue to expand systems that are not sustainable in the long run," says Chief Economist in Handelsbanken Knut Anton Mork.

The Economist has more on why wealth has its problems also in the land of the Arctic Arabs:

The oil boom led to a boom in public spending: since the 1970s the number of people employed in education has doubled and that in health and social services has quadrupled. The public sector continues to account for 52% of Norway’s GDP.
Oil wealth is bringing its own problems. The oil sector is monopolising the nation’s technical talent, with more than 50,000 engineers currently being employed offshore. Property prices are rising by nearly 7% a year. McDonalds charges $7.69 for a Big Mac, against $4.37 in America.

The fund is not without its problems, such as its size (it now accounts for 1% of all the world’s stocks), its leisurely approach (it was slow to exploit the opportunities offered by the 2007-08 financial crisis) and its penchant for blacklisting offending companies. But it is nevertheless one of the best-run in the world. The Norwegians have established a clear division between the finance ministry as owner and the central bank as manager. They are now trying to improve returns and diversify risks.

Norway's new conservative PM Erna Solberg is trying to manage the riches, but it's not easy:

ERNA SOLBERG, Norway’s conservative prime minister, is nothing if not ambitious. After defeating her popular Social Democratic rival, Jens Stoltenberg, in a general election in September, she beat the odds to cobble together a minority coalition at the end of that month. On November 15th she successfully negotiated an agreement on the budget for 2014.
Now she says she wants to wean Norway off its dependence on oil revenue and ease it towards a more balanced economy in which budget shortfalls are not plugged by the wealth flowing from the North Sea. It will be no easy task. The gap between Ms Solberg’s ambitions and actions was highlighted in the budget deal, which saw her depend a bit more on the country’s oil coffers than originally proposed—an extra 3.9 billion kroner ($640m). --

 It got a temporary fillip this week when new data showed the economy had grown by 0.5% in the third quarter instead of an expected 0.4%, but the currency has still dropped by about 10% against the dollar this year. Long gone seem the days during the financial crisis when the krone was regarded as a safe-haven currency.

The country’s weak economic fundamentals are the main reason for the krone’s fall, but there is growing concern that Norway could soon experience a big property crash. Property prices, particularly in Oslo and chichi ski resorts such as Hemsedal, have risen rapidly in the last decade. Peter Hermanrud, chief strategist at Swedbank First Securities, told a conference in Oslo recently that the property bubble could soon burst and that the government’s most likely response would be to cut interest rates and increase its spending from the oil fund—exactly the opposite of Ms Solberg’s stated ambition.

The dark clouds on the horizon do not seem to worry the locals too much, at least not this time of the year:

For the first time since the 1980s, the Norwegian Christmas shopping declined last year. This year, the trend has turned. Talking to TV2, trade organization Virke’s CEO Vibeke Hammer Madsen said that their forecasts for this year indicate an increase of 2.5% to 50.5 billion.
Virke also mapped the areas where most money is spent on holiday shopping. The shops in the Oslo area will sell for 10.900 NOK per capita, providing the highest average in the country. On the other end of the scale, one person in Østfold will spend 8350 NOK on average.

Merry Christmas (shopping) to you all up there in Norway! Enjoy your wealth as long as it lasts, but prepare for a time when you are not able to afford a Swedish butler anymore!