Norway: June 2016
The uncertainty in the world has created a very volatile market. One country which has been impacted by this volatility is Norway.
Norway is home to the world’s largest wealth fund which amounts to around $860 billion invested in various assets across the globe. The wealth fund’s investment strategy is comprised of 3 asset classes:
1. Real Estate, 5%.
2. Fixed Income (Bonds Market), 35%
3. Equities (Stocks), 65%
Recently the Norwegian krone has suffered losses since 2014 due to the decline in oil prices and interest rates. Since Norway has a relatively small population of around 5 million and almost a third of its revenue originates from oil production, the size of the impact on the economy was quite severe as many individuals working on oil refineries were made redundant and had to move into other departments and jobs. Some remain unemployed while seeking employment which is why the MoM (month on month) unemployment rate has risen.
From 2013 to 2015; GDP has risen from $509 billion to $524 billion, the inflation rate has grown from 2.1% to 2.2% with a 2016 projection at 3.4% while interest rates were reduced from 1.5% to an all-time low of 0.75%. The reduction in the interest rates was implemented to dually stimulate growth and weaken the krone. The effect of which can be seen on GDP and most Norwegian krone pairs. Norway have also warned that interest rates could head towards negative territory in an effort to revive the economy after the oil price crash, however this could have serious repercussions to Norway’s financial systems, in particular raising uncertainty in the profitability of commercial banks as consumers and businesses will find it beneficial to invest their money elsewhere rather than saving it in banks who would seek to charge them for holding their money.
The rising fears of a Brexit also play a vital role to Norway’s economy. Although Norway have announced that investment in the United Kingdom will continue even if there was a Brexit, this still poses a financial risk to Norway as studies suggest that the UK could be worse off and eventually lead to a recession. This can affect Norway by producing negative returns on assets invested in the UK. The coming months will tell how Norway can battle this new macroeconomic issue.