If only the EU were more like Norway
When European Union finance ministers met earlier this week in Luxembourg to ponder the slowing eurozone economy and the record red ink debilitating many member countries, they perhaps should have scheduled a side trip to Norway to find out what their Scandinavian neighbor is doing right. Unlike so much of the eurozone where April’s dismal growth projections were slashed further in October by the International Monetary Fund, the forecasts for Norway were upgraded across the board, with the IMF projecting even lower unemployment (currently around 3.3%), faster growth and fatter current account balances this year and next.
It helps, of course, that Norway is a resource-rich country that exports a lot of petroleum, whose price has remained at relatively high levels despite concerns about a slowing global economy cutting into growth. Those concerns about a slowdown’s impact on oil are reflected in the new IMF projections, which see real GDP expanding 3.1% in Norway this year before tailing off to 2.3% in 2013. Such growth, nonetheless, is above April’s estimates and would be welcomed in the rest of the eurozone, where the IMF is forecasting a 0.4% contraction this year under the weight of a seemingly never-ending financial crisis that is undermining liquidity in and forcing austerity on the monetary union’s southern tier.
In some ways, Norway is the beneficiary of luck due to its extensive natural reserves such as petroleum, natural gas, fresh water, etc. Meanwhile, it also has made sound financial decisions. It twice voted to stay out the EU, and thus has avoided much of the murk and the mire as EU leaders struggle to keep the euro intact. Moreover, because it went through its big banking crisis in the early 1990s—the result of late ’80s’ financial liberalization policies that fueled a boom that went bust and led to a government takeover of banks—Norway essentially avoided the global financial crisis that crippled so much of the world in 2007-08.
Because its economy continued to grow while much of the world was mired in recession, Norway also never resorted to the sort of stimulative spending policies that have left much of the developed world with a big debt hangover. Indeed, Norway ran surpluses during the crisis and its fiscal condition continues to improve. It also has continued to diversify its export markets beyond the continent, to Asia, Latin America and other countries where growth has been and is projected to continue to be stronger.
So as you can see, there are many reasons to like Norway—we’ve been overweight there essentially forever. We estimate corporate earnings growth will exceed 25% in 2013, making Norwegian shares very attractive compared to the rest of the world’s economies. And while its government-heavy economy may make some cringe (it has a huge welfare state and a tight hand on the petroleum industry and the private sector overall), it’s hard to argue with the results.
At the least, there may be lessons from which bickering eurozone finance ministers may draw.