“The strongest man is he who stands alone in the world,” Henrik Ibsen
When capitalism seemed on the verge of collapse last fall, Kristin Halvorsen, Norway’s finance minister and a longtime free market skeptic, did more than crow.
As investors the world over sold in a panic, she bucked the tide, authorizing Norway’s $300 billion sovereign wealth fund to ramp up its stock buying program by $60 billion — or about 23 percent of Norway ’s economic output.
“The timing was not that bad,” Ms. Halvorsen said, smiling with satisfaction over the broad worldwide market rally that began in early March.
The global financial crisis has brought low the economies of just about every country on earth. But not Norway.
Norway has thrived by going its own way. When others splurged, it saved. When others sought to limit the role of government, Norway strengthened its cradle-to-grave welfare state.
And in the midst of the worst global downturn since the Depression, Norway’s economy grew last year by just under 3 percent. The government enjoys a budget surplus of 11 percent.
By comparison, the United States is expected to chalk up a fiscal deficit this year equal to 12.9 percent of its gross domestic product and push its total debt to $11 trillion, or 65 percent of the size of its economy.
Norway is a relatively small country with a largely homogeneous population of 4.6 million and the advantages of being a major oil exporter. It counted $68 billion in oil revenue last year as prices soared to record levels. Even though prices have sharply declined, the government is not particularly worried. That is because Norway avoided the usual trap that plagues many energy-rich countries.
Instead of spending its riches lavishly, it passed legislation ensuring that oil revenue went straight into its sovereign wealth fund, state money that is used to make investments around the world. Now its sovereign wealth fund is close to being the largest in the world, despite losing 23 percent last year because of investments that declined.
Norway’s relative frugality stands in stark contrast to Britain, which spent most of its North Sea oil revenue — and more — during the boom years. Government spending rose to 47 percent of G.D.P., from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of G.D.P.
Eirik Wekre, an economist who writes thrillers in his spare time, describes Norwegians’ feelings about debt this way: “We cannot spend this money now; it would be stealing from future generations.”
The country’s G.D.P. per person is $52,000, behind only Luxembourg among industrial democracies.
Norwegian banks, said Arne J. Isachsen, an economist at the Norwegian School of Management, remain largely healthy and prudent in their lending. Banks represent just 2 percent of the economy and tight public oversight over their lending practices have kept Norwegian banks from taking on the risk that brought down their Icelandic counterparts.
The Norwegian krone, the third-worst performer against the euro since mid-2008, has become currency strategists’ favorite bet.
Buying kroner versus euros will return more in the next year than all 48 other foreign-exchange trades tracked by global investment banks, according to median predictions in Bloomberg analyst surveys. Norway’s currency will rise 9 percent by June to 8.2 per euro, from 8.8680 on July 24, the median of 19 forecasts shows. The krone is “hugely undervalued” after falling 11 percent since June 30, 2008, Citigroup Inc. said.
Higher interest rates may make the krone more attractive than currencies of countries with lower borrowing costs, including the U.S., Canada, the euro zone, Sweden and the U.K., all now at 1 percent or less. Royal Bank of Scotland Group Plc advised buying krone against Britain’s currency on July 14, predicting a gain of as much as 5.6 percent to 9.7699 per pound as Norway’s economy rebounds and the U.K.’s downturn continues.
Bank of America Merrill Lynch figures the krone is 29 percent undervalued versus the U.S. dollar and 35 percent against the euro, citing differences in prices and growth rates in the three economies. Only the ruble was cheaper among the 30 currencies it tracked, the bank said in a July 13 note.
Norway is the world’s fifth-biggest oil exporter and second-largest natural gas shipper and has a growing trade surplus, helping the krone by reducing the country’s dependence on foreign investment.
The current-account surplus will increase to 20.6 percent of the economy next year from 18.2 percent, already the developed world’s biggest relative to GDP, the Paris-based OECD says. The U.S. and the euro region have account deficits of 2.3 percent and 1.1 percent of GDP, the OECD says.
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