The Governor said the theme of his speech would be how to enhance the resilience of the Norwegian economy.
Olsen said that five years after the financial crisis started in earnest, growth is weak and unemployment high in many countries. The economic situation in Norway stands in stark contrast to developments abroad. Norway's economy is still growing and unemployment remains low. There is a tendency to see ourselves as a country apart.
Norway's oil and gas resources provide an economic base that few other countries enjoy. Income levels are among the highest in the world and the people of Norway are generally highly educated. Our access to natural resources makes a significant contribution to our prosperity. At the same time, our increasing dependence on oil and gas increases the vulnerability of the Norwegian economy. We know that neither of these sources will spring eternal.
Olsen said the financial crisis provided us with some important insights. First, the crisis illustrated that low and stable inflation is not sufficient to secure financial stability. Second, the crisis revealed severe shortcomings in banking regulation. Banking and financial sector regulation is now being reformed in many countries. New liquidity buffer and capital adequacy requirements are due for implementation in line with the changes to the EEA rules. The regulatory reform will make the banking industry more resilient to periods of rising losses and financial market turbulence.
Norwegian banks have become more solid in recent years, which is a positive development. Banks' capital, in particular that of the largest banks, should be increased further in order to satisfy the new requirements due for implementation, the Governor said.
He said the Norwegian economy is also vulnerable:
Structural adjustments in the business sector are the key to economic progress. Over the past 40 years, the oil and gas industry has been an engine of innovation and growth in Norway. In the beginning phases of the Norwegian oil age, the impulses to other economic sectors were modest. Over the years, we have developed an internationally competitive petroleum supply industry of considerable scope.
While the companies operating on the Norwegian continental shelf had to import virtually all their equipment in the 1970s, the import share has now dropped to just below 40 percent. The Norwegian engineering industry has flourished. The supply industry has become a major export industry. Almost two-thirds of total Norwegian exports are now linked to the petroleum industry.
Olsen also pointed out that while employment ratio is high in Norway, the hours worked are low.
Employment has increased rapidly since the mid-1990s. An expansionary monetary policy and additional government expenditure of oil money buoyed activity and employment through the financial crisis. Measured by hours worked, labour input has also risen, albeit not to the same extent. On average, the working day is shrinking.
The employment ratio adjusted for working hours provides an expression of average labour input per hour worked among the active population. In this chart, hourly labour input is measured in relation to usual hours of work per year of 1 750 hours. In 2011, the average number of hours worked in Norway came to about 60 percent of usual hours of work per year, Olsen said. By this measure, the employment ratio was higher in Greece than in Norway up to the time when Greece was fully hit by the crisis. Total labour input is considerably higher in Sweden, Finland and the US than in Norway. We work less than the OECD average.
When income growth is high, it is natural that some of the increased wealth will be reflected in a greater preference for leisure. It is nevertheless telling that the number of hours actually worked is considerably lower in Norway than among our main trading partners, despite very low unemployment in Norway.
Generous transfer schemes and other aspects of our welfare system induce many to exit the labour force – wholly or partially. In recent years, the high level of labour immigration has compensated for this. Nonetheless, this situation does not seem sustainable. Reforms that provide stronger work incentives are needed and should be implemented in anticipation of an ageing population. The pension reform was an important step in the right direction, the Central Bank Governor said.
From a global viewpoint, there is reason to believe that the worst of the crisis is over. The Norwegian economy is in a unique position. The wealth in our time is not a short-term asset. We are likely to benefit from revenues and positive impulses from oil activities for many decades ahead. But that source will not spring eternal. If we are to maintain our prosperity over time and reduce the vulnerability to a fall in petroleum revenues, we must generate a larger number of profitable investments in the mainland economy – both in the public and the private sector. We must also provide stronger incentives for participating in the labour market and generating value added.
Perhaps Norway is not so much an economy apart after all, Olsen said. There will be new times. Come what may.