Strong public sector helps Norway avoid worst of economic turmoil

OSLO - In the midst of the worst global economic crisis since the Great Depression, estate agent Helge Landro is doing surprisingly well.

"I don't feel like there is an economic crisis going on at the moment," he says. "We're very busy, viewings are packed with people, and when customers see a property they like, they make an offer straight away. The next few months look pretty good, too."

Landro works in Norway, a country that has avoided the worst of the economic crisis engulfing the rest of the world. The unemployment rate is 3.1 per cent, house prices rose for the third consecutive month in June, and consumer spending is buoyant - one sports and leisure retailer reported a 70 per cent year-on-year sales increase in June as Norwegians prepared for their summer holidays.

Norway is faring better than most in the global recession.

"A large public sector is a buffer against the turmoil of the markets," says Kristin Halvorsen, the country's finance minister, referring to the fact that one in three Norwegians works in the public sector, compared with one in five in Britain.

It is though in recession, with GDP dropping by 1 per cent in the first quarter of 2009 and by 0.8 per cent in the second quarter. The central bank has had to slash its key interest rate by 4.5 points since October to a record-low 1.25 per cent, which has helped put more money in consumers' pockets.

In February, the government put together a NOK20 billion ($4.8 billion) stimulus package to boost its economy, after a NOK350 billion emergency plan for the country's banks.

However, the economic picture in the 4.8 million-strong nation is rosier than it is in countries such as Britain, which has suffered five quarters of contraction.

Last week, Germany and France had emerged from recession in the second quarter, confounding expectations that they would be slower to resume growth than Britain. In Norway too, growth is expected to return soon and Norwegian companies' confidence is high.

One in five employers is planning to hire in the coming months, with only 5 per cent saying they will cut jobs, Manpower's 2009 employment outlook survey shows.

Norway's were the most positive results of all 34 countries surveyed.

Norway has a strong budget balance thanks to its revenues from oil and gas. It also has a huge sovereign wealth fund in which some of the receipts from the country's fossil-fuel exports are kept for the benefit of future generations.

So when the Government needed to boost the economy this year, it had the means to do so without having to cut public budgets or increase taxes.

"The fund has allowed Norway to have an expansionary fiscal policy," says Espen Moen, economics professor at the Norwegian School of Management. "It can stimulate demand by spending, without fear of higher taxes, because it is so big."

Moen also points out that Norway is not as dependent on exporting industries: "We export oil and gas, but even though oil prices have fallen since last summer, production is at full capacity."

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