Tuesday, September 16, 2008

Wall Street Crisis –

How it affects the

Norwegian Economy



CNN Money.com states that Monday was Wall Street’s worst day in 7 years, and experts compare the magnitude of the market fallout to The Great Depression. Nordea’s head economist Erik Bruce, however, is optimistic about the effects on the Norwegian economy.

At the Norwegian Stock Exchange, Oslo Børs, stocks plummeted by 4,5%, to 354 points. That’s a 32% fall from 523 points, reported earlier this year. Many people are now asking themselves if this is just the beginning, or if Norway has already seen the worst part of the financial crisis.

The answer to Norway’s financial health is in the oil prices. Although the values in the financial markets are decreasing, the activity in the oil market is still high, and returns from the Norwegian oil fund may be able to make up for the economic recession.

On the downside, the demand for oil is decreasing. According to Bruce, the biggest fear is if OPEC fails to cut production and stop the fall in prices. “That’s a development we can’t rule out, and that’s what it would take for us to get seriously affected by what’s happening right now,” he says.

However, Nordea doesn’t think oil prices will fall below $90, unless maybe for short periods of time, and that we wouldn’t see a crisis in Norway before it hits $70 or $50. But if it does, Bruce says, offshore investments would decrease, which would significantly harm the norwegian oil industry, at the same time as the oil fund would suffer and lose money due to the lost returns from oil companies.

Future oil prices depend heavily on the development in Asia, and if they’ll manage to maintain financial growth and demand for oil, Bruce concludes. If the financial tendencies and trends in the U.S spread to Asia, the oil prices might fall drastically.

Source: CNNMoney.com/NRK News & Julie Ryland


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