Norway’s sovereign wealth fund, the biggest on earth, is expected to see net outflows for the first time since before the turn of millennium as the country’s oil reliant economy starts to feel the impact of the crash in the price of the world’s most important commodity.
Bloomberg reports that the Norwegian government is expecting to withdraw as much as 80 billion kroner (£6.5 billion; $10 billion) from the country’s wealth fund over the course of 2016.
On Thursday, Oeystein Olsen, the governor of Norges Bank, gave his annual speech on the state of the Norwegian economy, and warned that a period of more than 15 years of putting money into Norway’s coffers would come to an end in 2016. “The fall in oil prices will reduce Norway’s national wealth,” Oeystein said, adding that “increased spending is not a viable path to follow.”
In an interview after his speech, Bloomberg reports that Oeystein said: “The Norwegian economy has enjoyed an exceptionally long summer. Winter is coming.” Oeystein’s comments came just two days after the country reported that its economy shrank 1.2% in the last quarter of 2015, thanks once again to the oil slump.”
In a sign of how much the oil price has affected Norway, Oeystein’s announcement marks a huge increase from previous plans for withdrawals that had been confirmed in 2015. In October, the Norwegian government announced that it planned to use around 4.9 billion kroner (£398 million; $570) from the fund to help support growth in the country, but Thursday’s announcement increases that amount 16-fold, illustrating just how badly things have started to bite.
Oil has crashed from more than $100 per barrel in mid-2014 to around $32 per barrel now, with prices falling as low as $27 during January. Norway is the biggest oil producer in western Europe, and the oil sector is by far the biggest single contributor to its GDP. Therefore, when oil struggles, so does Norway.
Norway’s wealth fund is worth around £565 billion ($810 billion), more than £200 billion more than the country’s total GDP, and is largely used to invest in infrastructure projects in the country, as well as funding pensions and social security measures.