* Number of unemployed at an 8-year high
* Bankruptcies rise rapidly
* Oil sector at risk from crude prices
* Growth rate still the envy of Europe
By Balazs Koranyi and Terje Solsvik
TOFTE, Norway, June 27 A boiler towers over a
fjord on Norway's south coast from a 116-year-old pulp mill, the
largest employer in the town of Tofte.
The 300 jobs may be gone by September, the deadline set by
the loss-making plant's Swedish owner to find a buyer or close,
victim of high wage costs, the strong Norwegian currency and the
debt crisis that has hurt its local European markets.
Norway, the world's seventh largest oil exporter, is the
envy of western Europe, beating everyone with 3.4 percent growth
last year and filling its coffers from oil while others were
pulled under by debt.
Healthy growth is expected to continue this year but the
troubles of the Tofte mill highlight some problems that have
emerged in the economy just as the campaign for the September
election, which has focussed on other issues, gets underway.
"The European crisis just seems to be never ending," said
Jostein Sjaavaag, a union representative who has worked at the
plant for 25 years.
"There is still a good market out there, but it's in Asia,
far away, with much higher shipping costs and cheaper buyers."
The plant is innovative and supplies an industry with
healthy 4-5 percent annual growth.
But the strong Norwegian crown has hurt its competitiveness,
its traditional European markets have imploded, and the oil
sector's boom is driving up wage costs.
If the Tofte workers lose their jobs, they will join the
growing ranks of Norway's unemployed. The number of jobless
risen to an eight-year high of nearly 100,000, although its 3.5
percent rate is much lower than Sweden's 8.2 percent.
Just a year ago the government was worried the unemployment
was too low, the housing market was overheating and it cut
spending to cool the economy down.
The central bank, which had been promising rate hikes to
cool the economy, last week delayed its first hike until the end
of next year and said there was now a 50 percent chance its next
move would be a cut.
The housing market has stagnated and bankruptcies rose by
31.9 percent in May from a year earlier. Mainland exports to
Europe are down 2 percent in the first five months and
manufacturing exports have fallen 13 percent.
Wage costs, up more than 60 percent since 2000, about six
times more than in Germany or Sweden are adding to the pain
while banking regulations, among the toughest on the continent,
are also holding back lending.
"We have a bankruptcy rate (in the retail sector) like we
have never seen before," said Vibeke Hammer Madsen, the head of
Norway's Retail Association, which represents 16,500 businesses.
OIL, CONSUMER RISK
The latest consumer confidence data showed that households
are still comfortable about their finances but they are starting
to worry about the outlook for the economy.
"When consumers' belief in the 'Norwegian exceptionalism' --
that Norway will be an eternal exception in the world -- ends or
gets doubted, it will turn the housing market around," Harald
Magnus Andreassen, a chief economist at Swedbank First
"I think there is a significant risk that housing prices
will fall the next 2-5 years."
Oil prices are also becoming a big risk as Norway's
vast petroleum sector, which accounts for almost a quarter of
the economy and half of exports.
Although oil investments are at a record high, oil prices
have fallen to $100 a barrel from last year's $112 average and a
sustained fall to around $80 levels seen as recently as 2010,
would jeopardize many projects, economists say.
Statoil has already delayed a $15.5 billion Arctic
investment because of costs and said it was reviewing several
The economy is still expected to grow a respectable 2.5
percent this year, rising to 2.75 percent in 2014, according to
the central bank. Governor Oeystein Olsen has been trying to
calm nerves, even as the bank chopped back forecasts.
"I wouldn't say people should be worried, I would say they
should just enjoy life," Olsen said.
Nevertheless, there have been calls from unions for the
government to start preparing for a more serious slowdown.
"We are not in crisis... we are not there yet but it is time
to start planning and getting ready," said Stein Reegaard, the
chief economist of LO, Norway's biggest trade union group. "From
3-4 percent growth we slowed to 2-3 percent. We'll be worried
when it goes below."
Labour Prime Minister Jens Stoltenberg, who is running for
reelection in September, has acknowledged that the economy is
showing "alarming" signs and that his government would be
prepared to act if necessary.
The government is not short of money and has plenty of room
to move. It runs a budget surplus worth 11 percent of GDP thanks
to the world's highest oil tax, and sits on a wealth fund worth
$720 billion, or about $144,000 per man, woman and child.
Polls show the opposition Conservatives with a big lead
over Stoltenberg but campaigning is only just getting underway.
So far the economy has not been a major election issue but
the concern about housing and the rise in unemployment could put
it on the agenda.
The Conservatives, led by Erna Solberg, promise to help the
economy by cutting taxes, reducing the size of government and
easing regulation but they are clearly not promising a spending
spree to boost growth.
Stoltenberg has suffered in the polls because critics say he
has neglected social issues such as health and social services
but he is respected on the economy so some commentators say he
could get a lift if the economy comes into focus.