Norwegian unemployment jumped to a 10-year high in July, while the prime minister acknowledged that the Nordic oil producer faced mounting problems caused by low crude prices and growing global economic uncertainty.
The May to July three-month jobless rate hit 4.5%, up from 4.3% in the period from April to June, Statistics Norway said on Wednesday. The figure was above all forecasts in a Reuters poll of seven economists, who on average had predicted that unemployment would stay unchanged.
“The Norwegian economy is not in a crisis, but we have challenges and they are larger than we’ve seen until recently,” Prime Minister Erna Solberg told a news conference at the start of a two-day meeting with her cabinet ministers to plan the fiscal budget for 2016.
“These are turbulent times with global economic uncertainty and the Norwegian economy is impacted by that and by the drop in oil prices,” she added.
The country’s crown currency weakened following Solberg’s comments and the unemployment data, trading at around 9.50 to the euro against 9.46 earlier.
The Norwegian central bank has cut rates twice in the last nine months and has said there is a 60-70% chance of another cut in September.
“Unemployment is rising more quickly than Norges Bank had anticipated and this definitely reinforces expectations of a September cut,” Handelsbanken economist Knut Anton Mork said.
North Sea oil prices have dropped from more than $100 per barrel in mid-2014 to just $43 on Wednesday, hitting investments on Norway’s continental shelf and pushing unemployment up by more than a third in the same period.
On a trade weighted basis the crown has dropped by 18% in the same period, helping traditional non-oil industries, the prime minister said.
“We must make sure not to lose the positive buffers, among them the fact that the crown currency has weakened considerably, which has given a boost to tourism and to other (non-oil) export industries,” Solberg added.
A key factor that could make the central bank hesitate on rates is the currency, which is now weaker than it had expected.
“It is significantly weaker than Norges Bank’s forecast, which could point in the direction of unchanged rates ... but we still believe in a cut in September,” Nordea Markets economist Joachim Bernhardsen said.
