The Impact of Sharp Decrease in Commodity Prices in Norway

The International community understands the challenges and the financial consequences of the sharp decline in commodity prices and knows that commodity prices play an important role in enhancing economic development in most of the developing countries. Examining and analyzing the interactions between commodity prices and the business cycle of commodity exporters is important for all countries who are part of the or have stakes in the international trade. This is because it will prompt questions such as: What drives the business cycle in commodity economies and how should policymakers respond to the crises of commodity prices declination? Due to the recent volatility in commodity prices, the dramatic fall in oil prices, this has sparked a lot of concerns in the international community. According to (IMF,2015 A Fiscal Framework for Uncertain Times), 17% of the world GDP stems from countries with more than 20% of exports from non-renewable commodities.

The government of Norway knows and understands the significance of the business cycle and commodity prices. We took the burden of enhancing, controlling and well- managing the economy of the Norwegian people, where indication in both material and non-material welfare is at high degrees. The intelligent way of utilizing wealth from all resources like petroleum resources and the effective use of monetary policy within the flexible inflation has protected the Norwegian economy and supported its recovery.

Norway’s economy has maintained its commodity prices due to its commitment to implement growth-enhancing policies, such as developing a highly dependent system on trade in commodities, with petroleum accounting for 20-25% of GDP and about 50% of total exports, ensuring price and financial stability. We also avoid pro-cyclicality in fiscal policy, ensuring efficient tax and public spending. Again, Norway have been successful in its economic stabilization policy and because of this, it has gained significant international interest. This is in particular with the management and spending of petroleum revenues.

Furthermore, the Norwegian salmon farming industry has seen a regular boom both in productivity and value since its beginnings in the 1970’s. The increase in productivity has made possible the price of salmon to follow a long run declining trend. Regardless of a regular increase within the control of production output, industry profits are still sensitive to shocks to stocks through disease, escape of fish, algae influx or temperature changes.

The Norwegian government developed policies such as fiscal policy and the government pension fund for mitigating the effects of business cycles and commodity downturn might have on an economy’s systems and stipulating the Norwegian economy both in the short and long run.