Øystein Olsen: Economic perspectives Address by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), to foreign embassy representatives, Oslo, 8 April 2019. * * * Accompanying slides of the speech. Your excellencies, ladies and gentlemen. Firsts of all, I would like to thank you for taking the time to attend this event, which provides me with an opportunity to present Norges Bank’s view of the economic situation and some of the challenges ahead. International economic cooperation is creaking Throughout history, technological innovation and increased trade in goods and services have been important sources of growth and development. The two driving forces have functioned in tandem. Trade barriers have been reduced in recent decades. Faster transport and advanced communications systems have greatly facilitated access to broader markets. Global value chains have emerged, and service providers can be located far from customers. With freeflowing capital, we can invest globally. Chart: World trade has grown markedly Since the 1970s, world trade has grown rapidly. As a percentage of world GDP, international trade has almost doubled. A number of new countries have also increased their share in world trade. A more closely integrated world economy has facilitated specialisation, innovation and better use of local resources. The room for exchanging ideas and knowledge has expanded. Increased competition and innovation have gone hand in hand. Chart: Trade gives Norway opportunities Efficient global trade is particularly advantageous for small open economies, like Norway. Norway has benefitted greatly from the opportunities afforded by trade with other countries.

In the years ahead, the multilateral trade system is at risk of being undermined, which may leave us with a more fragmented system. This may adversely affect small countries in particular. In that situation, it would be injudicious for Norway to compromise its current agreements with Europe. Climate change requires structural adjustments The world needs more cooperation, not less. We are facing a climate crisis that can only be addressed by engaging in a common global effort. Last year’s report from the UN climate panel was alarming. If work to reduce greenhouse gas emissions is not intensified, global warming could spin out of control. A warmer planet will have serious consequences. Major changes in production methods and consumption patterns are needed in order to mitigate global warming. Measures taken must lead to concrete reductions in global emissions and should be cost-efficient. Emissions pricing is essential to reducing greenhouse gas emissions. The polluter must pay. The consequences of not having applied this principle at a global level are now coming into evidence. To quote one of last year’s Nobel laureates in economics, William D. Nordhaus: “The result is too much burning of fossil fuels, too much climate change, and too many harms to humans, wildlife, ecosystems, and more.”2 It is a demanding task to put into place adequate measures. The gains from lower emissions are shared by all - also by those who do not contribute. This creates a free-rider problem both at the global and national level.