Norway: Oil prices not high enough to bring back substantial growth

Country Report

Norwegian GDP growth continued to lose momentum in 2016. At a humble yearly figure of +0.9%, growth was down by 0.7pp from the previous year and the lowest since 2010. Q2 and Q3 were the worst as a contraction was recorded (-0.1% and -0.6% q/q, respectively). 

As 28% of GDP relies on the oil & shipment industry and more than 60% of the Norwegian exports are oil-related, the plummet in global energy prices hit the economy in full force.  

The Brent price fell by -16% in 2016 reaching an average price of 45 USD/barrel, after hitting rock bottom with 31.5 USD/barrel in January. 

In addition, the continued weakness of global demand and the recent real exchange-rate appreciation have weighed on Norwegian real exports, down -1.3% over the year.

Prospects are more positive for the next years. Alongside a recovery in the world economy (global GDP growth up +2.9%), oil prices are set to go up. Euler Hermes forecasts the Brent price to increase to 57 USD/barrel on average in 2017 and 59 USD/barrel in 2018. 

Thus, Norway should see a rebound in GDP growth to +1.5% in 2017 and +1.8% in 2018, in line with the long-term average. 

Looking forward, the main risks remain the possibility of another oil price shock as well as the export reliance, especially on the UK (19% of total exports) in the context of the Brexit and the loss in purchasing power in the UK.