For the past year, the Norwegian economy has been experiencing an oil-driven economic downturn, which is expected to be followed by a modest recovery in the second half of 2016, Statistics Norway (SSB) predicts. Unemployment is expected to peak in 2016 at 4.6 per cent as an annual average.
Reduced demand from the petroleum industry is contributing to the weak activity growth that the Norwegian economy is now facing, but this is offset by the strong depreciation of the krone and the expansionary fiscal policy.
Oil prices fell sharply after summer 2014, and at the end of August 2015 were more than halved. We expect oil prices to remain low going forward, but gradually increasing to around 60 USD per barrel in 2018. High cost growth meant that petroleum investments started to decline before the fall in oil prices, falling by 15 per cent from the peak in the third quarter of 2013 to the second quarter of 2015. The low oil prices mean that few potential new development projects are profitable, while investment projects related to existing fields can help to curb the fall in investment. As an annual average, SSB now assumes that the investments will fall by almost 12 per cent this year, and that the decline will gradually decrease in the years ahead to 5.5 per cent in 2018. This implies a drop of almost 33 per cent from 2013 to 2018.
SSB poins out that international economic growth remains low and the growth profile in recent quarters is mixed. However, we anticipate that the cyclical bottom is near, and that Norway’s trading partners as a whole are heading into a new upturn next year - first the USA and the UK, followed by the euro area. However, the recovery is not set to be strong, and we expect a very moderate growth increase in Norwegian export markets going forward.
Many OECD countries are still experiencing a major slump with high unemployment. The low interest rates internationally are therefore set to continue, although SSB expects the interest rates to increase slightly towards the end of the projection period.