The Norwegian economy is clearly linked to the price of oil with preliminary production figures for June 2016 showing an average daily production of about 1.82m barrels of oil, natural gas liquids (NGL) and condensate. So the higher the price of oil the better for this oil-rich nation.
With that in mind their economy has been struggling after last year’s collapse in oil prices, which impacted business investment markedly and lowered government revenues. Ironically Norway fears it has more to lose than most through the recent Brexit vote although that depends on the much vaunted slowdown in the UK economy which has yet to materialise. Norwegian fears are that this could result in a reduction in Norwegian exports but also due to an associated decline in oil prices. Additional risks associated with Brexit are a strong U.S. dollar, adverse risk appetite and uncertainty which could dampen a recovery in prices, leaving Norway exposed to low oil prices for longer than anticipated.
Industrial production continued in a downward trajectory falling 5.1% in June compared to May’s figure whilst unemployment has risen in recent months from 3.3% to 4.4%. Inflation rose to its highest rate in seven years in June with consumer prices rising 0.6% over the previous month, which was up from the 0.4 % increase registered in May. Inflation edging up from May’s 3.4% to 3.7% in June. Norway like many other Western nations continue to adopt the fundamentally flawed zero interest rate policy (ZIRP). At its June 23rd policy meeting, Norges Bank (NB) decided to leave the key policy interest rate at the all-time low of 0.50%.
The slump in oil prices impacted the Norwegian energy giant Statoil, along with others in the industry who made thousands of redundancies and scaled back contracts with suppliers. In 2015 Statoil’s earnings recorded a net loss of 37bn kroner ($4.3bn; £2.98bn).
Norwegian economic growth has slowed dramatically with investment levels falling throughout the economy by about a third since oil prices collapsed in 2015. House prices have risen by about one-third in the last six years resulting in household debts have reached more than 200% of annual disposable income, making Norwegians one of the most indebted people in Europe.
There is now a clear consensus in Norway that they need to diverse their economy from their dependence on oil having the highest unemployment levels since 1995 with the youth age group the most affected. The oil and gas sector has enabled Norway to build a large services sector which they anticipate can assist in the growth of other areas of their economy such as the aluminium industry, the healthcare sector and, not least, fish farming and fisheries, at a time when a 4.5kg salmon, once packaged and processed, is worth more than a barrel of oil. In the long-term Norway seeks to diverse its economy into a greener model.
Whilst Norway remains outside the grasp of the EU the question remains will it makes the necessary economic changes before before the damage becomes irreparable particularly if the oil price remains depressed and global oil demand declines as the global economy contracts.