Population 5.033 million
GDP 499.827 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
0.5 |
1.2 |
3.3 |
2.9 |
|
Inflation (yearly average) (%)
|
2.5 |
1.2 |
0.9 |
1.7 |
|
Budget balance (% GDP)
|
11.3 |
13.8 |
13.7 |
13.8 |
|
Current account balance (% GDP)
|
12.6 |
14.5 |
14.3 |
14.4 |
|
Public debt (% GDP)
|
43.5 |
34 |
32.6 |
31.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Current account balance and public finances strengthened by energy wealth
- Discovery of new oil fields
- Attraction of the Norwegian currency for investors
- Broad political consensus
- Solid banking system
- Pressures on the employment market alleviated by immigration
WEAKNESSES
- Budget in deficit without oil and gas
- High level of household debt
- Competiveness eroded by high wages
- Labour shortage in high value-added sectors
Risk assessment
Dynamic investment and household purchasing power trending up in 2013
Growth accelerated in 2012 buoyed by investment and household spending. The same drivers of growth will operate in 2013, with, however, a slight fall-off. Investment in the oil, gas and hydro-electric sectors will slow after an exceptional rise in 2012. The energy sector, with production accounting for 30% of GDP and over 25% of tax receipts, plays a key role in the economy. Investment will therefore remain very dynamic, whether it concerns sites which have already reached maturity but are still operating or projects connecting Norway with other North European countries for the modernisation of electricity distribution. In the manufacturing sector, investment will accelerate noticeably despite a high production capacity utilisation rate.
This year, household purchasing power will be further affected by the return of inflation. It will nevertheless continue to grow, and that will sustain household consumption in a favourable context of low unemployment, low interest rates and strong house price rises. Negative mortgage rates will favour residential investment and construction to a degree which gives rise to concerns that a property bubble might be growing. Prices, which have recovered since the crisis, are therefore likely to increase again to stabilise at the peak reached in 2007. Household debt is expected to exceed 200% of disposable income. The prudential measures put in place by the regulator, Finanstilsynet, should nevertheless slow the growth in mortgage loans.
To curb the expansion of credit, and if inflationary pressures intensify, the Norges Bank could raise its key rate in 2013, at the risk of strengthening the Norwegian krone’s exchange rate. But inflation is expected to remain below the Central Bank target.
Meanwhile, if the difficulties in Europe intensify, the government will have sufficient means to sustain growth thanks, especially, to energy production which is a source of funding for the Government Pension Fund-Global, 4% of which can be raised on its assets. In this context, the fiscal surplus will remain substantial and public debt below the average for advanced countries.
The economic downturn of the Northern European countries will affect exports
As a member of the European Free Trade Association, Norway has established strong ties with the European Union. Exports remained buoyant last year because of the healthy demand from its main partners, namely the Northern European economies (63% of exports over the first ten months of 2012). The cyclical trough affecting these countries in 2013 will lead to a slowing or even stagnation of exports. The still high level of the krone against the euro will be an additional handicap for the price-competitiveness of Norwegian manufactured products on foreign markets. Nevertheless, the current account balance will remain broadly in surplus thanks to demand for hydrocarbons (No 7 world exporter) and electricity. With more rapid growth of imports due to strong domestic demand, the contribution to growth of the external balance will be at best neutral.
Resilience of businesses and banks
In 2013 the banks are expected to slightly toughen the conditions for access to mortgage loans for first-time buyers in order to curb the excessively rapid growth of credit. Moreover, the more difficult conditions surrounding loans (costs, duration) to businesses, in place since mid-2012, are expected to continue in 2013. Credit will, however, grow significantly. The economic context will be particularly favourable to the metals industry, oil platform and ship construction, engineering and services linked to the oil industry and building (public spending for the reconstruction of government buildings) and public works (roads and wind power installations). Industries devoted to the domestic market are expected to benefit from the dynamism of household consumption (food products, beverages, furniture, electrical and IT equipment). However, prospects are less favourable in the timber and non-ferrous metals sectors (fall in export prices) and in basic chemical products. The healthy state of the economy is reflected in the 9% fall in the number of bankruptcies over the 12 months to October 2012, compared with the same period in the previous year. Coface payment incidents index remains very satisfactory.
