OSLO: The oil price has plunged, and the Norwegian economy is currently in a clear economic downturn, according to the latest report by SSB.
In 2015 mainland GDP increased by only 1.0 per cent, the weakest growth since the financial crisis in 2009. There was barely any growth through the second half of last year, and unemployment has risen by almost 1.5 percentage points in the course of a year and a half.
SSB assumes that the cyclical downturn will be accompanied by low or no growth in real wages and that unemployment will continue to increase slightly this year. The impact of the sharp fall in demand from the petroleum industry has been countered by a number of factors that will continue to affect the Norwegian economy in the near term.
Also, low and steadily declining interest rates, a weak krone and increased spending over government budgets will push up growth through 2016.
The report by SSB also expect international growth to pick up slightly, and a gradual slowing of the fall in petroleum investment towards the end of this year will provide a basis for a moderate upturn from early next year.
We accordingly expect unemployment to gradually decline slightly. Growth in real wages will continue to be weaker than we have been used to for the past 25 years. The fall in the oil price has had a significant negative impact on the Norwegian economy, writes the report.
However, the effects on the overall activity level have been relatively limited, viewed in light of the major negative earnings shock implied by such a large fall in prices for our most important export product. The negative effects ensue primarily from direct demand impulses generated by the petroleum sector. Between the third quarter of 2014 and the fourth quarter of 2015, petroleum investment fell by a seasonally adjusted 27 per cent from a record high level.
In the same period, overall demand from the petroleum sector was reduced by the equivalent of 3 per cent of mainland GDP. This has been partly offset by lower imports, and the import share has probably declined somewhat and cushioned the impact of the fall in demand for Norwegian production. The decline has impacted some industries, regions and occupational groups harder than others.
There has been a pronounced rise in unemployment in Southern and Western Norway, while the rise in unemployment has been more moderate or totally absent so far in other parts of the country. The effects will probably spread gradually.
House prices have shown similar developments. The situation for those who have been hit hardest by the downturn is dramatic. The situation for the Norwegian economy as a whole is serious, but not critical. The relatively moderate impact on activities of a major negative shock to the Norwegian economy demonstrates the capacity of the Norwegian system to handle the short-term consequences of shocks.
A number of important mechanisms in the Norwegian economy have contributed to dampening the negative effects of the fall in the oil price in the short term. The fiscal rule for use of income generated by petroleum activities, coupled with very sound state finances, means that a fall in the oil price will not negatively affect public spending in the short term. If current petroleum revenue had been spent to a greater extent, the impulses from the fall in the oil price would have been much greater, as we experienced 30 years ago. Instead, a fairly expansionary fiscal policy can now be conducted.