Norway’s investment spending outlook continues to be weak

The Norwegian economy unexpectedly posted strong growth of 1% q/q seasonally adjusted in the first quarter of 2016. However, the growth was mainly because of government expenditure and the oil and gas sector. The renewed increase in oil price underpinned the Norwegian oil and gas sector. However, the Norwegian economy will continue to have a negative impact from oil price for time being, noted Commerzbank in research report. The outlook for investment spending in Norway continues to be weak that is seen in the PMI, which continues to be below 50.

The Norwegian central bank is relying on an expansionary monetary policy due to subdued growth outlook. The Norges Bank has cut its benchmark rate by 100bp since the end of 2014 to 0.5% now. The central bank had lowered its interest rate in March and had hinted at the possibility of another reduction in H2 2016. It mentioned that it even considers lowering rates to negative territory if required.

A weaker krone mainly drives Norway’s inflation. The Norwegian krone has depreciated markedly since the autumn of 2014 because of the declining oil price and the central bank’s reduction of ket rates. Imports to the country are becoming costlier due to weaker krone. Meanwhile, the weaker krone assists in driving through the structural changes in the economy to ease its reliance from the oil and gas sector.