Norwegian economic growth likely to normalize in 2017

In Norway, the huge cost-cutting in oil sector has reduced breakeven levels for new investment projects. Earlier, investment was anticipated to rebound with oil prices of around USD 50 to 60 per barrel. Since then the oil price has increased to USD 50 per barrel making this scenario more likely, said Danske Bank in a research report.

Given this backdrop, oil investment is likely to continue declining but the fall is expected to gradually slow from quarter to quarter. Thus slowly, the headwinds for Norway’s economy will slowly diminish and become tailwinds from mid-2017, according to Danske Bank. Outside of the oil sector, robust growth contributions are seen predominantly on the consumption side in 2017. With the help of higher oil prices, a slow appreciation of the NOK might lower the inflation rate next year. Thus, higher wage growth an improved employment growth will lead to robust real household income growth in 2017.

Interest rates are also likely to be low, while the supply backlog in the housing market, particularly in Oslo, will lead to a strong contribution to growth from investment in housing in 2017. Meanwhile, fiscal policy is expected to be less expansionary in 2017. However, it is likely to positively contribute by 0.3 percent-0.4 percent. But a fiscal tightening is unlikely in an election year.

“On balance, we forecast mainland GDP growth of 2.2% in 2017”, added Danske Bank.