Norwegian export sector likely to be hit by weaker global growth

The Norwegian export sector is expected to be hit by a recession in the UK and the euro area, including the overall impacts on global trade, noted Danske Bank in a research report.

Based on Danske’s expected GDP growth rates, exports growth in the mainland might decelerate to 0.5 percent from 2 percent in 2017 as growth amongst the nation’s key trading partners such as the UK, euro area, Sweden and Demark would be impacted. This is expected to negatively contribute 0.3 percentage points from the mainland GDP, added Danske Bank.

Moreover, the rising uncertainty surrounding Brexit is likely to delay the expected increase in sentiment as oil prices have risen. Therefore, the rebound in private consumption and investments is also likely to be delayed.

But if this scenario happens, the central bank, Norges Bank, might lower the interest rates further to zero, whereas the NOK might remain weaker than anticipated earlier. This will then underpin other areas of the economy and offset certain negative impacts.

“All in all, we expect mainland growth to end up at 0.9 percent (1.2 percent) in 2016 and 1.9 percent (2.2 percent) in 2017,” according to Danske Bank.

One of the downside risks to the Brexit is that oil prices might be impacted from subdued global demand. This might result in a serious decline in oil investments in Norway, adversely affecting the business and consumer sentiment.