Oil price collapse has negatively affected the Norwegian economy

The oil price collapse has negatively affected the Norwegian economy, which depends on its petroleum industry for roughly one-fifth of the country's GDP and half of its export receipts. While Norway is entering into the oil glut with solid economic fundamentals, seasonally adjusted real GDP contracted by 0.1% q/q (up 1.2% y/y) in the second quarter of 2015, compared to growth of 0.1% q/q and 2.5% y/y in 2015:Q1. The contraction was led by a 2.8% q/q decline in gross capital formation and a slowdown in household spending. 

Norway's unemployment rate ticked down slightly in August to 4.3% and is enviable relative to European peers, but remains high relative to the recent low of 3.2% in April 2014, before the oil price began to fall. In an attempt to aid the ailing economy, the Norges Bank lowered its benchmark interest rate by 25 basis points on September 24th to a record-low 0.75% and central bank Governor Olsen has indicated that further cuts may be justified as the country's growth outlook darkens. Inflation rose to 2.0% y/y in August from 1.8% y/y in July. Norway's current account surplus improved slightly in the second quarter, up to 8.6% of GDP from 8.3% in Q1. 

Norway has long discussed the need to diversify its economy away from a dependence on oil-related revenue, but little progress was made before global oil prices began tumbling. Crude oil production has fallen to roughly 2 mbpd (down 45% relative to its mid-2001 peak), but recent discoveries should allow the country to maintain output around current levels over the next decade; however, domestic oil investment is expected to decrease by 20% as companies trim exploration funding in light of the price decline and tens of thousands of domestic oil sector jobs are on the line, placing upside risk on Norway's already-rising unemployment rate.