Perspectives

Resilient growth

th  
23  
EcoPerspectives // 4 quarter 2019  
economic-research.bnpparibas.com  
Norway  
Resilient growth  
The Norwegian economy is expected to report robust GDP growth through the end of 2019, thanks to dynamic oil sector investments  
in Norway and abroad. Growth is expected to slow thereafter in a less favourable international environment. Moreover, investment in  
the Norwegian oil sector is expected to ease up in 2020. However household consumption should continue to grow at a relatively  
sustained pace, buoyed by wage acceleration. The central bank of Norway will not opt for any further rate increases in the quarters  
ahead. Inflation should hold near the central bank’s target of 2%, while external risks are on the rise.  
After a buoyant first half, the Norwegian economy is expected to  
report robust GDP growth excluding oil and maritime transport  
activities 1 through the end of 2019. The economy will grow  
somewhat more moderately thereafter, held back by a less  
favourable international environment and the slowdown in  
investment. Mainland GDP growth is expected to reach 2.3% this  
year and 1.7% in 2020 (compared to 2.2% in 2018). Total GDP  
growth is estimated at 1.4% and 1.8%, respectively, in 2019 and  
1- Growth and inflation  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
3
.6  
2
.3  
2.2  
2.8  
2
.0  
1
.7  
2.2  
1.9  
1.9  
2
020 (vs 1.4% in 2018).  
0.9  
Dynamic household consumption  
Norway’s small, open economy should benefit from the recent  
depreciation of the Norwegian krone, as well as from strong global  
demand for oil services through the end of winter. Thereafter,  
demand is expected to drop off sharply. Exports are also expected  
to slump in 2020 due to trade tensions arising from protectionist  
policies as well as the deterioration in the cyclical environment of its  
main trading partners. Investment in the Norwegian oil sector has  
increased strongly since early 2018, lifted by the upturn in oil prices,  
and will continue to foster growth in the second half of 2019. Yet  
investment should ease up as of 2020. New development projects  
are likely to be smaller in scale than recently completed projects,  
mainly due to the lack of major oil discoveries. Residential  
investment and house prices are both expected to rise moderately  
in the quarters ahead. Corporate investment in the non-oil sector  
rose strongly between 2015 and 2018, but is expected to grow more  
moderately in the quarters ahead due to the completion of large-  
scale projects in the energy sector. Uncertainty over global growth  
prospects is also expected to erode investment incentives,  
especially in 2020. Consumer spending should continue to grow at a  
relatively sustained pace in the quarters ahead, despite higher  
interest rates and the slowdown in job creations. Unemployment is  
holding at a very low level (3.8% in July), which should boost  
household confidence. Moreover, it will be accompanied by stronger  
wage growth in 2019 and 2020. The real wages growth is also  
expected to accelerate. Consumer price inflation, which fell sharply  
in H1 2019 (to 1.6% y/y in August), is not expected to change much  
through year-end 2019, before accelerating slightly in 2020. The  
increase in unit labour costs and the recent depreciation of the  
Norwegian krone, undermined by all the uncertainty at the global  
level, should carry over to prices across the board. In September,  
1
6
17  
18  
19  
20  
16  
17  
18  
19  
20  
Source: National Accounts, BNP Paribas  
the central bank of Norway announced its fourth key rate increase in  
a year, to 1.5%. Apparently, it will not opt for any further rate  
increases in the quarters ahead. The inflation rate is expected to  
hold close to the central bank’s target of 2%, and external risks are  
on the rise. Moreover, foreign interest rates are particularly low.  
Faced with this environment, the central bank would apparently like  
to avoid an excessive appreciation of the krone, driven by an overly  
big distortion of key rates with those of the other central banks.  
Norway is expected to benefit from a fiscal impulse of close to 0.5%  
of GDP excluding oil and maritime transport activities in 2019. The  
government is then expected to adopt a generally neutral fiscal  
policy in 2020. The non-oil structural deficit will hold just below the  
government’s new threshold of 3% of the assets of the Norwegian  
Pension Fund Global . The weight of the deficit is expected to  
decline in 2020 thanks to a higher fund valuation (282.9% of  
mainland GDP in late 2018).  
2
2
According to the fiscal rule, the amount deducted from the Norwegian Pension  
1
Mainland GDP or GDP excluding oil and maritime transport activities accounted for  
Fund Global to finance the deficit must not exceed the amount of revenues generated  
nearly 84% of total GDP in 2018.  
by the fund.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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