Perspectives

One of the least affected developed economies

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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NORWAY  
ONE OF THE LEAST AFFECTED DEVELOPED ECONOMIES  
Norway was not hit as hard by the Covid-19 pandemic as most its European neighbours. Moreover, the economy has  
been able to count on considerable support from the fiscal and monetary authorities. In its draft budget for 2021,  
presented in October, the government has pledged to maintain an expansionist policy, even if spending will logically  
not be as high as in 2020. What’s more, faced with an upturn in Covid-19 cases and tighter restriction measures, the  
central bank has adopted a more conciliatory tone.  
After plunging by 6% in Q2 2020, the GDP of “mainland” Norway –  
GROWTH AND INFLATION (%)  
excluding the offshore oil sector – rebounded by 5.2% between July  
and September. Unsurprisingly, it was the sectors hit hardest by the  
restriction measures put in place to tackle the sanitary crisis that  
reported the strongest rebounds in the third quarter. Household  
consumption also bounced back, rising by nearly 10%. As in other  
countries, the recovery was strongest immediately after lockdown  
measures were lifted. According to Statistics Norway’s monthly  
indicator (SSB), GDP rose by only 0.6% in September.  
GDP Growth  
Forecast  
Inflation  
Forecast  
4
.0  
3.5  
.0  
2.5  
.0  
1.5  
.0  
0.5  
.0  
-0.5  
1.0  
-1.5  
2.0  
-2.5  
2.8  
3
2.3  
2
.1  
2.0  
1.8  
2
1.3  
1
.2  
1
0
Faced with a flare up in coronavirus cases, the Norwegian government  
decided in early November to impose new social distancing restrictions  
and recommended everyone to remain at home as much as possible.  
-
-
-
-
-
3.0  
3.5  
4.0  
-
3.6  
THE ROLE OF FISCAL AND MONETARY POLICIES  
-4.5  
5.0  
-
1
2019  
2020  
2021  
2022  
2019  
2020  
2021  
2022  
Although its 2021 budget was unveiled prior to this new tightening of  
restrictions, the government already recognised the need to maintain  
an expansionist fiscal policy. Since 2001, the government’s deficit is  
financed by transfers from the Oil Fund, and these transfers are called  
the structural non-oil deficit. In 2021, this deficit should still amount to  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
3
% of the fund’s total value (or 9.4% of GDP), after 3.9% (12.3% of GDP)  
OECD FORECASTS FOR GDP GROWTH IN 2020 (%)  
in 2020. Although the use of the fund by the government is regulated,  
there is enough flexibility to deal with shocks like the one that hit the  
Norwegian economy this year.  
0
-
-
-
-
2
4
6
8
Meanwhile, the Norges Bank has softened its tone a bit. In the  
communiqué following its September meeting, the central bank  
discussed rate hikes in the next couple of years. Yet, after its last  
meeting in early November, the central bank returned to a more  
cautious stance, stressing that its policy rate would remain unchanged  
at 0% until there were clear signs that economic conditions were  
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returning to normal . In its report, the Norges Bank warned that higher  
infection rates and tighter restriction measures in Norway and abroad  
would “likely put a brake on the upswing in the coming period”.  
-
-
10  
12  
*
Mainland  
THE ECONOMIC PROSPECTS FOR 2021  
Since the outbreak of the pandemic, Norway is the European country  
that has recorded the lowest number of deaths due to Covid-19 as a  
share of the population. This has allowed the authorities to impose  
softer restriction measures than elsewhere. As a result, even though  
CHART 2  
SOURCE: OECD  
the country was also hit earlier this year by a big drop in the price of oil, As to the Norwegian economy as a whole – including the oil sector –  
its main export product, the economy has been particularly resilient.  
GDP is only expected to contract by 1.2%. The only member country for  
which the OECD anticipates a smaller drop is South Korea (see chart 2).  
3
In its most recent Economic Outlook , the OECD estimates that  
mainland Norway’s GDP contracted by 3.2% in 2020. This is the fifth  
best anticipated performance among the 37 OECD members.  
Completed on 7 December 2020  
1
2
3
The National Budget 2021, Norwegian government  
Rate decision November 2020, Norges Bank  
Economic Outlook, December 2020, OECD  
The bank  
for a changing  
world  
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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