Perspectives

The other shock

EcoPerspectives // 2nd quarter 2020  
24  
economic-research.bnpparibas.com  
Norway  
The other shock  
With the coronavirus epidemic and its impact on oil prices, which are plummeting, the Norwegian economy is heading for a  
contraction in 2020. Exports, which account for 41% of GDP, are likely to be hit first. Norway’s central bank cut its key rate to nearly  
zero and has considerably increased NOK and USD lending, injecting liquidity into the economy while supporting the currency. The  
government has introduced fiscal measures to buffer the shock for companies and households.  
After slowing in 2019, Norwegian GDP growth should swing into  
1
- GDP Growth and inflation  
negative territory in 2020 due to the spread of the coronavirus  
epidemic and its impact on the economy and on world demand  
for oil.  
(
Y/Y, %)  
GDP Growth  
Forecast  
Inflation  
Forecast  
5
4
3
2
1
0
Moribund exports and the first confinement  
measures  
3.8  
2.3  
1.8  
Exports of goods and services in the energy sector account for  
nearly 20% of Norway’s GDP. Consequently, the drop-off in  
world oil demand should have a major impact on the economy,  
which the government has admitted will enter recession in 2020.  
1.2  
0.5  
-
-
1
2
In addition to the decline in exports, which will be accentuated by  
the restrictions on cross-border movements of goods and  
persons, public and private investment both will be hit hard by  
low crude oil prices. The price per barrel of Brent crude oil fell to  
USD 20 at the end of March, which erodes the profitability of  
investment projects. After the major infrastructure expenditures  
of 2019, spending plans for 2020 have been frozen (notably for  
roadway and motorway infrastructure).  
-3  
-
2.5  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
Source: National statistics, BNP Paribas  
2
- Economic stimulus measures  
- Monetary policy: to mitigate the effects of the coronavirus  
epidemic, Norges Bank made a series of key rate cuts, bringing it to  
0.25% (vs 1.5% on 12 March). It also extended the maturity and  
increased the amount of NOK and USD refinancing operations (for  
example, USD 690 m in 12-month loans at 19 March, thanks to swap  
arrangements with the Federal Reserve). It also lowered the limits on  
the amount of callable collateral.  
Although Norway has been relatively sheltered from the  
coronavirus epidemic (16 deaths reported at 31 March), the  
number of new cases has increased rapidly. As a result, the  
government introduced travel restrictions and social distancing  
recommendations. Schools and universities were closed on  
-
Fiscal policy: the government set up support measures to offset the  
future economic effects of the coronavirus crisis. Companies will be  
provided NOK 100 bn in financing through state guarantees on loans  
and bond issues.  
12 March, and then non-residents were banned from entering  
the country on 16 March. Discretionary travel that is not work  
related is highly discouraged. To offset the ensuing loss of  
revenues, notably in the tourism, retail and transport sectors, the  
government has rolled out major fiscal efforts via guaranteed  
loans and deferred payments (see box).  
In 2019, the sovereign pension fund, also known as the “oil fund”,  
amounted to NOK 10,000 bn (330% of GDP excluding oil-related  
activities and maritime transport), the highest valuation ever reported.  
This gives the government a comfortable financial mattress to fall  
back on if bigger stimulus measures are needed. Prime Minister Erna  
Solberg said she was prepared to take unprecedented measures to  
preserve the level of employment of Norwegians and to support  
businesses.  
Source: Norwegian government, central bank  
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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