Norway Reviews GDP Growth Estimates as Oil Plunge Continues

Sleipner A Platform, file image (c) Øyvind Hagen – Statoil ASA

By Aaron Eglitis and Saleha Mohsin

Dec. 9 (Bloomberg) — Norway signaled it may cut its economic forecast for next year as a slump in oil prices threatens growth in western Europe’s biggest crude exporter.

“We will still have economic growth in Norway in the years to come,” Prime Minister Erna Solberg said yesterday at a press conference in Riga. “We will now look if the impact makes it look a little bit smaller, we don’t have a new figure yet.” The government in October predicted 2 percent economic growth for 2015.

A 41 percent drop in oil prices from a June high is proving to be the worst since the financial crisis erupted in 2008. The slump has put pressure on a nation that relies on energy resources for about 22 percent of its output. In the past few months, Norway’s oil industry has lost about 10,000 jobs, including contractors, while oil companies see a 13 percent decline in investments next year, according to a key survey by the nation’s statistics agency.

The statistics agency last week cut its forecasts for growth in Norway’s mainland economy, which excludes oil, to 1 percent next year, versus a 2.1 percent forecast in September.

In the “short term, the disturbances in the Norwegian economy will not be as large,” Solberg said. Norway funnels its oil riches into an $870 billion sovereign wealth fund, the world’s largest. The government follows a self-imposed cap of 4 percent of the fund when it plans budget spending.

‘Dark Clouds’

Over the past decade, Norway’s reliance on oil has been its main strength. Booming prices helped keep unemployment below 3 percent even as other parts of Europe suffered double-digit jobless rates.

The oil price development over the past six months has already forced the central bank to adjust its view. Governor Oeystein Olsen said last month that there are “dark clouds” due to uncertainty in developments in the oil industry.

Brent crude has fallen about $48 since a June high and is now trading at about $65. Prices will rise to $80 next year, according to DNB ASA, Norway’s biggest bank. It cut its forecast for Brent by $10 for next year, and said prices will rise to $85 in 2016.

“We are close to the bottom of this price cycle now,” Torbjoern Kjus, a senior oil market analyst, wrote in a note today.

Krone Losses

The oil price drop has pushed the krone down almost 6 percent against the euro this year.

“We are used to the krone fluctuating,” Norway Finance Minister Siv Jensen said yesterday in an interview after a speech in Oslo.

She repeated the government’s October forecasts that oil prices will be around 650 kroner ($91) per barrel in 2015, even as her ministry revealed that the drop in prices will cause a 70 billion-krone shortfall in revenue.

“The forecast for future oil prices is higher than market prices today, but all we can say for sure is that the uncertainty is quite high,” Jensen said.

Copyright 2014 Bloomberg.