Economy and Trade
Norway enjoys one of the highest standards of living in the world, due to the revenue generated by its offshore oil and gas deposits. It is the world’s third-biggest exporter of gas and fourth-biggest exporter of oil. The government estimates its 2008 revenue from the petroleum sector at NOK413 billion (US$5.58 billion). The oil-revenue fund is the second-biggest of its kind in the world, with a value of NOK2.0 trillion (US$286 billion). The fund is designed primarily to help finance government programs once the oil and gas resources are depleted. Norway also has a large shipping fleet, while metals, pulp and paper products, chemicals, shipbuilding, and fishing are the most significant traditional industries.
Norway is not a member of the European Union, but it enjoys free trade with the European Union—with the exception of the agricultural and fisheries sectors—in the framework of the European Economic Area (EEA). Norway is not a member of the eurozone and does not have a fixed exchange rate. Its principal trading partners are in the European Union.
Economic Policy over 12 Months
In January 2009, the government unveiled a NOK20 billion (US$2.9 billion) stimulus package intended to dampen the impact of the global financial crisis. Finance Minister Kristin Halvorsen said that the national budget revision “is the most ambitious fiscal stimulus proposed in more than 30 years to boost growth and employment.”
The package includes increased government spending of NOK16.75 billion (US$2.4 billion) for projects such as road and railway construction, maintenance and new projects in townships, and renewable-energy projects. The remaining NOK3.25 billion (US$466 million) will be provided in tax relief to businesses. Halvorsen said that Norway had anticipated a downturn after years of strong economic growth, but that “the financial crisis and the global economic downturn have intensified the turnaround.”
The government has taken other measures to offset the impact of the global financial crisis on the country. In October 2008, the authorities approved a NOK350 billion (US$50 billion) bond package to help banks improve liquidity in the market, but this agreement failed to stimulate lending. Consequently, in February 2009, the government also announced NOK100 billion (US$15 billion) of measures to encourage banks to lend.
In October 2008, the government announced an expansionary budget for 2009 that was also designed to give a countercyclical boost to the economy. It was based on an oil price of US$90.50 a barrel. Although the price of oil subsequently plummeted, the government can draw on the oil-revenue fund to finance its budget. The government is expected to record a surplus of around 20% of GDP in 2008, which will fall to around 14% of GDP in 2009, according to the Organisation for Economic Cooperation and Development (OECD).
Norwegian monetary policy is aimed at maintaining a stable exchange rate for the krone against European currencies, of which the euro is a key operating parameter. It also targets annual consumer price inflation of approximately 2.5% “over time.”
The monetary authorities were very active in using policy to stimulate the economy in the latter part of 2008. In October, the central bank cut rates by 100 basis points, ending more than three years of monetary tightening. In December, the central bank slashed its policy rate by 175 basis points, the largest cut in 22 years, to 3%. Norges Bank said that the risk of a “pronounced downturn” in the Norwegian economy had increased: the economy was likely to contract in the fourth quarter of 2008 and the first quarter of 2009, instead of the earlier forecasts for growth. In February 2009, the bank cut interest rates by a further 50 basis points, to 2.5%.
Economic Performance over 12 Months
The economy grew by 1.74% in 2008, compared with 3.1% in 2007. The slowdown reflects the impact of tumbling oil prices and the global financial crisis. In February 2009, the government projected that the economy would shrink by 0.5% in 2009 and that unemployment would climb to 3.5%, from 2.5% in 2008. In January 2008, Norway’s unemployment rate stood at just 1.8%.
In the first half of 2008, Norway enjoyed buoyant growth—the economy expanded at a robust annual rate of 3.3% in the second quarter. But higher interest rates, weakening global growth, and tighter lending conditions had already begun to affect Norwegian households and enterprises. Interest-rate-sensitive sectors, such as construction, experienced a marked slowdown in the first half of the year.
Low interest rates between 2003 and early 2006 had led to the rapid accumulation of household debt, leaving consumers exposed in the downturn. Rising inflation and higher interest rates exacerbated the pressures facing households in 2008. Year-on-year inflation (as measured by the Consumer Price Index) peaked at 5.5% in October 2008. Higher energy, food, and transport costs were the main factors forcing up inflation in the first 10 months of the year. However, during the remainder of 2008, inflation fell sharply as international prices for commodities, including oil and food, slumped. By December 2008, the annual rate of inflation had fallen to 2.1%. Overall, inflation averaged 3.8% in 2008, up from 0.7% in 2007.
The very high oil prices that prevailed for much of 2008 supported Norway’s external accounts. The OECD has estimated that the country recorded a current account surplus equivalent to 16.2% of GDP in 2008, up from 15.6% in the previous year.
High oil prices and the country’s robust balance of payments position also supported the krone during the first seven months of the year: the krone gained nearly 6% against the dollar during this period. But the onset of the global financial crisis and slumping oil prices caused the krone to lose 35% of its value against the dollar during the final four months of the year.
Support for Inward Investment and Imports
The government welcomes foreign investment. There is no national government agency responsible for foreign investment, which is subject to EU policy through the EEA. There are no specific incentives for the promotion of foreign investment. There is no licensing requirement for investments or limitation on degree of ownership (with some limited exceptions). Capital and earnings can be freely repatriated (subject to taxation) but there is a reporting requirement. The principal regulatory authorities are the Bank of Norway (Norges Bank), the Ministry of Finance, the Securities Commission, and the Ministry of Trade and Industry.
The import regime in Norway is liberal. Market access for non-agricultural products is all but fully open. However, domestically produced agricultural goods are heavily subsidized.
For information on the tax exemptions available in Norway, please see this review of direct and indirect taxes on the website of the Norwegian tax authority: www.regjeringen.no/en/dep/fin/Selected-topics/Taxes-and-Duties.html?id=1359
GDP growth: 1.7% (2008) government figures
GDP per capita: US$57,500 (2008 est.)
CPI: 3.8% (2008) government figures
Key interest rate: 2.5% (February 2009)
Exchange rate versus dollar: Norwegian kroner (NOK) per US dollar—5.6361 (2008)
Unemployment: 2.5% (2008) Government figures
FDI: US$69.04 billion (2008 est.)
Current-account deficit/surplus US$84.35 billion (2008 est.)
Population: 4,644,457 (July 2008 est.)
Source: CIA World Factbook except where stated