Norway likely to see further economic downturn in 2015: authority

A continuous fall in oil investment is expected to contribute to a further economic downturn in Norway in 2015, but the Nordic country will reverse the trend from 2016, the Norwegian statistics bureau said on Thursday.

Reduced investment in petroleum industry is expected to reduce mainland Norway's gross domestic product (GDP) growth to just 1.1 percent in 2015, compared with 2.3 percent in both 2013 and 2014, according to a report published by the Oslo-based Statistics Norway.

The fall in petroleum investment in oil-rich Norway after years of strong growth, together with a modest growth in household demand, were key factors behind the shift to a moderate economic downturn in the second half of 2014.

After two and a half years with an oil price of around 110 U.S. dollars per barrel, the price began to fall in fall 2014, and by Tuesday was almost halved. The sharp fall in crude oil prices will reinforce the negative impulses from the petroleum industry going forward, the bureau said.

Reduced profitability in the petroleum industry will contribute to a fall in the industry's investment by nearly 16 percent this year and a further 8 percent next year.

The Norwegian statistics bureau said that the Scandinavia's richest economy is also expected to reverse the downturn trend and have a modest upturn from 2016.

Expansionary fiscal and monetary policy have dampened the economic downturn in Norway and will continue to do so, the agency said, adding that the key policy interest rate is expected to be reduced by 0.5 percentage point towards the summer months.

The fall in oil prices and prospects of even lower interest rates have contributed to a marked weakening of the Norwegian krone, by 5.3 percent in 2014 from the year before, and a similar situation is envisaged for 2015.

The weakening of the krone will stimulate exports and reduce the share of domestic demand covered by imports, thus having a positive effect on the activity in the mainland economy, the report said.

Higher international growth, fewer negative impulses from the petroleum industry and a slight increase in private domestic demand are all expected to play a role in reversing the economic trend to a modest upturn from 2016, according to the report.

Slow economic growth implies little growth in employment in 2015 and 2016, but a reduced participation ratio and slightly lower immigration will help to limit the rise in unemployment.

Unemployment may increase gradually and reach 4.1 percent in 2016, which is well below the level from the beginning of the 2000s. The subsequent economic recovery is then expected to lead to a stronger development in employment, with unemployment falling to 3.8 percent in 2018, the report said. Endit