Norway

Norway: wealth from oil is depleting

Norway’s economic performance has been outstanding, with the EPI score projected to be 100.9% in 2016, a drop from 105% two years before, mainly because of lower oil prices.

Norway is one of the richest nations in the world with GDP per capita of more than $60K (by PPP). Still, most of the country’s wealth is coming from exports of natural resources, as the oil and gas sector constitutes around 22% of Norwegian GDP and 67% of Norwegian exports. For many years Norway’s government has been running large fiscal surpluses and has built up one of the largest in the world national wealth fund with more than $800bn in assets.

The drop in oil prices hit the economy hard, with the Norwegian krone’s value falling from about 6 krones per dollar in 2014 to above 8.5 krones per dollar in 2016. Economic activity remains weak, with GDP growth likely to be around 1% in 2015 and slightly above 1% in 2016. Because of large government revenues coming from oil and gas exports, the government has been running double digit fiscal surpluses. Lower oil prices have reduced government revenues and the government decided to continue a fiscal stimulus program. This combination reduced government budget surplus from about 13% of GDP in 2013 to about 6% in 2015 and 2016, the lowest level in the past decade.

The 5-Minute Economist projects Norway’s economic performance to remain outstanding, with the EPI score remaining above 100% in the next few years, mainly driven by large fiscal surpluses of about 6% of GDP. Norway’s inflation if likely to stay around 2%, still above most of its European peers, elevated mainly because of the currency devaluation that increased prices of imported goods. Unemployment has increased slightly but is still relatively small, below 5%, in the next few years.