Norway: Economy contracts in Q4, full year 2015 growth at 1.6%
February 16, 2016
A collapse in investment in Norway’s oil sector has metastasized to other areas of the economy and taken a toll on economic activity. In Q4, total GDP registered a seasonally-adjusted 1.2% decline over the previous quarter, marking the lowest figure since Q3 2012. The economy is at risk of entering into recession, as the factors that hampered growth in 2015 appear likely to last. The situation is forcing Norway into a painful adjustment process. Moreover, Statistics Norway revised down its Q1, Q2 and Q3 quarterly growth figures by 0.1, 0.1 and 0.2 percentage points, respectively.
Although total GDP fell to a multi-year low, Mainland GDP—comprising all domestic production activity except for the extraction of crude oil and natural gas (including related services), pipeline and ocean transport—managed to eke out a 0.1% expansion over the previous quarter in Q4. The modest increase marks a marginal improvement over Q3’s flat growth and was mainly due to higher private consumption—the sole bright spot in Norway’s economy. Private consumption expanded 0.6% in Q4 (Q3: +0.2% quarter-on-quarter), while government consumption moderated from a 0.5% increase in Q3 to a 0.3% rise in Q4. Although private consumption helped to buoy the economy in Q4, it may not be able to support growth going forward as lower employment and deteriorating consumer confidence indicate that Norwegians’ willingness to spend may lessen in the near future.
Total investment recovered in Q4 to 0.3% growth following the stark 5.4% contraction of registered in Q3. The timid increase is the result of a continued contractionary trend in investment related extraction activities as well as to falling investment across the mainland sector, offsetting an increase in inventory spending. Fixed investment, which includes capital expenditure in both the offshore and mainland sectors, fell 0.9% in Q4 (Q3: -0.6% qoq), while inventories and stockpiles increased 6.6% after plummeting 23.4% in Q3. Statistics Norway’s forward-looking oil investment survey suggests that total investment is expected to continue to decline in 2016, dragged down by contractions in extraction- and pipeline-related activities. This paints a bleak picture for future growth although the decline in investment is expected to flatten out in.
The external sector dragged on growth in Q4, with exports tallying a striking 2.9% contraction in Q4, contrasting Q3’s 5.6% increase. Export figures are particularly volatile due to large swings in the ships, oil platforms and aircraft component, which boosted exports in Q3 yet dragged on exports in Q4. Crude oil exports also fell in Q4, while traditional exports, particularly from Norway’s fishing industry, expanded. Imports increased 1.6% in Q4, up from Q3’s 2.6% contraction, and brought the external sector’s contribution to growth down from plus 2.9 percentage points in Q3, to minus 1.6 percentage points in Q4.
On an annual basis, total GDP growth fell considerably from 2.6% in Q3 to 0.1% in Q4, bringing total GDP growth for the full year 2015 to 1.6%, down from the 2.2% increase registered in 2014. Mainland GDP growth also declined (Q4: +0.2% year-on-year, Q3: +0.8% yoy), marking the weakest expansion since Q1 2013.
Author: Robert Hill, Economist