Norway’s private consumption growth to accelerate in 2017, mainland GDP to grow 1.8 pct, says Nordea Bank

Increased oil prices and heavy cost reduction in the Norwegian sector signify that oil investment would bottom in the course of this year, said Nordea Bank. The oil’s downturn’s negative impacts on mainland growth would therefore be largely reduced.

“We have revised down our forecast for oil investment in 2017 from - 6 percent to -9 percent in the light of the November oil investment survey, due mainly to lower investment in exploration”, added Nordea Bank.

While oil prices are a source of uncertainty, investment levels are unlikely to be deeply impacted unless there is a sharp rise in prices at the beginning of 2017. The downward revision of oil investment is the most significant reason for the reduction of the GDP forecast for 2017, said Nordea Bank.

“We also expect fiscal policy to be much less expansionary than in 2016, with the government’s budget translating into a fiscal stimulus of around 0.4 percent, down from 1.0 percent last year”, stated Nordea Bank.

Meanwhile, inflation is likely to decelerate gradually as the impacts of the Norwegian krone’s depreciation fade and, along with a stronger labor market, this is likely to give additional support for private consumption. Private consumption growth is expected to accelerate to 2 percent in 2017 from 1.5 percent in 2016. Thus, growth is likely to be higher in 2017 as compared with 2016.

Moreover, stronger growth in business investment in 2017 is quite likely, driven by increased optimism, higher capacity utilisation and stronger profitability. Significant contribution from investment in the power sector is also expected in traditional hydroelectric production and in other types of renewable energy.

“On balance, we forecast mainland GDP growth of 1.8 percent in 2017”, added Nordea Bank.