Norway’s Oil Stimulus Nears Tipping Point as Growth Fades

A near half-decade boom in oil investments in Norway is about to come to an end, sapping momentum in the economy of western Europe’s largest crude producer, the country’s main economic forecaster said.

“The big change next year is investment in the petroleum industry because we have reached the highest level, it’s peaking next year,” Hans Henrik Scheel, director general of Statistic Norway, said yesterday in an interview at his Oslo office. Oil investment will stabilize at a high level and the “demand impulse will be there but not a growth impulse,” he said.

Scandinavia’s richest nation has used its oil wealth, which it funnels into an $850 billion sovereign wealth fund, to save itself from the wave of recessions that tore through most of the rest of Europe. Yet that’s left Norway’s economy reliant on fossil fuels and with weakened competitiveness. Statistics Norway yesterday cut growth forecasts in the mainland economy, which excludes oil and gas, through 2016 as investments and record consumer debt weighs on households.

Statoil ASA, Norway’s biggest oil producer, said last month it would cut planned investments by 8 percent over the next three years as the stagnant price of oil weighs on cash flow. The government, which owns 67 percent of Statoil, warned that planned projects must go ahead. The company, along with the rest of the global oil and gas industry, is reviewing investments after oil prices slid about 15 percent to $108 a barrel since 2011.

$95 Barrel Oil

Norway’s central bank said today in its Regional Network Report, which surveys businesses, that “output growth continued to slow in the oil industry supplier sector and petroleum-related export industry.”

The krone slid 0.3 percent to 8.3078 per euro as of 11:13 a.m. in Oslo.

For now, Scheel said the economy can withstand a drop in prices. The agency sees crude falling to $95 a barrel by 2015.

“Even if you are below $80, it will not be a very big problem,” said the former director general of the tax policy department at the Finance Ministry. “Oil activity is mainly related to oil producing and not oil investment. If you have oil prices down to $60-$70 for a long period, a year or two, it could really impact oil investments.”

Norway’s central bank Governor Oeystein Olsen earlier this month also rejected industry warnings that oil at about $100 barrel is too cheap to support growth in Norway. His interest rate cuts since 2011 have helped weaken the krone and helped exporters.

Yet there are other signs of overheating the central bank also has has to address. Norway has been weighed down by record consumer debt and declining house prices after a five-year rally reversed. In 2013, the mainland economy expanded 2 percent, slowing from 3.4 percent in 2012.

Going Slower

The statistics agency sees mainland growth at 1.9 percent this year, 2.4 percent next year and 2.9 percent in 2016. Investment growth will slow to 1.2 percent, from 8.7 percent last year, while unemployment will rise to 3.7 percent this year and 3.9 percent in 2015, according to the bureau’s forecasts.

“If the economy is going slower, we will expect a weakening of the kroner,” Scheel said. “In the long run the exchange rate will adapt to what’s necessary.”

Finance Minister Siv Jensen this week said the government would use tax cuts and infrastructure investments to spur growth in next year’s budget.

“It’s important that we shift spending more toward investing in growth-promoting tax cuts, infrastructure, research, education and so on,” she told reporters before the government’s budget conference. “There’s still a good outlook for the Norwegian economy, but ever since we took power we’ve identified challenges, namely the dark, more long-term cloud hanging over the economy.”

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