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Country Commercial Guides
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CHAPTER II. ECONOMIC TRENDS AND OUTLOOK
NORWAY: KEY ECONOMIC INDICATORS
Percentage Value USD volume change (a) ------------------ millions ---- ---- ---- National Accounts: 1998 1998 1999 2000 ------------------ --------- ---- ---- ---- Total GNP 145,735 2.1 1.4 3.2 Total GDP 146,636 2.1 1.4 3.2 Of Which: Mainland GDP 127,371 3.3 0.7 0.8 Total mainland Demand 130,008 4.5 (0.4) (1.1) Exports(Incl. SERV.) 54,848 0.5 3.6 9.6 Imports(Incl. Serv.) 54,517 9.1 (0.9) (0.3) PRICES, MONEY, AND GOVT. BUDGET: As Marked (a) ------------ Cons. Price Inflation (Pct) 2.3 2.3 1.8 Annual Wage Growth (Pct) 6.3 5.5 3.8 Ann. Money (M2) Growth (EOP; Pct) 5.6 5.4 4.8 Interest Rate (b) (AVG; Pct) 5.7 5.8 4.5 Govt. Budget bal. (C) (usd Bill.) 3.6 3.5 8.1 OTHER DOMESTIC INDICATORS: GDP Per Capita (USD) 32,585 33,315 35,050 Population (Mill., Mid-Year) 4.50 4.53 4.55 Labor Force (Mill., Mid-Year) 2.33 2.34 2.34 Unempl. Rate (d) (Pct) 3.2 3.5 4.3 Industrial Prod. Index (e) 103.5 104.5 105.8 Change in Ind. Prod. (f) (Pct) 3.5 1.0 1.2 BALANCE OF PAYMENTS AND RELATED ITEMS: 1998 1999 2000 Total Exports (USD mill; FAS) 40,623 42,105 48,290 -Crude Oil and Nat. Gas 15,911 17,400 22,130 -To the U.S. (g) 2,874 2,900 3,000 Total Imports (USD mill; CIF) 38,634 38,370 38,700 -From the U.S. (g) 1,709 1,700 1,750 Tot. Trade Balance (USD mill) 1,989 3,735 9,590 -Balance with the U.S. (g) 1,165 1,200 1,450 Curr. Acct. Balance(USD mill) (2,160) 980 8,030 For. Exch. Res.(EOP;USD mill) 18,814 18,900 19,500 Net For.Debt(h)(EOP;USD mill) (12,278) (12,400)(12,800) Debt-Serv. Ratio (i) (Pct) 21.8 21.0 20.0 For. Investm. (j) (USD mill) 22,715 23,000 23,500 -Of Which U.S. Inv. (j) 6,387 6,450 6,600 Av g. NOK/US$ Rate (k) 7.55 7.65 7.65 Tourism Receipts (USD mill) 2,197 2,300 2,400 Tourism Expend. (USD mill) 4,564 4,800 5,000Principal U.S. exports to Norway: aircraft and parts, and machinery, other machinery incl. oil equipment, telecommunications equipment, fruits and vegetables, and motor vehicles and parts.
Principal U.S. imports from Norway: crude oil, fish, metals, paper and products, cheese, and misc. manufactured goods.
Memo Notes:
(a) Projections by the Norwegian Ministry of Finance, the Norwegian Central Bureau of Statistics, and the Embassy; (b) Avg. Money market rate; (c) central government net transfer to the petroleum fund; (d) surveyed unemployment; (e) volume index, 1997=100; (f) nok-based avg. Annual change in (e); (g) US Dept. Of Commerce statistics; (h) Norway's foreign liab. Less foreign assets; (i) gross debt payments as a percent of exports of goods and services; (j) stock of foreign investment; (k) embassy projections. EOP = End of Period.
SUMMARY
Norway's key OIL and gas sector will continue to play a dominant role in the Norwegian economy. With world oil prices recovering in 1999, Norway's external accounts will remain exceptionally strong. Although oil/gas investments appear to have peaked, Norway will continue to offer interesting opportunities for U.S. oil companies and suppliers of petroleum-related equipment. The Norwegian market for autos, aircraft and other manufactured goods will also remain attractive. Major competitors in the Norwegian market have been and will remain EU member states, and low-cost producers in Asia and elsewhere. Although reforms are underway, Norwegian state monopolies and other non-tariff barriers continue to be a barrier to U.S exports in areas including alcoholic beverages and farm products. Norway continues to adopt and enforce EU policies and directives in accordance with its obligations under the European Economic Area (EEA) agreement. End Summary.
MAJOR TRENDS AND OUTLOOK
Economic Growth
Buoyed by rising offshore and mainland investment, 1998 was a relatively good year for Norway even though growth slowed because of higher interest rates and lower oil prices. Unemployment fell but inflation remained higher than the rate in the country's major trading partners. According to official statistics, 1998 real GDP grew 2.1 percent compared with 3.4 percent in 1997. While rising domestic interest rates held back demand, rising non-oil exports kept mainland industry busy. On external accounts, the foreign trade surplus fell sharply because of the decline in world oil prices.
In 1999, growth in the Norwegian economy is expected to slow even more because of the impact of falling offshore oil/gas investment, the GON's tighter fiscal stance and relatively high interest rates. However, growth will likely pick up in the year 2000 assuming domestic interest rates fall as expected and world oil prices remain above the 1998 average (i.e., USD 13/bbl).
Inflation
In 1998, Norwegian consumer price inflation eased to 2.3 percent (vs. 2.6 percent in 1997) because of reduced electricity and imports prices. Looking ahead, reduced wage pressure will likely contribute to lower inflation in 1999 and 2000 (1.8-2.3 percent range). With Norway's inflation remaining above its major trading partners, the country's cost of living will remain one of the highest in the world.
RESOURCES AND PRINCIPAL GROWTH SECTORS
Economic Resources
The Norwegian economy has benefited enormously from the successful development of natural resources, particularly offshore oil and gas, as well as metals. This has made the health of the economy very dependent on energy and energy-based production. The significance of the energy sector renders Norway vulnerable to downturns in certain of global commodity prices, particularly those of crude oil and natural gas, which accounted for nearly 40 percent of Norway's 1998 merchandise exports.
According to the Norwegian petroleum directorate (NPD), Norway's remaining discovered oil and gas resources would last 19 and 87 years respectively at 1998 rates of extraction. The oil and gas will last significantly longer if new resources are discovered as expected. Norway's remaining discovered and undiscovered oil and gas resources totaled an estimated 12.8 billion bcm oil equivalent at the end of 1998. (Note: 1,000 bcm of gas equals 1.0 bcm oil equivalent. End note.) Norway has limited land deposits of non-renewable energy resources (i.e., Coal on Svalbard), but the country has developed abundant hydropower.
Principal Growth Sectors
Norway's key petroleum production sector will likely continue to dominate the non-services side of the economy for the next several decades, although its prominence will decline gradually along with the depletion of Norway's crude oil and gas resources. In the past decade, the economic significance of the offshore petroleum sector fluctuated with world oil prices. In 1998, this sector accounted for approximately 12.0 percent of Norwegian GDP, compared with a peak of 18.5 percent in 1984.
In the past decade, the percentage of non-oil manufacturing production in GDP fell to 11.7 from about 16. Mainland activity is dominated by large-scale export-oriented industries producing metals (e.g. Aluminum), chemicals, and pulp and paper. Service industry activity rose to 56 percent of GDP in 1998 from 50 percent in 1986, with increased public services activity (15 percent in 1997) contributing to this expansion. The Norwegian primary sector (agriculture and fishing) remains heavily protected, but its share in GDP has declined gradually to 1.9 percent of GDP in 1998 from over 5 percent a decade earlier.
GOVERNMENT ROLE AND ECONOMIC POLICY
Government Role
Norway remains a mixed economy, with resource allocation determined by both state intervention and free market forces. The Norwegian public sector is more significant than in the U.S. In 1998, government spending in Norway amounted to 46 percent of GDP compared with about 33 percent in the U.S.
The GON uses extensive subsidy schemes to support agriculture, outlying regions, and some manufacturing industry. A welfare system which redistributes incomes via taxes remains firmly in place, and the GON puts a premium on containing unemployment and maintaining economic opportunities in outlying areas. The tax burden on the economy remains high from an OECD perspective. There is still significant public sector ownership or control in Norway's key oil and gas industry, telecommunications and the commercial banking sectors, although there is some discussion about reducing the levels of government ownership. Merger and acquisition activity is also having an impact on these levels. The private sector dominates in industries such as shipping, non-bank services, and small to medium-scale manufacturing.
GON EU Policy
Norwegians rejected EU membership in a 1994 referendum. Some opponents of membership argued that the net benefit of joining appeared illusory considering Norway's petroleum wealth and given the free trade guarantees with the EU contained in the European economic area (EEA) agreement which entered into force on January 1, 1994. Norway's economic policy continues to be shaped by EU directives adopted in accordance with the EEA. Under the EEA, Norway is obliged to offer national treatment to EEA members in most areas including finance and public procurement, but not in the agriculture and fishing sectors. U.S. companies established in the EEA also benefit from the liberalization implemented through the EEA, e.g., In banking.
Trade and Investment Barriers
While the GON has embraced the WTO accord, it remains protectionist in its treatment of certain sectors, particularly agriculture and food retailing which remain shielded by high tariffs. In general, U.S. exporters experience few problems doing business in Norway but some areas of tension exist. American companies that have a Norwegian subsidiary or agent/distributor have an effective advantage in their ability to operate in this market.
Meanwhile, Norway welcomes foreign investment as a matter of policy, but foreign ownership continues to be restricted or prohibited in areas of financial services, mining, hydropower, and acquisition of property in areas regarded as politically sensitive.
BUDGET and Foreign Exchange Rate Policy
The GON actively uses active fiscal policy as a tool to help stabilize inflation and employment and meet long term challenges. Thus, fiscal policy becomes stimulatory during cyclical downturns while it becomes restrictive during upturns. Early next century, a sharp rise in public welfare spending (e.g., Pensions and health care) is expected to coincide with a decline in petroleum revenues. To help meet this challenge, the GON currently accumulates petroleum revenue in a state petroleum fund (invested in foreign bonds and equities) that reached USD 22.5 billion at end of 1998. The GON has run budgetary surpluses since 1993 because of revenue from the offshore petroleum sector.
Norway strives to keep its currency stable vis-a-vis the European Currencies (I.E., the Euro) generally on a "managed float" basis. The Krone's stability came under serious strain in 1998 as a result of a combination of factors-contagion from the Asian and Russian financial crises, the drop in oil prices, and market perceptions of slack in fiscal policy. The central bank raised key interest rates and allowed a free float of the Krone in August 1998. Following the launch of the Euro in January 1999 and an increase in world prices for oil in the first half of 1999, the Krone recovered against the Euro. When the EURO was introduced in January 1999, there was no major change in policy. According to the Norwegian Ministry of Finance the Krone will "shadow" the EURO in the same way as it shadowed the European currency unit (ECU) since 1993.
BALANCE OF PAYMENTS SITUATION and trade
Healthy Balance of Payments
Norway's economy remains highly dependent on foreign trade. While the country's balance of payments deteriorated for a few years after the 1986 collapse of world oil prices, Norway posted hefty current account surpluses from 1989 through 1997. Although the 1998 surplus slumped because of the fall in world oil prices, recovery is likely in 1999 and 2000 if oil prices recover as expected.
Significance of Foreign Trade
Norway's combined 1998 merchandise exports and imports accounted for nearly 53 percent of GDP, compared with about 20 percent in the U.S. Petroleum (crude oil, refined products and natural gas) represented 40 percent of total exports. The value of Norway's total exports tends to fluctuate along with world oil prices, while imports depend on domestic economic activity and foreign exchange rate variations.
Directions of Foreign Trade
According to official Norwegian statistics (which do not include indirect shipments of Norwegian oil), the U.S. remained Norway's sixth largest trading partner (exports plus imports) in 1998. The UK (Norway's major oil terminal), Sweden, Germany and the Netherlands topped the list. In the past decade, Norway has posted surpluses in its trade with the U.S. based largely on high levels of oil exports. In 1998, the trade surplus vis-a-vis the U.S. stood at USD 1.99 Billion, according to U.S. Department of Commerce statistics. (U.S. statistics do not include significant levels of exports trans-shipped through the EU to Norway.)
Taken as a group, the EU remains Norway's principal trading partner. In 1998, the EU accounted for 77 percent of Norwegian exports and 69 percent of imports. The other Nordic countries remain important trading partners. Trade with low-cost developing countries in Asia continues to increase although from a low starting point. Norway continues to look for ways to increase trade with central and Eastern Europe but such trade remains at low levels (less than three percent of total trade).
Norwegian Exports By Category
Primary and semi-processed goods account for some 80 percent of Norwegian merchandise exports. The remainder consists of exports of machinery, equipment, and various manufactured articles. In 1998, Norwegian merchandise exports totaled USD 40 billion with petroleum accounting for some 40 percent, followed by metals and metal products, chemicals, and foodstuffs (mostly fish).
Norwegian 1998 exports to the U.S. totaled USD 2.87 Billion, according to the U.S. Department of Commerce. Exports to the U.S. were dominated by crude oil and refined products, metals, chemicals, fish and various semi-processed and manufactured goods.
Norwegian Imports by Category
In 1998, the bulk of Norwegian merchandise imports (55 percent) consisted of machinery, equipment, and miscellaneous manufactured goods. These were followed by industrial inputs (40 percent) and food and beverages (six percent). Total 1998 imports stood at USD 37 billion. In addition to goods, Norway imported USD 15 billion worth of services, of which 22 percent involved ship maintenance and repair services and another 31 percent was accounted for by overseas tourism by Norwegians. Norway imported an estimated USD 1.5 billion worth of services from the U.S.
Norway's 1998 imports of goods from the US stood at USD 1.71 billion, with imports dominated by aircraft and parts, data processing and office equipment, defense-related and other machinery and equipment, other manufactures, various chemicals and industrial inputs, food beverages, and other manufactured consumer products.
Direct Foreign Investment in Norway
The total stock of direct foreign investment in Norway stood at an estimated USD 22.7 billion (book value) at end-1998, according to Norway's central bank. The U.S. remained Norway's leading single-country foreign investor followed by Sweden and the various EU member states. The stock of direct U.S. investment in Norway rose to an estimated USD 6.4 billion (28 percent of total foreign investment). While the bulk (68 percent) of U.S. investment in Norway remains in the petroleum sector, U.S. investors are diversifying into other areas (for example, metals and retailing).
INFRASTRUCTURE; LABOR MARKET; Y2K Preparedness
Infrastructure
The state and quality of Norwegian infrastructure remain good from a global perspective. The nature of Norway's mountains and valleys combined with a rather severe climate makes road transportation difficult during the winter. Railroads are well-developed in the southern part of the country, whereas most of the northern region can only be reached by ship, car or air. The country is generally accessible by air and a number of small airfields take care of local needs. Ports and harbors are well constructed and there are many deep-water and ice-free harbors on the long coastline.
LABOR MARKET
In 1998, Norwegian annual wage growth averaged 6.3 percent (Vs. 4.3 percent in 1997) reflecting increased tightness in the labor market. Looking to 1999-2000, annual wage growth will likely decline to the 4.5-5.5 percent range as economic growth becomes slower. Hourly wages in Norwegian manufacturing remain 30-40 percent higher than those in the U.S. The average work week is short in Norway, having been reduced to 37.5 hours from 40 hours in 1987.
In 1998, the unemployment (surveyed) rate dropped to 3.3 percent (vs. 4.1 percent in 1997) thanks to continuing economic expansion. This compares to a post-war high of 6.0 percent in 1993. Looking to 1999-2000, the unemployment rate will likely increase moderately because of reduced offshore activity and lower mainland growth. In 1998, the Norwegian labor force numbered 2.33 million (54 percent males) by mid-year out of a population of 4.50 million. The bulk (68 percent) of the employed (73 percent) was engaged in the services sector, followed by manufacturing (14 percent) and building construction (8 percent). The capital intensive offshore petroleum sector absorbed only three percent of the labor force.
Y2K preparedness
The GON is currently implementing a follow-up plan for handling the year 2000 (Y2K) problem in Norway. Although large public sector units and big private companies have almost completed preparations, small and medium-sized enterprises continue to lag behind. The director of the Action 2000 committee, a body under the Ministry of Trade and Industry tasked with implementing Norwegian Y2K plans, has expressed satisfaction with progress to date and predicted minimal impact on Norwegian society even at current levels of preparedness. Major breakdowns in critical sectors (e.g., Energy, health, defense, police, finance, food distribution) are unlikely because the GON has prepared special emergency plans for these sectors. According to a recent study (by the U.S. Gartner group), Norway is less Y2K prepared than the U.S. but about on par with Finland, France, Germany and Japan.
IMPLICATIONS FOR THE U.S.
Trade/Procurement Opportunities
Although the U.S. Dollar has strengthened about eight percent against the Norwegian Krone since 1997, most US Products and services remain competitive in Norway. There are still significant opportunities for U.S. Exports, including aircraft, oil technology and tourism. As in the past, greatest opportunities in Norway are for those goods which are in short supply or not produced domestically. The Norwegian market will therefore continue to offer interesting opportunities for U.S. suppliers of specialized high-tech machinery and equipment (such as oil and gas technology, aircraft, and defense products), various industrial raw material supplies, and other manufactured consumer goods.
Norway is in the process of implementing several mainland infrastructure projects. This includes modernization and rehabilitation of the country's railways as well as considerable investment in the military sectors (e.g., Frigates, aircraft). These projects offer opportunities for U.S. suppliers.
Investment Opportunities
Although investments in Norway's offshore petroleum sector appear to have peaked, Norwegian offshore petroleum developments will likely continue to provide the bulk of opportunities to U.S. investors in the coming decade. In 1997, oil companies operating on the Norwegian continental shelf estimated that their investment and other spending totaled USD 8.8 billion (market value). Looking ahead to 1999-2000, offshore oil and gas investment is expected to remain significant because of ongoing projects (For example, Asgard field development and several pipeline projects), the may 1999 north sea mini round, and the upcoming 16th licensing round in 2000.
Major Competitors/Challenges
Major competitors in the Norwegian market remain the EU countries, and low-cost producers in Asia and elsewhere. The existence of state monopolies and other non-tariff trade barriers will likely continue to complicate U.S. exports in some areas such as fruit, vegetables, drinks, pharmaceuticals, and communications equipment.
Oslo American Embassy Facilities
The American Embassy in Oslo remains well-equipped to assist American business visitors. Representing the U.S. Department of State, the Department of Commerce, and other Washington agencies, the Embassy provides services and information for U.S. exporters, investors, and their Norwegian partners. Trade specialists are available to counsel American companies, as well as Norwegian agents, importers and end-users. Attractive embassy facilities are available for seminars and receptions to promote American products and services. If you are interested in doing business in Norway and need an introduction to Norway's business community, first contact our u.s. Export assistance center in the U.S., of which there are over 100 offices or the embassy commercial section for assistance.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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