Economic studies
Norway

Norway

Population 5.2 million
GDP 96,930 US$
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Synthesis

major macro economic indicators

  2013 2014 2015(f)  2016(f)
GDP growth (%) 1.0 2.2 1.6 1.2
Inflation (yearly average) (%) 2.1 2.0 2.3 2.3
Budget balance (% GDP) 11.0 8.8 6.9 6.7
Current account balance (% GDP) 10.0 9.4 8.7 8.1
Public debt (% GDP) 29.2 30.1 32.5 32.2

 

(f) Forecast

STRENGTHS

  • Current account and public finances sustained by oil and gas despite fall in world prices
  • Discovery of new oil fields
  • Safe haven status for Norwegian currency for investors
  • Broad political consensus
  • Solid banking system
  • Tensions on the job market eased by immigration

WEAKNESSES

  • Budget in deficit without oil and gas
  • Very high level of household debt
  • Competitiveness eroded by high salaries
  • Labour shortage in high value-added sectors

RISK ASSESSMENT

Economy sustained by consumption in the face of weak oil prices 

There was a slowing in activity in 2015, reflecting the reduction in investments in oil and gas and other sectors. Growth in 2016 is expected to be slightly more buoyant. Low oil prices will continue to depress the oil and gas sector, which accounts for 20% of GDP, 30% of investments and 60% of total exports. Investments in this sector are expected to decline further, although at a slower pace than in 2015.  It will therefore be domestic demand that will sustain economic growth thanks to public investments (less restrictive fiscal policy) and private consumption. This latter will remain strong (despite high household debt levels, 220% of gross disposable income) thanks to the low interest rate set by the central bank, rising property prices and wage growth (although at a slower rate than has been the case). The expected continuation of low oil prices has, however, undermined household confidence, which could have a negative impact on consumption. Unemployment rate should slightly increase, but this will still be at a relatively low level (4.6% of the work force). Non-oil exports could however benefit from the previous depreciation in the Norwegian krone against its principal trading partners.  The construction (boosted by public investments) and fishing sectors will also help bolster the economy.

The two greatest risks are further falls in oil and housing prices, which would have negative consequences for household consumption. Norway could dig into the financial reserves of its sovereign fund, the biggest in the world in terms of assets (approximately 800 billion euros, 2.2 times GDP) in order to maintain economic activity.

The inflation rate will remain at a level near its target (2.5%) because of more expensive imported goods (depreciation of its currency) and wage rises.

 

Small debt and deficit, large current account surplus 

The current account surplus is expected to shrink slightly in 2016, essentially because of the contraction of the balance of trade in goods and services surpluses. Domestic demand will increase the amount of imports, which will grow at a faster pace than exports. This latter should benefit from the earlier depreciation of the currency, but are likely, however, to be weakened by the decline in oil and gas exports, which account for one-third of total exports.

In its 2016 budget, the government introduced a series of measures aimed at reducing dependence on natural resources in a context of low prices. The main elements include a reduction in corporation tax (from 27% to 25% and finally 22% by 2018) and income tax in order to increase the attractiveness of non-oil investments and support private consumption. The budget also includes finance for infrastructure projects and specific measures for stimulating employment, improving productivity and competitiveness. The 2016 budget will thus have a twofold impact on spending (up) and revenues (down, intensified by the oil effect). The budget surplus is thus expected to shrink, whilst still remaining at an extremely comfortable level relative to other OECD countries. Public debt will also reduce.

The most recent stress tests indicated that the banking system was sufficiently resilient, following a doubling of its capital since the 2008 crisis.

 

A Stable political system 

With the 2016 budget, the Prime Minister Erna Solberg, elected in September 2013, is hoping to reinvigorate the economy ahead of the parliamentary elections of September 2017.

Norway dropped one place to eighth in the latest World BankDoing Businessranking. The institution felt that there had been deterioration in conditions for obtaining credit and the process for starting a business.

 

(Last update : January 2016 )

Payment

 

Bills of exchange and cheques are neither widely used nor recommended, as they must meet a number of formal requirements in order to be valid. In addition, creditors frequently refuse to accept cheques as a means of payment. As a rule, both instruments serve mainly to substantiate the existence of a debt.

 

Conversely, promissory notes (gjeldsbrev) are much more common in commercial transactions and offer superior guarantees when associated with an unequivocal acknowledgement of the sum due that will, in case of subsequent default, allow the beneficiary to obtain a writ of execution from the competent court (Namrett).

 

Bank transfers are by far the most widely used means of payment. All leading Norwegian banks use the SWIFT electronic network, which offers a cheap, flexible and quick international funds transfer service.

 

Centralising accounts, based on a centralised local cashing system and simplified management of fund transfers, also constitute a relatively common practice.

 

Electronic payments, involving the execution of payment orders via the website of the client’s bank, are rapidly gaining popularity.

 

Debt collection

 

The collection process commences with the debtor being sent a demand for the payment of the principal amount, plus any contractually agreed interest penalties, within 14 days. The demand letter must include all the invoice copies for which the debt refers to.

 

Where an agreement contains no specific penalty clause, interest starts to accrue 30 days after the creditor serves a demand for payment and, since 1st January 2004, is calculated at the Central Bank of Norway’s base rate (Norges Bank), in effect on 1st January and 1st July of the relevant year, raised by seven percentage points.

 

In the absence of payment or an agreement, creditors may go before the Conciliation Board (Forliksrådet), a quasi administrative body, located in each municipality, comprising non-professional judges, elected for a 4 year term, sitting collectively with 3 members, to obtain a speedy ruling at low cost.

To benefit from this procedure, creditors must submit documents authenticating their claim, which should be denominated in Norwegian kroner (NOK).

 

The Conciliation Board then allows the debtor a short period to respond to the claim lodged before hearing the parties, either in person or through their official representatives (stevnevitne). At this stage of proceedings, lawyers are not systematically required. The agreement therefore reached will be enforceable in the same manner as a judgement.

 

If a settlement is not forthcoming, the case is referred to the court of first instance for examination. However, for claims found to be valid, the Conciliation Board has the power to hand down a decision, which has the force of a court judgement.

 

Where a defendant fails to respond to the summons in the prescribed time (about 3 weeks) or fails to appear at the hearing, the Board passes a ruling in default, which also has the force of a court judgement.

 

 

Many disputes, mostly concerning civil or commercial claims, are handled through recourse to the Conciliation Board.

 

The reform of the civil procedure in June 2005 (applicable as of 1st January 2008), aims to provide a more efficient and swift civil justice and strongly encourages the parties either to reach an out of court settlement or attempt to make an arrangement, via the Conciliation Board.

 

More complex or disputed claims are heard by the court of first instance (Byret). The plenary proceedings of this court are based on oral evidence and written submissions. The court examines the arguments and hears the parties’ witnesses before delivering a judgment.

 

Norwaydoes not have a system of commercial courts, but the Probate Court (Skifteret) is competent to hear disposals of capital assets, estate successions, as well as insolvency proceedings.

 

Arbitration (voldgift) is mainly used for commercial disputes with international ramifications, under the Arbitration Act of 14 May 2004.

Insolvency trend Norway
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