Can Norway’s oil problems bring new opportunities?

2015 was a challenging year for the Norwegian economy. 2016 is set to be worse.

At a time when some campaigners for Britain to leave the European Union are trumpeting the ‘Norwegian model’, Norway’s own prospects do not look so rosy.

The problem is oil.

In 2015, the petroleum sector – Norway’s most important industry – accounted for 21.5 per cent of Norway’s GDP, and almost half (48.9 per cent) of total exports.

Oil is the source of Norway’s fortune. The oil and gas sectors provide a large number of jobs, making companies in these sectors the cornerstone of many communities.

But when the price falls, trouble follows.

The price for the benchmark Brent oil blend reached a 12-year low of US$29.73 a barrel in January 2016. Eighteen months earlier, it had been at US$115.

The price fall led to a currency fall: the Norwegian crown (krone) lost 30 per cent of its value against the US dollar over the same period.

Most leading economies see falling energy prices as a blessing. For Norway, it is a fast track to economic problems.

Consequences of the oil price decline

These problems are not limited to the energy sector.

Lower demand for goods and services from the petroleum sector has had spillover effects on the mainland economy in Norway, reducing demand for labour and increasing unemployment.

The impact on Western Norway

StavangerUnemployment in Hordaland County
Unemployment in Rogaland County
Oil Price (US$)

Some regions have suffered in particular.

In Stavanger (pictured), Norway’s ‘oil capital’, house prices have dropped by 7.4 per cent from January 2015 to January 2016. In Norway as a whole, property prices are up 4.4 per cent in the same period.

Overall, Norway’s unemployment rate now stands at 4.8 per cent, with 134,000 people out of work – up 48,000 people in two years. The petroleum industry alone has cut 30,000 jobs.

Other European countries would see an unemployment rate of less than five per cent as a good problem to have – but all things are relative. For Norway, this number is of serious concern, representing a twenty-year high.

Crisis brings opportunities

Some sectors may benefit, and help soften the impact of job losses in the oil and gas sectors.

Other sectors have long yearned for (more) engineers, but been unable to match the financial lure of  oil and gas companies. Other sectors may now be able to attract some of the 8,000 engineers who have lose their jobs.

Elsewhere, Norway’s problems can be turned into opportunities.

The fall in the oil price has led to lower inflation and a depreciation in the value of the krone.

A weaker krone boosts competitiveness for Norwegian firms facing competition from abroad. For export industries not related to petroleum, 2015 was their best year in decades in 2015. Salmon exporters are doing very well by exploiting the weakness of the krone.

And despite being commodity-based, Norway’s economy is still strong. During the financial crises of 2008, the Oslo Stock Exchange (pictured) reached a low of 225 points; the lowest value in in 2015 was more than double that, at 515 points.

The main index of the Oslo Stock Exchange (April 2015 to April 2016)Oslo stock exchange

And there are significant shifts taking place in the economy.

Investments are dropping in the oil and gas sectors, but are on the rise in infrastructure and other parts of Norwegian industry.

The ‘green shift’ is also a source of potential growth.

This term became the political buzz phrase of 2015, with politicians from the left and right talking about climate change and an environmentally-friendly restructuring of the Norwegian economy.

2015 was tough. 2016 may be tougher. But if Norway can be flexible and turn its problems into opportunities, there is a good chance of a rebound in 2017.

Words  Peter Skovholt Gitmark (Burson-Marsteller Oslo) with David O’Leary
Photos  CC/Flickr wefi_official; CC/Flickr magnera; CC/Flickr gelucho; CC/Flickr brostad

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