Norway’s economy will expand at a slower pace than previously forecast as weaker demand from crisis-hit Europe and a strong krone hurt exports, Statistics Norway said.
The mainland economy, which excludes income from oil and shipping industries, will grow 2.6 percent this year and 3.1 percent next year, down from 3.5 percent in 2012, the Oslo-based agency said today. This compares with December growth forecasts of 2.9 percent for 2013 and 3.5 percent for 2014. In 2015, non- oil output will expand 2.8 percent, the agency said.
“Activity growth in the Norwegian economy fell toward the end of 2012 and is expected to show a moderate development going forward,” the agency said. “The economic downturn among Norway’s trading partners is set to continue well into 2015. Together with continual losses of cost-competitiveness in Norwegian businesses, this will lead to a weak development in traditional Norwegian exports.”
A recession in Europe has started to hurt the world’s fourth-richest nation per capita. Exporters are struggling to cope with a record high import-weighted krone and slowing demand from the debt-burdened euro area. Mainland exports are estimated to fall 0.2 percent this year after rising 2.6 percent last year, SSB said.
The krone, which hit a nine-year high against the euro last year, weakened 0.2 percent to 7.4367 by 11:03 a.m. in Oslo.
The agency forecast the currency will be at 7.3 per euro in 2013 and 2014.
Norges Bank has kept its benchmark deposit rate unchanged at 1.5 percent since March to prevent policy from growing too out of step with other central banks as it strives to limit krone gains. Surging house prices and rising private debt levels have prompted policy makers to signal a rate increase as early as this month.
Weaker than estimated economic growth may prompt policy makers to wait until next year before raising rates, according to Erik Bruce, senior economist at Nordea Bank AB, who forecasts unchanged rates until March 2014.
“Norges Bank will try to avoid a strengthening of the krone,” Bruce said by phone. “It’s hard to increase interest rates in Norway without a stronger krone and a stronger krone will turn into weaker growth and lower inflation.”
A slowdown in the pace of investments in the country’s oil and gas industry this year may also add to rate pressures. The statistics agency yesterday lowered its estimate for investments to 198.7 billion kroner in 2013 from a December estimate of 207.8 billion kroner. The agency surveys oil companies on a quarterly basis.
Total gross domestic product will expand 2.4 percent this year, 2.6 percent next year and 2.2 in 2015, SSB said.
Unemployment will be 3.4 percent this year, next year and in 2015, the agency said. Underlying inflation will be 1.2 percent and 1.6 percent this year and next, respectively, the agency forecast. Price growth is seen at 1.9 percent in 2015, below the central bank’s 2 percent target.
In two separate releases the statistics office said the pace of annual credit growth in Norway had slowed to 6.3 percent in January from 6.5 percent in December, while industrial production fell 7.5 percent in January from a year earlier.
Norges Bank policy makers will next meet on March 14 to decide on interest rates.
“We think interest rates abroad will be very low so there really isn’t room for any strong increase in rates in Norway due to the problems with a stronger krone if they did and inflation is not a problem in Norway,” Bruce said.
To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net
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