Economic Studies
Norway

Norway

Population 5.3 million
GDP per capita 81,550 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.3 1.3 1.2 -5.2
Inflation (yearly average, %) 1.9 2.8 2.2 1.3
Budget balance (% GDP) 5.0 7.8 6.4 0.8
Current account balance (% GDP) 5.7 7.1 4.1 2.5
Public debt (% GDP) 37.8 39.4 40.4 40.5

(e): Estimate. (f): Forecast.

STRENGTHS

  • Oil and natural gas deposits
  • High standard-of-living
  • Broad political consensus
  • Well-capitalized banking system
  • Large sovereign wealth fund (around 300% of mainland GDP)

WEAKNESSES

  • Budget deficit when excluding oil and gas revenues
  • High household debt
  • Significant labour costs
  • Shortage of skilled workers

RISK ASSESSMENT

COVID-19 measures and lower oil revenues hit the Norwegian economy

The economic outlook is mainly shaped by the COVID-19 pandemic. The first case in Norway was diagnosed on 26 February. The pandemic peaked at the end of March. Since late April, new daily infections are limited. As of 9 August 2020, 9,638 cases were reported (0.17% of the population) with 256 deaths. This means that the Norwegian government has been one of the most successful in dealing with the pandemic in Europe, so far. Containment measures announced firsthand on 12 March included the closure of all educational institutions, gyms, swimming pools, hotels, pubs, bars and the cancellation of all public events. Borders were closed on 16 March and gatherings over 5 people were banned. Shops remained open, but contact services (like hairdressers) had to close for several weeks. The measures were gradually lifted from mid-April onwards. Borders were opened to EU/EFTA countries on 15 July (except to several regions in Sweden).

 

These restrictions hit consumption, investment and external trade, and Norway entered in one of its deepest recessions since World War II (GDP in Q1 2020: -1.5% QOQ) with a provisional nadir in Q2 2020. The main factor triggering the recession was not sagging domestic demand, but the deep contraction on the oil and gas market. The Norwegian energy sector accounts for 17% of GDP, 19% of investments and 52% of exports. Due to the global lockdown and the associated decrease in industrial demand, the price for North-Sea oil Brent dropped from 66 USD/Barrel at the beginning of January to a minimum of 17 USD/Barrel in mid-April. The sharp fall in prices bit severely into the turnover of oil producers. To prop up the price, Norwegian producers, like the OPEC+ group, reduced their production (by -250,000 bpd in June and -134,000 bpd July – December 2020, from a high of 1,805,000 bpd in April) bringing the price back up to around 43 UD/Barrel in July. The collapse of domestic and external demand was strongly reflected in the labour market. The unemployment rate of the Labour and Welfare Administration (NAV) shot up from 2.3% in February to an all-time high of 10.6% in March. Along with the easing of restrictions, the unemployment rate decreased again and stabilized at around 4.9% in July, which is still 2.5 percentage points above the level of July 2019. To cushion the economic downturn, the government decided several support measures worth NOK 166 billion (4.5% of total 2019 GDP). These include larger wage subsidies for temporary lay-offs and higher unemployment benefits within the unemployment insurance scheme, the lowering of the reduced VAT rate from 12% to 6%, support to sustainable businesses by taking over their fixed costs, grants for start-ups and deferrals of various tax payments. Furthermore, the government introduced a state guarantee in loan schemes for businesses, including SMEs. The Norges Bank reneged on its recent exit out of the ultra-expansive monetary policy. From February to May, the central bank cut its leading interest rate from 1.50% to 0% and provided additional liquidity to banks in form of loans of diverse maturities.

 

Still a solid financial situation thanks to the immense sovereign wealth fund

Because of the extensive restrictive economic measures, as well as low oil and gas revenues, government spending is expected to be appreciably higher than its revenues, which is uncommon considering the last 20 years. In normal times, the fiscal rule limits withdrawals from the sovereign wealth fund (SWF) to 3% of the fund’s return. In times of crisis, this rule is relaxed, so that the support of the SWF keeps the public budget at a small surplus. The burden of the public debt will therefore remain moderate.

 

The current account surplus should shrink, mainly due to lower demand from main export destinations: UK, Germany, the Netherlands and Sweden. However, since the imports of products and services have decreased too (albeit not as much as exports), the decrease of the current account surplus should remain limited.

 

Government will continue until the next election in 2021

Following the parliamentary elections held in September 2017, Prime Minister Erna Solberg of the Conservative Party led a minority governing coalition with the Progress Party (FrP), and, since January 2018, with the Liberal Party. However, the government was still dependent on the support of the Christian Democrats. They finally joined the coalition in January 2019, which gave the government more stability. Nevertheless, since 2017, opinion polls for the right-wing libertarian FrP, which is inter alia focused on restricting immigration, were falling. In January 2020, this party got into a fight with PM Solberg about bringing a woman, suspected of affiliation to the Islamic State, and her children home from Syria. The FrP left the government, which has been carrying on, again, as a minority coalition. However, Solberg’s Conservative Party gained some support with the successful handling of the COVID-19 outbreak, improving its poll result from 18% in February to 25% at the end of July 2020 (which is the support share of the last election). In this context, the coalition should hold until the next election on 13 September 2021.

 

Last updated: August 2020

Payment

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.

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).

Debt collection

Amicable phase

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.

Where an agreement contains no specific penalty clause, interest starts to accrue 30 days after the creditor serves a demand for payment and, since 2004, is calculated at the Central Bank of Norway’s base rate (Norges Bank) in effect as of either January 1 or July 1 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. To benefit from this procedure, creditors must submit documents authenticating their claim, which should be denominated in Norwegian kroner.

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.

 

Legal proceedings 

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.

A case which is referred to the higher court will commence with a summons to appear before the municipal or District Court. The summons will be served on the debtor with an order to give the court notice of intention to defend if he so wishes.

Where a defendant fails to respond to the summons in the prescribed time (about three weeks) or fails to appear at the hearing, the Board passes a ruling in default, which also has the force of a court judgement. The length of proceedings varies from one court to another.

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.

Norway does 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.

 

Enforcement of a court decision

 

A domestic judgment is enforceable for ten years if it has become final. If the debtor does not comply with the judgment, the creditor can request compulsory enforcement of the judgment from the enforcement authorities, which will then seize the debtor’s assets and funds.

Even though Norway is not part of the EU, particular and advantageous enforcement mechanisms will be applied for awards issued by EU countries, such as EU payment orders or the European Enforcement Order, under the “Brussels Regime”. For decisions rendered by non-EU members, they will be enforced on a reciprocity basis, provided that the issuing country is party to a bilateral or multilateral agreement with Norway.

Insolvency proceedings

Out-of court proceedings

Private non-judicially administered reorganizations are common in Norway; even though there are not regulated by law. Debtors and creditors are free to make any kind of arrangements, but in practice the Debt Reorganization and Bankruptcy Act is often applied. A third party (a lawyer or an accountant) can handle the process if the parties wish it so.

 

Restructuring the debt

This procedure can only be initiated by a wiling debtor. His financial situation is assessed with a court-appointed supervisory committee and a composition proposal is prepared. If the court agrees, a composition committee as well as a court appointed trustee will manage the debtors’ operations and formulate a composition agreement. A debt settlement proceeding may result in a completed debt settlement, composition or the commencement of a bankruptcy proceedings.

 

Bankruptcy proceedings

Proceedings can be opened by court decision either from the debtor or creditor. The latter must guarantee for expenses related to the proceedings. The court will appoint a trustee and assess the need for a creditor committee prior to issuing a bankruptcy order and given the creditors time to file their claim (three to six weeks). All of the debtor’s assets are confiscated, the debt is evaluated and a list of claims is established.

Insolvency trend Norway
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