Economic Analysis
Norway

Norway

Population 5.2 million
GDP per capita 74598 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (e) 2017 (f)
GDP growth (%) 1.9 1.6 1.1 1.3
Inflation (yearly average) (%) 2.1 2.1 3.4 2.0
Budget balance (% GDP) 8.7 6.2 3.2 3.0
Current account balance (% GDP) 11.1 9.0 5.3 5.1
Public debt (% GDP) 32.9 37.2 40.1 43.2

 

(f) Forecast

STRENGTHS

  • Current account and public finances sustained by energy market despite fall in world prices
  • Discovery of new oil fields
  • Norwegian currency's safe haven status 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

Growth supported by private consumption

Low oil prices led to a slowdown in activity in 2016, because of a reduction in oil investments and weaker private consumption. In 2017, growth is expected to be a little firmer, driven by private consumption and investment in non-oil sectors. However, the weak oil prices will still depress the oil and gas sector, which accounts for 20% of GDP, 30% of investments and 60% of total exports. Household consumption is, therefore, expected to support Norwegian growth, thanks to historically low interest rates (0.5%) set by the central bank, as well as rising property prices boosted by easy access to credit. The government's expansionary fiscal policy will also help to encourage public investment and household consumption (despite high rates of debt: 220% of gross disposable income). Moreover, unemployment will stabilise (4.5%), with a halt to oil sector companies' plans to lay off workers. The recovery of investment in the other sectors will also support the economy, especially in shipbuilding and construction. Past depreciation of the Norwegian krone (15% since 2014) benefited the tourism sector and improved the competitiveness of Norwegian exports, while, however, creating inflation (making imported goods more expensive). Inflation should, however, fall back below the central bank target (2.5%), with the stabilisation of the krone. The two greatest risks are further falls in oil and house prices, which will adversely affect household consumption.

Norway could, therefore, dig into the financial reserves of its sovereign fund, the biggest in the world in asset terms (about EUR 800 billion, or 2.2 times GDP) in order to maintain the level of economic activity.

 

Twin surpluses still considerable and low debt

The current account surplus will decline slightly in 2017 due to a contraction in the trade balance surplus. The drop in oil exports could be partially offset by higher exports in other sectors, which are expected to benefit from the depreciation of the Norwegian krone. Nonetheless, strong domestic demand will sustain imports, which will grow more strongly than exports. Imports from emerging countries (notably China) will represent an increasingly important share of Norway's trade transactions, although European countries will continue to be its main trading partners. Weak Euro zone demand combined with the consequences of Brexit could be risk factors for exports, 23% of which are sent to the United Kingdom.

In its 2017 budget, similar to that of 2016, the government presented a series of measures aimed at stimulating activity and reducing the economy's dependence on natural resources. The main elements include a cut in corporation tax (from 27% to 22% by 2018) and income tax so as to increase the attractiveness of non-oil investment and support private consumption. This budget also includes finance for infrastructure projects and specific measures to stimulate employment and competitiveness, especially in the regions most affected by the weak oil prices. Despite a policy of higher spending and lower income, the budget surplus should still be considerable and at a very comfortable level relative to other OECD countries. Moreover, external shocks could be contained thanks to revenues from the Norwegian sovereign fund, 4% of which can be drawn on the budget. The public debt is also expected to edge up, while remaining very sustainable given the reserves the country has available.

 

A fairly stable political system

The centre-right government coalition, led by Erna Solberg, is expected to stay in place at least until the September 2017 parliamentary elections. However, disagreements are appearing within this coalition, exacerbated against a backdrop of sluggish growth. The Progress Party (FrP) is, for example, likely to advocate a less permissive immigration policy. Prime Minister Erna Soldberg is relying on a policy of fiscal stimulus to reinvigorate the economy ahead of the September 2017 parliamentary elections.

Norway has risen two places in the World Bank's 2017Doing Businessrankings, so it is now sixth, the institution considers that the conditions for the performance of contracts have improved. 

 

Last update : January 2017

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

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 the 1st January or the 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. 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.

 

Legal proceedings 

Ordinary 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, for awards issued by EU countries, particular and advantageous enforcement mechanisms will be applied, 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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