Norway, fiscal and monetary stimulus boosts economic recovery

The Expected Defaults Frequency Indicator in Norway has fallen consistently since March 2009. However, current levels suggest the maintaining of a high risk of default.
Analisis Credito y Caución
Madrid - 25-jan-2010

The Organisation for Economic Co-operation and Development (OECD) stated in November 2009 that economic recovery has already started in Norway, with the large fiscal and monetary stimulus boosting consumption and sustaining employment. Preliminary figures by Statistics Norway show that GDP increased by 0.9% in Q3 of 2009 compared to the previous quarter, based on rising government and household consumption, a rebound in manufacturing production and exports, and increased activity in oil and gas extraction. The governments financial strength - derived from the large oil sector together with several spending programmes, have ensured that Norway has fared better throughout the crisis than many other countries. That said, it is mainly larger companies that have benefited from these programmes, while smaller companies still face problems.

The main sectors affected by the economic downturn have been basic metals, wood and wood products and furniture. In the shipbuilding and oil industry, we have seen investments postponed, and there are concerns that shipbuilding may face continued problems due to a lack of new orders. As you would expect, in Norway the fish sector is very important. But, while salmon farmers have been able to raise prices significantly, thanks in part to the outbreak of a salmon virus epidemic in Chile, the white fish and stock fish subsectors are struggling because of the slump in Norways main export markets.

Acording to Credito y Caucións view, SMEs are the main victims of corporate insolvencies, which, during the period January to November 2009, rose 46.2% over the same period in 2008 reaching a total of 4,649. However, the increase has started to flatten out. In Q1 of 2009 the year-on-year increase was a massive 88%, while by November the year-on-year rise had reduced to just 12.4%. Conditions for refinancing have improved as we approach the end of 2009, and, while five stock-listed companies went insolvent in Q1 of 2009, we have seen no further such insolvencies since our last analysis in June.

The Expected Default Frequency (EDF) indicator for Norway has been consistently declining since March 2009.  However, the current levels remain in line with readings from late 2008, indicating elevated default risk among listed companies.

A modest rise in unemployment in 2010

The shipyard industry and SMEs in construction could face enduring problems next year, and Crédito y Caución expect high pressure on prices in the paper industry during 2010. The International Monetary Fund forecasts GDP growth of 1.3% in 2010 after a decline of 1.9% this year. The OECD expects growth in private investment to resume next year, once consumption growth is established and credit markets return to normal. The unemployment rate is currently 3.1% - slightly better than forecast in the spring (3.8%) - and is low compared to most EU countries, but we expect a moderate increase in unemployment in 2010. The future development of oil prices and the Norwegian crown exchange rate are hard to predict, but will play an important part in Norways economic performance in the coming months.

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