Typically considered one of the richest economies that exist in the world today, Norway is becoming increasingly vulnerable to the impact of external countries and regions. Throughout recent years, Norway's oil-rich economy has experienced an unparalleled level of prosperity as the prices of crude oil fueled record-high investments and boosted activity.
Today, Norwegians have the second highest per capita income in Europe, following Luxemburg. The Financial Supervisory Authority of Norway warned, however, that the country might be facing problems following the recognition of increasingly falling oil prices.
Although the future for Norway remains uncertain, the consensus is that various shocks could impact the economy. The high home prices and substantial level of household debt make the country vulnerable. Household debt and residential prices in Norway have grown to unprecedented levels and a turnaround in the market could easily reverse the recent growth in consumption, according to the FSA.
Norway's Economy in the Crosshairs
This is also going to affect Norway's lavish social welfare state. Socialized health care is a drag on the economy and highly expensive. Can Norway continue to pay for people that do not pay for themselves?
Most mortgages in Norway come with floating levels of interest, immediately reducing disposable income. On average, household debt is approximately 200% of income. Homes with owners beneath the age of 40 have a debt ratio closer to 300%.
The Factors Putting Norway at Risk
Oil-sector investments expect to slowdown in Norway this year, and the impact of that is likely to grow after the recent drop in crude oil prices. Brent crude is currently at a four-year low, under $83 per barrel, compared to $105 per barrel a year ago. A lasting and somewhat dramatic fall in oil prices could have serious effects on the Norwegian economy according to the FSA.
The output and earnings of oil companies are likely to drop further, followed by decreasing investment, which will lead to an impact on households and industries alike. The dominant oil company in Norway, Statoil, posted its first quarterly loss since it hit the stock market in 2001, amid investments that look far less profitable.
The company has suggested that it will need to cut costs and curb spending to stay afloat. Meanwhile, government revenue from oil and gas fields was 35% less during the third quarter, all because of lower energy prices, according to Petoro AS, the company responsible for managing resources.
Impressive Economic Savvy
Increased debt levels are also adding to Norway's risk factors, according to the FSA. Although the banks are currently meeting their capital requirements, lenders will have to be prepared for stricter requirements and more prudent shareholder payouts. Fortunately, at this point, unlike various other economies in Europe, Norway has no public net debt. Furthermore, the government has a wealth of tools to help fight back against a negative economic outlook, including the largest sovereign-wealth fund in the world, at $860 billion. America should take note that there is no public debt in Norway!