Asylum seekers offset low oil in Norway

Rising numbers of asylum seekers in Norway and across Europe are set to provide an economic boost to offset the impact of a slump in the oil and gas sector, according to the latest 2016 outlook published by Statistics Norway.

The agency notes that investments in the Norwegian oil sector extraction industry have slumped 25% from their peak in the third quarter of 2013. The $45 price per barrel is not expected to rise above $60 until the end of 2018, it added.

However, this hit to the Norwegian economy will be offset by rising government spending in response to the huge flux of “asylum seekers” (the term used by Statistics Norway) that have come to Europe in the past year, which in turn have led to a significant fiscal response.

“The orientation of the fiscal policy has long stimulated the Norwegian economy and helped to cushion the downturn we are currently experiencing. Measured by the increase in the structural non-oil budget deficit, fiscal policy was highly expansionary in 2014, and just as expansive this year. There will be significant easing of the direct taxation of businesses and households in 2016, roughly in line with this year.”

“The large influx of asylum seekers in autumn 2015 will mean a further increase in petroleum revenue spending in 2016. Austerity measures aimed at ‘financing’ most of the expenditure increase are expected to have relatively modest real economic effects. Thus, the stimulating effect on the economy is greater than the growth in the budget deficit would suggest. We assume that the orientation of the fiscal policy in 2017 and 2018 will also have an expansionary effect, but to a much lesser extent than in 2016.”

The MSCI Norway index has returned -0.01% over the 12 months to 2 December, calculated in gross euro terms, data from FE suggest. Over three years, the index has returned virtually nothing to investors (see table below).

Certain funds focused on Norwegian assets have likewise struggled to make returns over the past three years, other data suggest.

Fund 1m 3m 6m 1yr 3yr 5yr 10yr
Nordea 1 Norwegian Equity BP EUR in EU 5.50 9.60 -6.18 7.22 12.28 17.35 27.50
Nordea 1 Norwegian Equity E EUR in EU 5.41 9.35 -6.55 6.40 9.75 13.03 18.19
Index : MSCI Norway GTR in EU 3.82 8.00 -12.85 -0.01 -0.12 18.85 42.80
Nordea 1 Norwegian Bond BP EUR in EU 2.57 1.70 -4.42 -3.40 -10.19 8.14 26.70
Nordea 1 Norwegian Bond E EUR in EU 2.51 1.51 -4.81 -4.10 -12.20 4.10 15.24
BNP Paribas B II Basket of Norwegian Bonds 3 Classic NOK in EU 0.46 0.76 -7.98 -6.33 -14.42
Nordea 1 Norwegian Kroner Reserve BP EUR in EU 2.07 1.34 -5.31 -4.33 -15.26 -1.58 15.90
Nordea 1 Norwegian Kroner Reserve E EUR in EU 1.95 1.10 -5.69 -5.05 -17.18 -5.23 7.31

 

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