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.

Fund1m3m6m1yr3yr5yr10yr
Nordea 1 Norwegian Equity BP EUR in EU5.509.60-6.187.2212.2817.3527.50
Nordea 1 Norwegian Equity E EUR in EU5.419.35-6.556.409.7513.0318.19
Index : MSCI Norway GTR in EU3.828.00-12.85-0.01-0.1218.8542.80
Nordea 1 Norwegian Bond BP EUR in EU2.571.70-4.42-3.40-10.198.1426.70
Nordea 1 Norwegian Bond E EUR in EU2.511.51-4.81-4.10-12.204.1015.24
BNP Paribas B II Basket of Norwegian Bonds 3 Classic NOK in EU0.460.76-7.98-6.33-14.42
Nordea 1 Norwegian Kroner Reserve BP EUR in EU2.071.34-5.31-4.33-15.26-1.5815.90
Nordea 1 Norwegian Kroner Reserve E EUR in EU1.951.10-5.69-5.05-17.18-5.237.31

 

ABOUT THE AUTHOR
Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 16 years he has been based in London writing about funds and investments . From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope.

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