Norway’s CB survey shows major slowdown in business activities

A survey of Norway’s central bank (CB) has showed sharp decline in business activities and investment. Norwegian companies have sharply cut their investment plans because of the coronavirus outbreak and a subsequent decline in the price of crude oil, the country’s main export, a central bank business survey showed on Tuesday.

“The COVID-19 outbreak and containment measures have led to a sharp fall in economic activity this spring. Contacts expect a broadly unchanged activity level over the next half-year,” Norges Bank said.

The survey comes ahead of the central bank’s monetary policy meeting scheduled for June 18.

“The decline is most pronounced in household services, but activity has also fallen substantially in commercial services, oil services and retail trade,” Norges Bank said.

In some sectors the fall was so sharp it was difficult to measure.

“There is therefore reason to believe that the real fall in output is greater,” Norges Bank said.

Last month, the central bank cut its key policy interest rate to a record low zero per cent and said it may keep it at that level for several years.

But statistics Norway said on Friday the economy could recover somewhat faster than it had predicted only six weeks earlier as the country got on top of the outbreak early and is now rapidly opening up.

Norwegian banks should hold on to their capital during the coronavirus outbreak and refrain from making dividend payments or other distribution to shareholders, Norway’s Financial Supervisory Authority (FSA) said in a report on Tuesday.

“In light of the high level of uncertainty and the significant loan losses that may arise, it is crucial that the banks retain their equity in the period ahead rather than make distributions in the form of dividends, etc,” Director General Morten Baltzersen said.

Norway’s economy will recover more quickly than expected from the coronavirus-induced recession as the country got on top of the outbreak early and is now rapidly opening up, Statistics Norway (SSB) said on Friday.

Output contracted by 11.4% in the two months since the end of February but the outlook for the rest of the year now looks better than it did six weeks ago, SSB said.

Among the first in Europe to close down society to combat the pandemic, Norway on March 12 shut schools, kindergartens and a wide range of private services such as hair salons and restaurants, and asked those who could to work from home. By March 24 Norway ranked second in Europe in per capita testing for the virus, according to the Our World in Data database, and in April the government said the disease was “under control” and most restrictions would be lifted over a two-month period.

Norway will continue to rely on social distancing rules to prevent a resurgence in infections.

“The infection rate has been reduced faster than expected, the infection prevention measures have been eased to a greater extent and the scope of the financial packages has increased more,” SSB said.

The mainland economy, which excludes Norway’s large but volatile oil sector, is forecast to shrink by 3.9% this year versus a fall of 5.5% predicted on April 24 when the country was in lockdown.

“We expect growth to pick up sharply again towards the end of the year and early 2021,” SSB said. It expects the economy to grow by 4.3% in 2021.

The unemployment rate, which rose above 15% in the first week of April, has also begun to decline with SSB forecasting it to average 5.1% in 2020, lower than predicted six weeks ago.

The central bank cut its key policy interest rate to a record-low zero per cent to support the economy through the crisis and is likely to maintain that level until 2022, while the government announced record fiscal spending.

Households have also kept up spending, and housing prices rose in May.

“There is good reason to expect that April will mark the low point for the mainland economy during the corona crisis,” Handelsbanken wrote in a note to clients.

Norwegian oil and gas investment, a key economic driver, is expected to decline sharply in 2021 after rising less than previously anticipated this year, an industry survey by the national statistics agency (SSB) showed on Thursday.

The biggest drop will come in the exploration for new reserves and in spending on development plans, while ongoing oilfield construction work continues largely as expected, the data showed.

Reuters