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Norway

Norway

Population 5.3 million
GDP 70,553 US$
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Synthesis

major macro economic indicators

 

  2015 2016 2017(f) 2018(f)
GDP growth (%) 1.6 1.0 1.9 2.4
Inflation (yearly average, %) 2.2 3.6 2.1 2.0
Budget balance (% GDP) 5.9 3.1 4.5 4.6
Current account balance (% GDP) 8.7 4.9 5.5 5.7
Public debt (% GDP) 29.2 33.1 34.8 35.9

(f): forecast

STRENGTHS

  • Current accounts and public finances sustained by oil and gas despite fall in world prices
  • Discovery of new oil fields
  • Broad political consensus
  • Well capitalised banking system
  • Large sovereign fund

WEAKNESSES

  • Budget deficit excluding oil and gas revenues
  • High household debt and high housing prices
  • Significant wage costs
  • Shortage of skilled labour in certain sectors

RISK ASSESSMENT

Growth supported by local demand

In 2018, activity would be boosted by private consumption and investment. Private consumption will benefit from the gradual decline in unemployment (4% in October 2017). Household disposable income is expected to increase due to higher wages, combined with lower income taxes and low inflation. The slight appreciation of the Norwegian krone in 2017 will help contain it, thanks to the drop in the price of imported goods. In addition, residential investment will be negatively affected by the significant indebtedness of households (221% of disposable income) and the stabilisation of real estate prices, due to the rapid increase in the housing supply and the rising rates on property loans (change of legislation). Investment outside the oil and real estate sectors should be particularly dynamic due to a higher utilization rate of production capacity, as well as loan conditions which are still very favourable (rate of interest at 0.5%). The industrial sectors will benefit greatly from this improvement, especially the pharmaceutical sector, fisheries, metallurgy and forestry. The energy sector (mainly oil and gas), which accounts for 20% of GDP, 30% of investments and 55% of total exports, will improve in 2018. The moderate rise in oil prices will encourage investment in the development of oil fields that have already been discovered, such as Johan Sverdrup, whose entry into production is planned for early 2019. On the other hand, low hydrocarbon prices would still weigh on investments in the exploration of new deposits. The dynamism of external demand, especially from the euro zone, will lead to trade having a positive contribution to growth. However, the slowdown in UK activity (23% of exports) could limit this contribution.

 

A very comfortable budget and external situation

Fiscal policy will remain focused on improving competitiveness and diversifying the economy, in order to reduce the country’s dependence on the energy sector. Nevertheless, the 2018 budget will be less expansionary than the previous ones, making it possible to clear a very comfortable surplus. In fact, most of the exceptional measures taken in 2016, aimed at redirecting the jobs destroyed in the oil industry towards construction, will be abolished due to the low unemployment level. In addition, public investment will be limited to transportation infrastructure (roads, public transportation and rail networks). However, the government will maintain its investment attraction policy by pursuing the reduction of corporate tax (from 27% to 24% between 2015 and 2018). Remaining tax measures, including lower income tax, will be financed by an increase in VAT on transport and tourism-related activities (from 10% to 12%). The fiscal rule limiting withdrawals from the sovereign fund to 3% of its value again will be respected. Nevertheless, the non-oil deficit will amount to 7.8% of GDP in 2018, illustrating the country’s dependence on oil revenues and dividends from its sovereign fund. The public debt should increase slightly, while remaining very sustainable insofar as the country has one of the largest sovereign funds in the world in terms of assets (nearly $1 trillion under management).

The current account surplus is expected to remain strong in 2018, reflecting the improvement in the balance of goods and income. The dynamism of exports will offset that of imports. The surplus of the primary revenue balance, thanks to the increase of the interest collected in connection with foreign investments, will be offset by the deficit of the transfer balance, related to the contribution of the country to the European budget, as well as to the aid granted to developing countries.

 

Government renewed but weakened by dissension within the coalition

After the parliamentary elections of September 2017, the centre-right coalition, in power since 2013 and composed of the Conservative Party, the Progress Party, the Christian Democrats (KrF) and the Liberals, has a sufficient number of seats to maintain a majority in Parliament (88 seats out of 169). Although the centre-left parties won the popular vote, they do not have a majority in Parliament, as the electoral system gives rural areas proportionally more seats than densely populated regions. Nevertheless, the formation of the new government was made difficult by the reluctance of the KrF and the Liberals to renew their support for the government, even though they did not already have any posts. Negotiations have therefore been postponed until early 2018, after the vote on the budget. It therefore seems likely that Erna Soldberg’s government will include members of both parties in order to avoid any potential political deadlock.

 

Last update : January 2018

Payment

Bills of exchange and cheques are neither widely used nor recommended, as they must meet a number of formal requirements in order to be valid. In addition, creditors frequently refuse to accept cheques as a means of payment. As a rule, both instruments serve mainly to substantiate the existence of a debt.

 

Conversely, promissory notes (gjeldsbrev) are much more common in commercial transactions, and offer superior guarantees when associated with an unequivocal acknowledgement of the sum due that will, in case of subsequent default, allow the beneficiary to obtain a writ of execution from the competent court (Namrett).

 

Bank transfers are by far the most widely used means of payment. All leading Norwegian banks use the SWIFT electronic network, which offers a cheap, flexible and quick international funds transfer service.

 

Centralising accounts, based on a centralised local cashing system and simplified management of fund transfers, also constitute a relatively common practice.

 

Electronic payments, involving the execution of payment orders via the website of the client’s bank, are rapidly gaining popularity.

Debt collection

Amicable phase

The collection process commences with the debtor being sent a demand for the payment of the principal amount, plus any contractually agreed interest penalties, within 14 days.

 

Where an agreement contains no specific penalty clause, interest starts to accrue 30 days after the creditor serves a demand for payment and, since 2004, is calculated at the Central Bank of Norway’s base rate (Norges Bank) in effect as of either the 1st January or the 1st July of the relevant year, raised by seven percentage points.

 

In the absence of payment or an agreement, creditors may go before the Conciliation Board (Forliksrådet), a quasi-administrative body. To benefit from this procedure, creditors must submit documents authenticating their claim, which should be denominated in Norwegian kroner (NOK).

 

The Conciliation Board then allows the debtor a short period to respond to the claim lodged before hearing the parties, either in person or through their official representatives (stevnevitne). At this stage of proceedings, lawyers are not systematically required. The agreement therefore reached will be enforceable in the same manner as a judgement.

 

Legal proceedings 

Ordinary proceedings

If a settlement is not forthcoming, the case is referred to the court of first instance for examination. However, for claims found to be valid, the Conciliation Board has the power to hand down a decision, which has the force of a court judgement.

 

A case which is referred to the higher court will commence with a summons to appear before the municipal or District Court. The summons will be served on the debtor with an order to give the court notice of intention to defend if he so wishes.

 

Where a defendant fails to respond to the summons in the prescribed time (about three weeks) or fails to appear at the hearing, the Board passes a ruling in default, which also has the force of a court judgement. The length of proceedings varies from one court to another.

 

More complex or disputed claims are heard by the court of first instance (Byret). The plenary proceedings of this court are based on oral evidence and written submissions. The court examines the arguments and hears the parties’ witnesses before delivering a judgment.

 

Norway does not have a system of commercial courts, but the Probate Court (Skifteret) is competent to hear disposals of capital assets, estate successions, as well as insolvency proceedings.

 

Enforcement of a court decision

 

A domestic judgment is enforceable for ten years if it has become final. If the debtor does not comply with the judgment, the creditor can request compulsory enforcement of the judgment from the enforcement authorities, which will then seize the debtor’s assets and funds.

 

Even though Norway is not part of the EU, for awards issued by EU countries, particular and advantageous enforcement mechanisms will be applied, such as EU payment orders or the European Enforcement Order, under the “Brussels Regime”. For decisions rendered by non EU members, they will be enforced on a reciprocity basis, provided that the issuing country is party to a bilateral or multilateral agreement with Norway.

 

Insolvency proceedings

Out-of court proceedings

Private non-judicially administered reorganizations are common in Norway; even though there are not regulated by law. Debtors and creditors are free to make any kind of arrangements, but in practice the Debt Reorganization and Bankruptcy Act is often applied. A third party (a lawyer or an accountant) can handle the process if the parties wish it so.

 

Restructuring the debt

This procedure can only be initiated by a wiling debtor. His financial situation is assessed with a court-appointed supervisory committee and a composition proposal is prepared. If the Court agrees, a composition committee as well as a court appointed trustee will manage the debtors’ operations and formulate a composition agreement. A debt settlement proceeding may result in a completed debt settlement, composition or the commencement of a bankruptcy proceedings.

 

Bankruptcy proceedings

Proceedings can be opened by court decision either from the debtor or creditor. The latter must guarantee for expenses related to the proceedings. The court will appoint a trustee and assess the need for a creditor committee prior to issuing a bankruptcy order and given the creditors time to file their claim (three to six weeks). All of the debtor’s assets are confiscated, the debt is evaluated and a list of claims is established.

Insolvency trend Norway
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