Growth is set to slow down. The skies will become a bit cloudier for the economy of Northern Norway over the coming years, but this will by no means result in a recession, just slower growth. Starting this year, Northern Norway is expected to grow more slowly than the rest of the country. This is because the region will not immediately benefit from the upturn in petroleum investments.
In addition, export growth will be weaker, partly in response to a stronger Norwegian krone. In spite of these issues there are several bright spots, and both businesses and consumers remain optimistic.
Consumption has been relatively flat over the past year, but retail sales in Northern Norway are now picking up. This is a sign of renewed optimism amongst consumers. With low unemployment and higher wage growth in the coming years, we anticipate slightly faster growth in private consumption in Northern Norway.
Municipal tax revenues are an indicator of household incomes, and they are rising more quickly in Northern Norway than in the rest of the country. Tax revenues rose sharply from 2016 to 2017, while growth has stabilised at around four percent over the past year.
Continuing labour shortages
The fact that wage growth in Northern Norway is now slightly higher than elsewhere in Norway may reflect pressure in the labour market. Unemployment is low based on the number of people registered with the Norwegian Labour and Welfare Administration (NAV). However, according to Statistics Norway’s labour force survey, the most recent trend is one of rising unemployment in Northern Norway. This may be a sign of coming weakness in the private sector. The fact that population growth in Northern Norway is lagging the national average is further exacerbating labour shortages. That may result in higher wage growth and rising consumption.
The fact that population growth in Northern Norway is lagging the
national average, is further exacerbating labour shortages. - That may result in higher wage growth and rising consumption.
After rapid investment growth in Northern Norway in 2016 and 2017, growth is now slowing. Much of the growth was driven by new construction projects. The construction industry’s order books are now starting to run dry, which may be an indication that residential investment in the region will fall off slightly. That will mainly affect the industry itself. The figure shows that construction starts measured by floor area are already falling, both in Norway as a whole and in Northern Norway. However, we expect the market for residential construction to be stronger in the north than in the south.
Businesses are telling Norges Bank’s regional networks that they are positive about the future, and the investment expectations of businesses in Northern Norway are similar to those in the rest of the country. That gives some grounds for optimism with respect to business investment in 2019.
Kunnskapsparken Bodø's report “Levert” predicts a bright future for service providers and suppliers to the petroleum industry in the Hammerfest area. The report does not paint such a positive picture for the rest of the region. Consequently, there is little reason to believe that rising levels of activity in the Norwegian oil industry as a whole will give a strong boost to the service and supply industry in Northern Norway in the short run.
After goods exports from Northern Norway rose rapidly in the first half of 2018, growth has subsided since the summer. Overall we think that Northern Norway’s annual export growth will be two percent in the coming years, down from 2.5 percent in 2017. The slowdown will be the result of no growth in the volume of fish exports and a reduction in tourism. Growing international trade barriers may also limit export growth. A higher oil price may lead to the Norwegian krone appreciating, which would in turn make many businesses in Northern Norway less competitive.
Outlook for the seafood industry
The value of fish exports from Northern Norway has increased in recent years. Most of this growth has been driven by prices rather than volumes. Prices of both salmon and other fish, comprising mainly white fish, have risen sharply since 2010.
Fish exports from Northern Norway have grown steadily in value over recent years, and that this is almost entirely due to higher prices rather than higher volumes.
With only moderate growth in volumes expected over the coming two years, any further growth in value will have to come from even higher prices.
Within aquaculture, this year has seen some growth as a result of new and extended licences being awarded. Looking to the future, it is likely that most of the volume growth in the industry will come from Northern Norway, but the rate of growth will be relatively slow.
Prospects for the tourism industry
Growth in the number of guest nights in Northern Norway has been slowing down since 2016, and recently it has actually turned slightly negative. That performance is weaker than we had predicted. In recent years, the growth of tourism in Northern Norway has mainly been driven by increasing numbers of international visitors.
Figures shows aclear link between the value of the Norwegian krone and growth in guest nights between 2012 and 2016. A weak krone makes it more affordable to visit Norway as a tourist. After 2016 the krone stopped weakening, leading to a significant slowdown in growth in international guest nights. As we expect the krone to gradually strengthen, the pace of growth is likely to slow further. We therefore expect zero growth in the turnover of the tourism industry between now and 2020.
Northern Norway exported just over NOK 13.5 billion worth of metals, chemical products and manufactured goods in 2017. That was twelve percent higher than the previous year, but far lower than the figure for 2015, which was boosted by strong international prices. In other words, the value of exports is very volatile. Chinese suppliers are taking an ever increasing market share, which is helping to put pressure on prices. After the prices of iron, steel and other metals all rose in 2017, the prices of many metals fell back again in 2018, and they have now stabilised at a lower level. The growing pressure from overseas competitors means that the metal industry urgently needs to improve efficiency and reduce costs. Energy-intensive manufacturing industries in Northern Norway have demonstrated an excellent ability to respond to cost pressures through continuous innovation.
According to figures from Indeks Nordland, metal producers in Northern Norway are currently operating at capacity, and export volumes have remained flat in recent years. In order for the industry to grow, greater investment is needed to increase capacity. Indeks Nordland highlights that there is still surplus electricity in Nordland, which could provide a basis for new process industries or growth at existing companies.
Demand for data centres in Europe is expected to grow strongly over the coming 10–15 years.
Interest in establishing data centres in Northern Norway keeps on growing. The cold climate, bountiful water resources and surplus electricity make the region a good fit for these facilities, which require lots of energy and cooling. What makes Northern Norway less attractive is the relative shortage of dark fibre and hence a lack of network capacity for data transfer.
Our neighbouring countries have already established large data centres for international IT companies, and it isn’t unreasonable to think that the same thing could happen in Norway. Apple, Facebook, Amazon and Google all have data centres in either Denmark or Sweden. Demand for data centres in Europe is expected to grow strongly over the coming 10–15 years.