Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Norway (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 19 March 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

For the updated rating report accompanying this review, click here.

Key rating factors

Norway’s AAA rating is underpinned by the following credit strengths: i) the country’s economic resilience and expected continued overall general government fiscal surpluses; ii) a significant net public asset position, driven by savings accumulated through its sovereign wealth fund, the Government Pension Fund Global (GPFG); and iii) strong fiscal, monetary and financial governance institutions. Norway also benefits from low central government debt, issued only to finance capital expenditure, and institutional strengths as a mature economy with one of the world’s highest per capita income levels.

Challenges relate to: i) high household debt and imbalances in the real estate sector; and ii) the long-run transition to a non-commodity-dependent economy.

Economic output in Norway recovered quickly from the Covid-19 pandemic with continued strong GDP growth of 3% in 2022, but a slowdown to just 0.5% in 2023. High inflation resulted in negative real wage growth while high interest rates increased borrowing costs for firms and households, dampening consumer spending and investment in housing. In addition to weak investment in the housing sector, the increased financing costs and reduced capacity requirements also slowed business investment. Some of this weakness was offset by the strong performance of the oil sector. Investment in the sector is expected to remain high in 2024, while falling inflation and a recovery in real earnings should support a gradual recovery in private consumption. GDP growth is expected to rise to 1.2% in 2024 and 2.0% in 2025 before converging towards Norway’s growth potential of around 1.8%.

Under Norway’s fiscal framework, revenues from the petroleum sector are saved in the GPFG, and the non-oil budget deficit is set tocorrespond to the long-term real return on the GPFG, which is estimated at 3%. Since the inception of Norway’s sovereign wealth fund in 1990, transfers from the fund to the central government budget have only exceeded net petroleum revenues on two occasions – in 2016/17 during a slump in oil prices and in 2020/21 due to the increased spending needed to respond to the Covid-19 pandemic. According to the 2024 budget, the structural non-oil fiscal deficit amounted to NOK 372.3bn in 2023, reaching the threshold of 3.0% of GPFG assets. The deficit is expected to increase to NOK 409.8bn in 2024, amounting to 2.7% of GPFG assets thanks to the strong recovery on global stock markets and continued high revenues from petroleum activities.

Elevated household debt and exposure to commercial real estate (CRE) firms are longstanding vulnerabilities of the Norwegian financial system. Despite the sharp rise in interest rates, real estate prices reached their previous peak from August 2022 and stand 20% above pre-Covid levels as of February 2024. While the vast majority of households are able to service their debt, it has resulted in lower consumption spending. The household interest burden is at the highest level since the early 1990s and is expected to remain high until mid-2024 before declining gradually. The Norwegian banking sector has significant capacity to absorb losses thanks to strong levels of capitalisation, liquidity and profitability. However, high CRE exposures, which account for around half of total corporate lending, pose a key structural vulnerability for banks. Norges Bank expects CRE prices to fall somewhat further in 2024 before levelling off near pre-Covid levels.

The Stable Outlook reflects Scope’s view that the risks Norway faces over the next 12 to 18 months are well balanced.

The ratings/Outlooks could be downgraded if, individually or collectively: i) a significant weakening in macroeconomic policy threatened Norway’s long-run net public and external asset positions; and/or ii) a financial crisis, potentially exacerbated by domestic imbalances, materially damaged Norway’s public sector and financial system balance sheets.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Eiko Sievert, Director

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