Companies based in Norway's west coast oil producing region saw fresh declines in demand, profitability and other current business conditions in the second quarter and many are reluctant to make major investments in 2016, a survey showed. The price of North Sea crude, Norway's main export, has fallen by 60 percent since mid-2014, triggering spending cuts and layoffs at oil firms trying to preserve cash.
"The Norwegian economy, and in particular the west coast, has been hit hard," Respons Analyse and Sparebanken Vest wrote. "More oil industry cuts are being announced and we see that it's affecting other industries. The ripple effects are ongoing." Only 27 percent of companies said 2016 would be a good year to make major investments, while 43 percent said it would not.
The lower crude price has been accompanied by a sharp weakening of the Norwegian crown currency however, creating a silver lining by improving conditions for exports outside the oil business, such as metals and fish, and for tourism. First compiled in 2012, the West Coast current conditions index fell by 1.5 points to a record low of 56.4 points in the second quarter, while the six-month outlook rose 0.8 points to a one-year high of 60.6 points, Respons and Sparebanken Vest said.
Despite the improvement, the outlook index remained well below the levels seen from 2012 to early 2015. The Norwegian central bank in March cut its key policy interest rate to a record low 0.5 percent and said it may cut again later this year. The survey covered 700 firms based in the regions of Rogaland, Hordaland, Sogn og Fjordane and Moere og Romsdal. Readings above 50 indicate expansion, while a reading below that level signals contraction.