Fitch Affirms Norway at 'AAA'; Outlook Stable

Fri May 2, 2014 12:03am EDT

(The following statement was released by the rating agency) LONDON, May 02 (Fitch) Fitch Ratings has affirmed Norway's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AAA'. The issue ratings on Norway's senior unsecured bonds were also affirmed at 'AAA'. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling has been affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1+'. KEY RATING DRIVERS Norway's 'AAA' ratings reflect the strength of the sovereign balance sheet, its high income per capita, high governance and human development indicators, and a strong economic policy framework. Norway's North Sea oil revenues have been prudently managed. Net government financial assets of just over 205% of GDP at end-2013 make Norway a stand-out among its rated peers. Oil production and exports support the country's external position - the current account surplus has averaged 13.5% of GDP over the past 10 years. The strength of the sovereign's balance sheet allows the Norwegian authorities ample scope to respond to adverse shocks and gives them time to adjust to population ageing. Norway's income per capita is the second-highest among 'AAA'-rated sovereigns. Norway's record of economic stability compared with its rated peers is an additional rating strength. Real Mainland GDP fell by only 2.6% in the recession following the global financial crisis and is now more than 11% above its trough. Fitch expects GDP growth to remain steady over the next two years, averaging 2.3%. Assessed in isolation, Norway's high commodity dependence is a rating weakness. Moreover, an increasing share of economic activity is generated by the supply of goods and services to the oil sector, which creates competitiveness pressures in the rest of the economy. However, these risks are mitigated by Norway's strong economic policy framework, which safeguards economic stability. Rising house prices have brought about a substantial rise in households' indebtedness, which is now twice as high as disposable income. House prices were broadly stable over the course of 2013, but there is uncertainty about their future development. An abrupt downward correction in house prices could have a negative impact on private consumption, housing investment, and corporate profitability. Fitch currently has Norway on a Macro-Prudential Indicator of '2' - in common with Sweden - indicating a moderate vulnerability risk status with credit/GDP more than five percentage points above trend. RATING SENSITIVITIES Fitch judges Norway's credit profile as solid, implying that a negative rating action in the near term is unlikely. However, the following factors could, individually or collectively, put downward pressure on the ratings: -A severe and sustained decline in the oil price. This would represent a significant shock to the Norwegian economy, given its heavy dependence on the petroleum sector. -A worsening of economic imbalances. Further rises in house prices, household indebtedness, and private sector credit, or, sustained real wage growth not accompanied by productivity gains would not be sustainable in the medium term and would increase the risk of a sharp correction. -Ageing population. Over the longer term, a failure to address the fiscal burden of ageing would lead to an erosion of Norway's fiscal position. Norway's sovereign wealth fund would not be able to absorb the cost of an ageing population without corrective measures in the long run. KEY ASSUMPTIONS The ratings and outlooks are based on a number of assumptions: -Fitch assumes that the oil price will average USD105p/b this year and USD100p/b in 2015. The agency views the likelihood of a sustained fall in oil prices to be low. -Fitch assumes that the Norwegian government will continue to adhere to the fiscal policy rule that on average 4% of the capital value of SWF assets may be dedicated to current expenditure each year. Consistent with the implementation of the rule, Fitch assumes that the long-term real return for the SWF will be 3%-4% per annum. -Fitch assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key economic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term. Contact: Primary Analyst Alex Muscatelli Director +44 20 3530 1695 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Krisjanis Krustins Research Analyst +44 20 3530 1487 Committee Chairperson Paul Rawkins Senior Director +44 20 3530 1046 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=828519 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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