OREANDA-NEWS. Norway's maintenance of its policy response to lower oil prices demonstrates its position as one of the most resilient oil-exporting sovereigns, Fitch Ratings says. Recent GDP data show that the broader economy is not immune to the effects of the price fall, but also highlight offsetting factors such as exchange rate depreciation.

Oil prices are weighing on growth. Mainland GDP rose 0.2% qoq in 3Q15, after 0.3% increases in each of the first two quarters of this year, Statistics Norway said last week. Mainland growth has been weak since 2H14 as production falls among suppliers to the petroleum industry, where investment has been falling since the autumn of 2013.

But quarterly outturns are broadly in line with our expectations, which also incorporate the impact of exchange rate depreciation and the authorities' policy responses. Krone depreciation and signs of slower wage growth are improving competitiveness and boosting exports. Traditional exports grew 5.8% on an annual basis in the first three quarters of this year.

Monetary and fiscal policy responses are also offsetting some of the oil-related economic drag. Norges Bank kept its key policy rate at an all-time low of 0.75% on 5 November. Prudent management of oil revenues, which accrue to the Sovereign Wealth Fund (SWF), has created space for counter-cyclical fiscal easing. Norway's 2016 budget proposal is mildly expansionary. It includes tax reductions worth around NOK9bn (around 0.3% of GDP). The Ministry of Finance estimates the budget's fiscal impulse at 0.7% of GDP.

The fall in oil prices does mean that government net cash flow from petroleum activities will dip below the non-oil budget deficit in 2016, for the first time since the mid-1990s. As a result, 2016 budget financing assumptions include a very small net outflow from the SWF of NOK3.7bn (around 0.1% of GDP), using an oil price assumption of NOK440/b, USD51/b at current exchange rates.

This is consistent with our calculation of Norway's fiscal breakeven oil prices (where oil revenues balance government spending) based on production and exchange rates so far this year, of USD47.7/b. This is the lowest for any Fitch-rated major oil exporter, although Norway's transfer of all its net cash flow from the petroleum industry to the SWF, and transfer back to the central government of what it needs for budgetary financing, can complicate comparisons with other sovereigns.

Lower oil prices and a protracted fall in oil investment were reflected in our revised growth forecasts when we affirmed Norway's 'AAA'/Stable sovereign rating last month. We expect mainland GDP to increase 1.3% this year and 1.6% next year, down from our previous forecasts by 0.2pp and 0.6pp, respectively. The affirmation indicates resilience to the oil shock, notwithstanding slower growth. The SWF provides a large buffer, and krone depreciation has also supported the fiscal and external positions.