Norway Economic Forecast

The economy likely contracted marginally in Q1 2023. In the rolling quarter December–February, GDP tallied a 0.2% quarter-on-quarter expansion. However, Q1’s outturn will be highly dependent on the economy’s performance in March: GDP was flat in January month on month and posted a marginal 0.1% contraction in February, with a decline in exports of goods and services and investment weighing on the GDP reading. In Q1, business sentiment improved but remained pessimistic, while consumer sentiment remained entrenched in pessimistic territory. This likely resulted from price pressures remaining as elevated in Q1 as in Q4 and a further increase in borrowing costs in March. More positively, consumer spending rebounded in February, likely preventing a larger GDP decline. Meanwhile, the manufacturing PMI showed conditions continued to deteriorate in March but at a softer pace than in February.

Inflation ticked up further above Norges Bank’s 2.0% target to 6.5% in March, from February’s 6.3%, on stronger price increases for housing and utilities. Similarly, core inflation rose to 6.2%. Our panel expects inflation to cool this year, but, on average, it will still be more than double the target. A weaker-than-expected krone is an upside risk.