Norway: Economy contracts in the third quarter

Following a flat quarter-on-quarter expansion in the second quarter, Norway’s economy deteriorated further and contracted 0.5% from Q2. The result matched market analysts’ forecast. In year-on-year terms, Norway’s economy slipped 0.9% in Q3, which was a drastic deterioration from the 2.5% growth seen in Q2.

While total GDP contracted on a quarter-on-quarter basis, Mainland GDP—which comprises all domestic production activity except for the extraction of crude oil and natural gas (including related services) and pipeline and ocean transport—managed to record a 0.2% expansion over the previous quarter (Q2: +0.4% quarter-on-quarter), which was below analysts’ forecast of a 0.3% increase. The discouraging annual expansion rate seen for total GDP was reflected in Mainland GDP growth, which decelerated notably from the second quarter (Q3: +0.8% year-on-year, Q2: +2.0% yoy).

Domestic demand was particularly weak in the third quarter. Total consumption growth in Norway slowed down in Q3 (Q3:+0.1% qoq; Q2: +0.5% qoq). Private consumption stagnated, recording the lowest result seen since June 2010. With the Norwegian oil and gas sector suffering from low fossil fuel prices, many corporations were forced to undertake large-scale layoffs, which caused the unemployment rate to reach levels not seen since 2005 and weighed on household expenditure. In addition, government consumption decelerated from a 0.7% increase to a 0.4% expansion. Fixed investment growth was the only bright spot within domestic demand in the third quarter, as it rebounded notably and recorded 2.6% growth (Q2: -0.2% qoq).

Despite a rebound in exports, the external sector did not provide positive contribution in Q3. Exports grew 1.1% in Q3, contrasting the 1.4% drop observed in Q2. Exports of traditional goods recorded another decline in Q3, while exports of services accelerated robustly. Imports also rebounded in Q3 and increased 1.3% after contracting 2.6% in Q2. As a result, the external sector’s contribution to growth worsened from plus 0.2 percentage points in Q2 to no contribution in Q3.

The Central Bank expects total GDP to increase 0.1% in 2016 and to expand 1.0% in 2017. FocusEconomics Consensus Forecast panelists see total GDP increasing 1.0% in 2016, which unchanged from last month’s estimate. For 2017, the panel expects the economy to expand 1.4%, which is also unchanged from last month’s Consensus.Meanwhile, the Bank sees mainland GDP expanding 0.8% in 2016 and 1.8% in 2017. Our panelists expect mainland GDP to increase 0.9% in 2016, which is unchanged from last month’s projection. In 2017, panelists see mainland GDP growth at 1.8%, which is also unchanged from last month’s estimate.