Norway: Economy falls back into contraction in Q1
May 12, 2021
The economy fell back into contraction in the first quarter, with GDP dropping 0.6% on a seasonally-adjusted quarter-on-quarter basis. Q1’s reading contrasted the 0.8% expansion logged in the final quarter of 2020.
The first quarter’s downturn was broad-based, as the spread of Covid-19 prompted a tightening of restrictions which hampered activity. That said, the new measures had a smaller impact than the lockdown imposed in spring 2020, as activity in the services sector was already much-reduced. Domestically, household consumption decreased markedly, clocking a 4.1% fall (Q4: +0.1% s.a. qoq) amid declining employment levels in Q1. Moreover, government spending also swung back to contraction, recording a 1.5% drop which markedly contrasted Q4’s 2.4% expansion. Lastly, fixed investment fell 1.7% in Q1 (Q4:+1.3% s.a. qoq).
On the external front, exports of goods and services contracted 2.9% in the first quarter, swinging from Q4’s 2.2% expansion. Additionally, imports of goods and services fell sharply, recording a 5.7% drop (Q4: +0.4% s.a. qoq). Consequently, the external sector contributed 0.6 percentage points to the overall reading in Q1, down from Q4’s 0.7 percentage-point contribution.
The mainland economy—which excludes petroleum activities and related ocean transport—fell 1.0% on a seasonally-adjusted quarterly basis in Q1, contrasting the 2.0% expansion recorded in Q4. Meanwhile, on an annual basis, total economic activity dropped 1.4% in Q1, worsening from Q4’s 0.6% decline, while the mainland economy also fell 1.4% year-on-year in the quarter (Q4: -0.7% yoy).
Looking ahead, restrictions should be gradually lifted as the vaccine rollout speeds up and daily infections continue to fall, boding well for domestic activity, while vaccination efforts in key trading partners will support the external sector. However, robust and sustained growth is not expected until H2, with economic conditions likely remaining soft in the second quarter. Meanwhile, an uneven recovery—with the services sector projected to lag behind industrial activity—and uncertainty over future oil demand from major markets cloud the outlook.
Commenting on the outlook for the coming months, James Watson, senior economist at Oxford Economics, noted:
“Authorities expect most of the adult population will be inoculated by mid-summer, allowing pandemic restrictions to be eased and unlocking pent-up demand. […] As consumers and the wider services sector join the recovery, economic activity should rebound sharply. We see mainland GDP recovering fully from the pandemic by around mid-year, with continued strength in exports and rapidly accelerating consumption as the key drivers.”
Author: Marta Casanovas , Junior Economist