Norway: Economy slows in the final quarter of 2020; logs worst annual contraction since 2009
GDP growth slowed to 0.6% on a seasonally-adjusted quarter-on-quarter basis in the final quarter of 2020, according to data released by Statistics Norway on 12 February. Q4’s reading followed the 4.5% expansion recorded in the third quarter, which had marked the fastest rate of growth since at least 1990.
The slowdown was primarily driven by flatlining household spending, which contrasted the 9.3% expansion clocked in the third quarter—likely reflecting tightened domestic restrictions as a result of spiking Covid-19 infections during the period. Meanwhile, public spending growth inched down to 2.8% in Q4 (Q3: +2.9% s.a. qoq) and fixed investment expanded 0.9% in Q4, swinging from the 0.8% decrease logged in the prior quarter.
On the external front, growth in exports of goods and services slowed to 1.8% in the final quarter, well below the third quarter’s 4.4% expansion. In addition, growth in imports of goods and services plunged to 0.3% in Q4 from Q3’s 10.5% surge, likely reflecting tepid domestic demand during the quarter. However, as a result, the external sector contributed 0.6 percentage points to the overall reading in Q4, having detracted 1.3 percentage points in the prior quarter.
The mainland economy—which excludes petroleum activities and related ocean transport—grew 1.9% s.a. qoq in Q4, slowing from the 5.0% expansion in Q3. Meanwhile, on an annual basis, total economic activity dropped 0.6% in Q4, down from the previous quarter’s 0.1% decrease. As such, the economy shrank just 0.8% in total across 2020, aided by robust exports amid strong growth in oil and gas production across the year as a whole. Nevertheless, the full year result was the worst since 2009.
Looking ahead, the tightening of restrictions at the beginning of 2021 will likely weigh on growth in the first quarter of the year, before vaccination efforts both domestically and in key export markets result in an upturn in activity from Q2 onwards. However, an uneven recovery—with services set to lag behind manufacturing industries—and uncertainty regarding future demand for oil from major international markets are key risks to the outlook.
Commenting on the outlook, Neal Kilbane, senior economist at Oxford Economics, stated:
“Services will likely remain subdued through H1 due to the extension of containment measures, but we expect strength in the industrial sector to support activity through early 2021. […] Positive vaccine developments are already boosting the prospects of a strong global recovery and higher oil prices that should stimulate investment in the petroleum sector. We expect that vaccines should be widely deployed by mid-2021, leading to a surge in activity, especially in the services sector. This will see mainland GDP growth accelerate to 0.9% q/q in H2 and bring mainland GDP growth for the year to 2.6%.”