Norway: Growth weakens in Q1

In Q1 2017, Norway’s total economy expanded 0.2% in seasonally adjusted terms from Q4, decelerating from the 1.1% expansion recorded in the previous quarter. The figure matched market analysts’ forecasts and was the result of a contraction in the oil and gas sector. Mainland GDP, which excludes oil and gas extraction and related services and transport, accelerated from a 0.4% rise in Q4 to a 0.6% expansion in Q1, the best result in over three years.

With the situation in the mainland economy brightening, Norway is on a healthy path out of the crisis, relying less on its oil and gas sector. In year-on-year terms, total GDP increased 2.6% in Q1 (Q4: +1.9% yoy) and Mainland GDP rose 3.1% (Q4: +1.1% yoy), both marking three-year highs.

Despite the small acceleration in the mainland economy, domestic demand was sluggish. Private consumption increased 0.6% over the previous quarter (Q4: +0.7 quarter-on-quarter). Government consumption slowed down as public defense spending was cut. Fixed investment grew 0.5%, contrasting a revised 0.5% drop in Q4 (previously reported: +0.6% qoq), underscored by business confidence turning positive in Q1 for the first time since mid-2014, just before oil prices plunged.

The external sector’s performance was encouraging in Q1. Exports rose 0.9%, the highest figure since Q3 2015, and up from Q4’s 0.1% increase. Exports of traditional goods, which exclude crude oil, natural gas, natural gas condensates, ships and oil platforms, rebounded in Q1 as maintenance work in refineries came to an end and capacity rose to a more normal level. Imports increased 2.8%, a robust rebound from the 1.5% decline in Q4, showing that domestic activity is gaining traction.

The improvement in Norway’s GDP reading suggests that a recovery is under way. Both private consumption and fixed investment will contribute to the acceleration in growth expected this year as business confidence improves and lower inflation eases strain on households’ finances. Although global oil prices have receded in recent weeks, Norway’s exports will fare better this year than last.

The Central Bank expects total GDP to increase 1.0% in 2017 and to expand 1.1% in 2018. FocusEconomics Consensus Forecast panelists see total GDP increasing 1.4% in 2017, which is unchanged from last month’s estimate. For 2018, the panel expects the economy to expand 1.8%. Meanwhile, the Bank sees Mainland GDP expanding 1.6% in 2017 and 2.0% in 2018. Our panelists expect Mainland GDP to increase 1.6% in 2017, which is unchanged from last month’s projection. In 2018, panelists see Mainland GDP growth at 1.9%.