Norway: Total GDP logs largest fall on record in Q2
GDP declined at the steepest ever recorded rate in the second quarter, dropping 5.1% on a seasonally-adjusted quarter-on-quarter basis, according to data released by Statistics Norway on 25 August. The Q2 reading came in well below the 1.7% contraction logged in the first quarter, as the impact of containment measures enacted on 12 March took full effect in April and early May.
The sharp downturn was spearheaded by the domestic economy, with private consumption falling 10.8% in the second quarter, well below the first quarter’s 4.3% contraction. The decline was driven by an acute contraction in household spending on services—particularly the food, transport and recreation sectors—due to coronavirus-related lockdown measures and the closing of non-essential businesses. Furthermore, government consumption dropped at the sharpest pace since Q2 2005, contracting 2.2% (Q1: -0.2% s.a. qoq). Meanwhile, fixed investment slid at a slower pace of 3.4% in Q2, from the 5.1% decrease in the prior quarter.
On the external front, exports of goods and services fell 8.7% on a seasonally-adjusted quarterly basis in the second quarter, which was below the first quarter’s 0.9% contraction. In addition, imports of goods and services fell at a quicker rate of 16.7% in Q2 (Q1: -4.1% s.a. qoq). As such, the external sector contributed positively, adding 2.3 percentage points to the overall reading (Q1: +1.1 percentage points).
The mainland economy—which excludes petroleum activities and related ocean transport—declined 6.3% s.a. qoq in Q2, following the 2.2% contraction in Q1. Meanwhile, on an annual basis, total economic activity fell 4.7% in Q2, contrasting the previous quarter’s 0.9% increase.
Looking ahead, recent data indicates that the worst of the downturn has passed, with monthly GDP figures showing an uptick in activity in both May and June. The easing of lockdown restrictions will have driven a recovery in household spending, boding well for a rebound in the third quarter. However, the prolonged nature of the health crisis and the slow recovery in activity in major international markets are key risks to the outlook.
Regarding the outlook, Neal Kilbane, senior economist at Oxford Economics, commented:
“While the economy started to pick up in May, more recent indicators offer mixed signals as to the momentum in the economy at the start of Q3; strong household spending on goods but struggling industry. The economy will be weak for some time and it will take until early 2022 before it recovers to its pre-pandemic size.”