Norwegian mainland GDP grows slightly weaker than expectations, Norges Bank likely to keep rates on hold

Norwegian mainland GDP grew 0.2 percent quarter-on-quarter in the fourth quarter, slightly weaker than Norges Bank’s forecasts. This is lower than consensus forecast of 0.3 percent growth and Norges Bank’s view of 0.4. Moreover, the third quarter growth was downwardly revised to 0.6 percent. For the whole of 2019, the mainly GDP grew 2.3 percent year-on-year, which is still above trend.

The production scenario came in mixed. The fourth quarter figure dropped 0.2 percent by falling electricity production and poor aquaculture, both volatile components. Manufacturing production, construction, and the retail sector came in rather unchanged. Meanwhile, the services sector rose at a sound pace.

The demand scenario came in rather soft, with mainland demand rising 0.1 percent quarter-on-quarter. Private consumption was flat. Housing investments dropped, while overall business investments in mainland economy grew at a sound pace. Moreover, mainland export growth was strong and oil investments grew strongly 5.5 percent quarter-on-quarter, which was supportive for the mainland economy.

Employment continues to rise at a sound pace, but slowed a bit compared to the previous quarter. A growth at 0.2 percent quarter-on-quarter is a bit below Norges Bank’s forecast of 0.3 percent. Still, this suggests a growth in employment in line with population growth, meaning that unemployment is expected to remain stable at low levels, noted Nordea Bank in a research report. The average wage growth ended at 3.5 percent.

“We believe Norges Bank will see through the noise in the GDP numbers, which were lower due to the volatile electricity and aquaculture components. Still, employment growth has been weaker than they have forecasted. Weaker GDP and employment will contribute negatively to the upcoming interest rate path in March. However, today’s figures do not change our Norges Bank call and we still expect them to signal keeping rates on hold in the period ahead”, added Nordea Bank.