Norway's Economy Records Third Consecutive Quarter of Growth
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- 02 Sep 2024
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Norway's economy has expanded for the third consecutive quarter, driven by a recovery in purchasing power and a weak krone that has boosted exports. According to Statistics Norway, mainland gross domestic product (GDP) grew by 0.1% in the second quarter, slightly below the 0.2% growth estimated by the central bank and economists.
The growth was driven by a 1.6% increase in household consumption, largely due to a surge in car purchases. This upswing in car sales can be attributed to the recovery in purchasing power, which has been fueled by slowing inflation and wage growth above 5%. Additionally, trade and power supply also contributed to the growth, indicating a broad-based expansion in the economy.
The weak krone has also played a significant role in boosting exports, as well as the tourism sector. The krone is hovering near four-year lows, making Norwegian exports more competitive in the global market. This is reflected in the 5.6% growth in total exports, the fastest increase in almost two years. The growth in exports is particularly notable, as oil and gas shipments were less affected by maintenance works that are usual for the season.
The weaker-than-forecast figures may increase the odds of Norges Bank reducing borrowing costs before next year. While the central bank has kept delaying monetary easing, the latest data may prompt a reevaluation of its stance. The negative revisions to earlier data, which show a weaker mainland economy than previously assumed, may lead policymakers to consider a rate cut sooner rather than later.
Analysts at Danske Bank A/S believe that the negative revisions to earlier data may keep the door open for a December cut. However, analysts at DNB and Svenska Handelsbanken AB believe that the deviation from the central bank's estimates is too small to clearly affect policymakers' rate outlook. This suggests that the decision to cut rates will depend on a range of factors, including future economic data and the overall outlook for the economy.
DNB Bank ASA has maintained its forecast for full-year growth of 0.8% in 2024 and projected next year's growth at 1.6%, largely due to higher purchasing power of consumers. This suggests that the economy is expected to continue growing, albeit at a moderate pace. However, the outlook is subject to risks, including the impact of high interest rates on consumption and investment.
Overall, Norway's economy is showing signs of resilience, driven by a recovery in purchasing power and a weak krone. While the growth figures are weaker than expected, they still suggest a positive outlook for the economy. The decision to cut rates will depend on a range of factors, including future economic data and the overall outlook for the economy.
