Norway economy grows for third consecutive month

In a testament to its resilience, Norway’s economy registered growth for the third consecutive month in July, bolstering expectations of a carefully orchestrated soft landing scenario. This growth aligns with the central bank’s blueprint, setting the stage for a much-anticipated quarter-point key rate hike in the upcoming week.

Mainland gross domestic product (GDP), which conveniently excludes the offshore industry, inched forward by a modest 0.2% in July, according to the latest data from the Norwegian statistics office. This upturn comes on the heels of a revised 0.1% gain in June. Notably, these figures outstripped market expectations, with a Bloomberg survey of nine analysts projecting stagnation.

Norges Bank, Norway’s central bank, had also foreseen a period of stagnation in July, with a slight contraction expected in both August and September. These surprise gains suggest that the Norwegian economy might be on a steadier path than initially anticipated.

These recent numbers offer a more optimistic perspective on the fossil-fuel-rich Nordic economy compared to the second-quarter data, which hinted at stagnation. Higher inflation and increasing borrowing costs had started to erode private spending and construction activity at that time.

As of 10:14 a.m. in Oslo, the Norwegian krone displayed minimal fluctuations, reflecting the market’s reaction to the news.

Analysts now suggest that this continued growth reinforces expectations of an additional quarter-point rate hike by policymakers, potentially pushing the key rate to 4.25% in the next week. However, August witnessed a surprising slowdown in inflation, tempering the speculation of further hikes.

Kjersti Haugland, Chief Economist at DNB Bank ASA, noted, “The economy is growing slower than trend so far in 2023, thus cooling down. However, the landing is surely a soft one – at least so far — given the strong headwinds stemming from a marked rise in interest rate expenses as well as consumer prices.” She expects Norges Bank to conclude its tightening measures following next week’s anticipated hike, maintaining borrowing costs at 4.25% through the end of 2024.

Intriguingly, July data reveals that household consumption increased by 1% on a month-to-month basis, driven primarily by Norwegians’ spending abroad. It is essential to note that the statistics office has indicated that these figures may exhibit more volatility than usual.

The central bank is scheduled to release its survey of regional network contacts later this week, marking the final crucial data point before the much-anticipated interest-rate announcement on September 21.

Marius Gonsholt Hov, Chief Economist at Svenska Handelsbanken AB, remarked, “All arrows are pointing toward another rate hike next week, to 4.25%, but the probability for a terminal level of 4.50% has been toned down somewhat,” referencing the most recent inflation data.

The robustness displayed by Norway’s economy in the face of global economic challenges underscores its resilience and the central bank’s adept navigation in maintaining economic stability. The financial world will undoubtedly be closely watching next week’s key rate decision, which will play a pivotal role in shaping the economic trajectory of this resilient nation.