Norway's Recovery Is on Track But Inflation Surprisingly Slows

Updated on
  • Mainland economy expands by 0.6 percent in fourth quarter
  • Norges Bank has signaled a rate incrase at the end of the year

Norway’s economic recovery continued in the fourth quarter led by rising consumer spending and investments while a report showed inflation unexpectedly slowed at the start of the year.

Mainland economic growth, which excludes oil and shipping, expanded by 0.6 percent in fourth quarter, down from a revised 0.7 percent in the prior period, Statistics Norway said in a statement on Friday. That matched an average estimate in a Bloomberg survey of 10 economists. Overall, the economy shrank 0.3 percent from the prior three-month period as oil and gas exports declined.

A separate report showed underlying annual inflation slowed to 1.1 percent in January, falling short of the 1.5 percent estimate and holding far below the central bank’s 2.5 percent target. The krone fell 0.7 percent to 9.77 per euro as of 8:11 a.m.

“The cocktail with poor global risk sentiment and a negative inflation surprise is very bad” for the krone, said Kristoffer Kjaer Lomholt, an analyst at Danske Bank. “Our view, is that this move opens up for strategic opportunities in krone as the core print is not as bad as it first seems.”

The economy is emerging from almost three years of weak growth after a slump in oil prices knocked the legs out from under its biggest industry. Policy makers in Oslo have since last summer been preparing to raise rates, removing an easing bias in June, hinting in September at a tightening this year and then in December signaling that a full increase will come in December.

Danske Bank economist Frank Jullum said the GDP report showed “strong contributions” from private consumption, corporate investments and public demand, while housing investments dropped 4.5 percent.

“Our upside risk didn’t materialize, but details still confirm our growth rotation story with above-trend-growth despite falling residential investments,” he said. “Figures, in isolation, still supports a rate hike in December.”

According to Statistics Norway, consumer spending gained 0.8 percent in the quarter and public spending increased 0.5 percent. Exports slid 2.6 percent, while investment rose 1.6 percent. The oil industry and shipping output fell 4.7 percent in the period.

— With assistance by Zoe Schneeweiss

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