Norway Economic Growth Slows to Start 2019 as Investments Drop

(Bloomberg) -- Economic growth in western Europe’s largest exporter of oil and gas slowed more than forecast in the first quarter, sending a warning to policy makers preparing for a third interest rate increase in June.

Mainland gross domestic product, which excludes oil and shipping, expanded 0.3% in the quarter, Statistics Norway said in a statement on Monday. That was down from a revised 1.1% in previous quarter. A Bloomberg survey of 12 economists predicted a quarterly expansion of 0.4%, and the central bank had forecast 0.6%.

Key Insight:

• Economic growth in the first quarter was dragged down by a 1.2 percent decline in investments and a pick up in imports.
• Overall GDP growth, which includes oil and gas production and shipping, shrank 0.1% in the quarter.
• Norges Bank embarked on a tightening cycle in September, raising rates for the first time in seven years. It also boosted rates in March and last week flagged that another tightening will “most likely” come in June.
• Earlier this month, the International Monetary Fund said that it sees Norway mainland economy expanding by 2.5% this year and 2.1% in 2020.

Markets

• The krone weakened 0.2% to 9.81 per euro at 08:11 a.m. in Oslo.

What Economists Say

• “The figures are partly affected by negative supply-side effects in power production and fisheries. Hence, even if a bit lower than expected in the MPR from March (+0.6 %), Norges Bank will probably consider the weakness as temporarily (as stated after last week’s rate meeting). Regional survey on 11 June will be crucial,” said Frank Jullum, an economist at Danske Bank.
• “Despite growth being weaker than Norges Bank’s 0.6% estimate, it should not impact the near-term interest rate trajectory,” SEB strategist Erica Blomgren said in a note.
• “All told, the economy is holding up well, pointing to another rate hike by Norges Bank; recall that Norges Bank has signaled more explicitly that the next hike will come in June,” Handelsbanken economist Marius Gonsholt Hov said in a note.
• “Norges Bank signaled that is was prepared for 1Q growth below its March forecast at the meeting in May,” Nordea senior economist Erik Bruce said in a note.

Know More

• For more details, see this table.

To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar

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