Norway: Mainland GDP weak, but not that weak

• Clearly weaker GDP growth than expected
• Will however not counteract strong inflation

GDP growth in Mainland Norway was 0.2% q/q in Q2 (1.7% y/y). Our forecast, consensus and Norges Bank was 0.7%. Growth in Q1 was 0.6% q/q, revised down from 0.7%.

It was first of all production in the service sectors which surprised on the downside this time. But also construction and production of electricity surprised negatively. As expected manufacturing production grew strongly and prevented ending up at a slight drop in GDP.

The demand picture was not that weak with mainland demand excluding inventories growing by 0.6% q/q. Inventories pulled strongly down. Employment also grew at healthy pace with 0.3% q/q.

Mainland GDP growth was about ½% points lower than Norges Bank’s forecast. All else equal it points to a lowering of the coming interest rate forecast, but we would not do too much out of it. It is capacity utilisation and not growth that counts. Unemployment is actually somewhat lower than Norges Bank’s forecast which points to only a small downward revision of the output gap. Add to this that employment growth and demand growth both were more in line with Norges Bank’s view.

A weaker figure than we had expected, but we are still convinced that the coming interest rate forecast will be revised up if August inflation, as we expect, remains on the upside to Norges Bank’s view.



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