Data released this morning show that the rebound in economic activity in Norway lost a bit of steam in July, which is in keeping with signs elsewhere in Europe. Nonetheless, given that the plunge in output in Norway was much smaller than in most countries, the economy is still on track to outperform this year.
Recovery shifts down a gear
- Data released this morning show that the rebound in economic activity in Norway lost a bit of steam in July, which is in keeping with signs elsewhere in Europe. Nonetheless, given that the plunge in output in Norway was much smaller than in most countries, the economy is still on track to outperform this year.
- The 1.1% m/m rise in mainland GDP in July was much smaller than the consensus estimate (+2.1%) but closer to our forecast (+1.5% m/m). The increase left activity 4.7% below its February peak, although the pace of growth slowed from the initial rebound seen in May and June.
- The breakdown was mixed. The slowdown in household consumption growth did not come as a huge surprise given that it echoed the message from previously-released retail sales data. While consumer spending still rose by a healthy-looking 2.8% m/m (see Table 1), the rebounds in spending on services and goods both slowed. Government consumption growth also eased a touch and inventories fell.
- That said, having detracted from growth in the previous two months, net trade contributed positively to month-on-month growth in July driven by a chunky rise in exports. Meanwhile, after surging by 58% m/m in June, accommodation and food services jumped by another 31% m/m in July, with ‘staycationing’ Norwegians appearing to have largely filled the gap left by absent foreign tourists.
- Looking ahead, the low-hanging fruit now appear to have been picked and the recovery is shifting into a more difficult phase. Accordingly, the risks to our forecast of a 3% drop in GDP this year are probably on the downside, particularly if the recent fall in oil prices is sustained.
- Nonetheless, the economic arithmetic is such that strong growth in Q3 is baked into the cake; even if the level of GDP remains unchanged at July’s level for the rest of the quarter, output would jump by about 4.5% q/q in Q3. While our Mobility Tracker has over-egged things in recent months, we suspect that the economy will probably do a bit better than flat-line in August and September, possibly getting back to about 2.5% below its February level by the end of the quarter. (See Charts 1 & 2.)
Chart 1: Mainland GDP
Chart 2: Mainland GDP & CE Mobility Tracker
Sources: Refinitiv, Capital Economics
Sources: Refinitiv, Oxford University, Capital Economics
Table 1: Norway Mainland GDP
Sources: Refinitiv, Statistics Norway
David Oxley, Senior Europe Economist, firstname.lastname@example.org