Norway: Solid growth, but on the downside to Norges Bank – Nordea

Erik Johannes Bruce, analyst at Nordea Markets, points out that growth in the mainland economy of Norway was solid and employment increased at a healthy pace in Q3, but these figures are however somewhat weaker than Norges Bank’s forecasts.

Key Quotes

“Mainland GDP grew by a solid 0.7% q/q (2.9% y-o-y) in Q3, the same as in Q2. Nordea and consensus forecasted growth at 0.8% q/q while Norges Bank’s forecast was 1% q/q.”

“The production picture was mixed. Manufacturing production, construction, and the retail sector were rather weak. On the other hand, the services sector (excluding retail) grew at a healthy pace. As expected, electricity production pulled growth up by 0.1%.”

“Employment continues to grow at a healthy pace, however, slowed somewhat compared to the previous quarter. A growth at 0,3% q/q is somewhat on the downside to Norges Bank’s forecast (0.4% q/q).”

“Our view is that the mainland economy continues to grow at a healthy pace, and it is hard to see signs of a significant slowdown. Still, the figure for growth was on the downside to Norges Bank.”

“We do not know the details behind Norges Bank’s forecast, but we guess it was based on a stronger growth in the more volatile components such as electricity production. We therefore do not believe Norges Bank will emphasize this figure too much. Remember that growth is still well above trend. Perhaps more important is the fact that employment was somewhat weaker than Norges Bank expected.”

“All in all, on the margin, these two figures should contribute negatively to the coming interest rate path in December. But the contribution should be minor, and the weak NOK still argues for a higher rate path.”