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Fast Comment NorwayGDP growth dampened by lower electricity transmission; underlying momentum holding up well

  1. Mainland GDP growth slowed to 0.3 percent in Q1, down from 1.1 percent in Q4 2018
  2. Largely as expected; some of the slowdown is temporary
  3. Norges Bank to hike its policy rate in June
Mainland GDP growth slowed to 0.3 percent in Q1, down from 1.1 percent in Q4 2018
Mainland GDP growth slowed to 0.3 percent in Q1, following 1.1 percent in Q4 2018. We and consensus expected growth of 0.4 percent in Q1, and we had also anticipated an upward revision to the Q4 growth rate (to 1.0 percent). As such, the outcome was largely as expected. Norges Bank had pencilled in solid 0.6 percent growth in Q1, but had already flagged that it expected to be surprised on the downside (cf. the press statement from the policy meeting last week). Some of the surprise downside vis-à-vis Norges Bank was explained by temporary factors, such as a steep fall in electricity transmission. As we expected, electricity subtracted 0.2 p.p. from the Q1 growth rate. Norges Bank had probably taken some, but not all of this, into account: note that some of the electricity data was released after Norges Bank’s monetary policy report in March. In any case, swings in electricity production have little to do with the state of the business cycle (it is instead highly influenced by weather conditions). As such, the normal routine is to look beyond such swings in the data. Stripping out electricity, the ‘true’ momentum was about 0.5 percent in Q1, which is still somewhat above the medium-run growth potential for the economy. Employment growth was also solid in Q1, and the outcome was somewhat stronger than anticipated by Norges Bank. All told, the economy is holding up well, pointing to another rate hike by Norges Bank. Recall that Norges Bank has signalled more explicitly that the next hike will come in June.



Marius Gonsholt Hov

Senior Economist


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