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Fast Comment NorwayOutput growth rebounding again, rate hike in June

  1. Manufacturing output up 2.2 percent in April, mainland GDP growth of 0.3 percent m-o-m
  2. Growth is rebounding from a temporary setback in Q1
  3. Norges Bank to hike its policy rate at the upcoming June meeting
Output growth rebounding in Q2, following a temporarily weak Q1
This morning showed manufacturing output growth picking up sharply again, to 2.2 percent m-o-m, following -0.7 percent in March. The outcome was well above market expectations (0.4 percent). Following a setback in Q1, which was largely driven by temporary factors, output growth is clearly heading toward positive growth rates again. The three-month change is currently around 0.1 percent, but it will pick up further throughout the quarter. Note however the divergence in the manufacturing sector. The supplying industries are given a substantial boost from rising petroleum investments. But on the other hand, the non-oil manufacturing sector appears to have already passed the growth peak; this must be viewed in the context of the global slowdown. In the near term, however, the boost from petroleum investments should be large enough to maintain a solid pace for the manufacturing sector as a whole. But as we have flagged several times already, the outlook is for lower petroleum investments from next year. Note that Statistics Norway is also expecting a decline in real petroleum investments in 2020 (cf. the updated forecasts from yesterday). This implies that even if the near term looks good for the manufacturing sector, we continue to expect a sharp deceleration in growth from next year. Turning to the monthly GDP, mainland GDP growth has continued to expand at a 0.3 percent pace, the same as seen in March. If this continues, mainland GDP is headed for a quarterly expansion of around 0.7-0.8 percent, sharply up from 0.3 percent in Q1 but well in line with the signals from Norges Bank’s Regional Network. Again, our assessment is that the near term remains solid, which we also believe will be confirmed by the upcoming report from the Regional Network (due next Tuesday). All told, the momentum is more than solid enough for Norges Bank to hike its policy rate in June, even though market expectations for such a move have fallen markedly over the past week (the implied probability is less than 50 percent).


Marius Gonsholt Hov

Senior Economist


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