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Fast Comment NorwayPreview: GDP, retail sales and registered unemployment

  1. Mainland GDP growth bouncing back from a temporary slowdown
  2. Retail spending supported by solid fundamentals
  3. The downtrend in unemployment has slowed a bit, probably due to increased supply
Mainland GDP growth bouncing back from a temporary slowdown
Next Thursday we will see preliminary figures for mainland GDP growth in Q2, whereas figures for retail spending in July and registered unemployment in August are due on Friday. Starting with the former, recall that mainland GDP growth slowed considerably in Q1, to just 0.3 percent q-o-q. However, the slowdown was primarily due to temporary factors such as a weather-related and steep decline in electricity transmission, which in isolation subtracted 0.2 p.p. from the growth rate. Fisheries were weak as well and, in addition, the manufacturing sector was dragged down by temporary shutdowns among some major producers. These factors have one thing in common, namely, that they were not suffering from a sharp drop in overall demand. Adjusting for these temporary negative contributions, mainland GDP growth kept its above-trend pace in the first quarter of the year. We also expect that mainland GDP growth bounced back solidly in Q2. We have pencilled in 0.8 percent q-o-q for mainland GDP, which is broadly in line with the signals from the regional network as well as Norges Bank’s estimate. Digging a bit into the details, manufacturing output has increased sharply again, on the back of solid growth among the oil-supplying industries. This again must be viewed in the context of the stellar increase seen in petroleum investments this year. The construction sector is also adding significantly to growth, whereas household consumption growth has been OK but nothing more. Goods consumption increased by 0.4 percent in Q2. Overall, we expect the coming print to confirm the solid pace of the mainland economy, underpinned by the growth impulse from the Continental Shelf. As such, the backward-looking GDP data should be neutral to the key policy rate path. Our call for Norges Bank to refrain from further hikes is instead based on a weaker outlook beyond this year, driven by increased global risk, coupled with the sharp decline in interest rate expectations among Norway’s key trading partners.
Retail spending supported by solid fundamentals
Turning to retail spending, June saw a drop of 0.4 percent, and the trend has been weaker than generally expected over the past few months. However, fundamentals remain solid with a further increase in overall employment, rising real wages and household sentiment at decent levels. We anticipate retail spending rose by 0.6 percent in July.
The downtrend in unemployment has slowed a bit, probably due to increased supply
Finally, the downtrend in unemployment has stalled over the past few months – as seen in both survey and registered data. We do not believe this is due to a slowdown in hiring, but instead labour force participation picking up, boosting the supply side. Note that the seasonally adjusted registered unemployment rate is a slow-moving variable, with small changes from month to month. We anticipate an unadjusted unemployment of 2.3 percent in August, which implies an unchanged reading in seasonally adjusted terms: 2.25 percent, according to our calculations (following 2.26 percent in July). Due to rounding issues, we may see that NAV presents the August-figure as 2.2 percent, in seasonally adjusted terms. In any case, this is in line with Norges Bank’s forecast. Overall, short-term trends should be broadly in line Norges Bank. Again, our call that the key policy rate has already peaked at 1.25 percent is not based on backward-looking data but instead on the factors that lie ahead.


Marius Gonsholt Hov

Senior Economist


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