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Fast Comment NorwayMainland GDP continues to run above trend, pointing to another rate hike in March

  1. We expect mainland GDP growth of 0.6 percent in Q3
  2. Marginally below Norges Bank, but still above the potential for the economy
  3. Pointing to another rate hike in March
We expect mainland GDP growth of 0.6 percent in Q3
Next week sees preliminary figures released for mainland GDP growth in Q3. We maintain our view that the quarterly expansion has continued to run above its trend pace and foresee a quarterly growth rate of 0.6 percent q-o-q. If confirmed, the outcome will be close to Norges Bank’s short-term estimate of 0.7 percent. Also note that the contacts in the bank’s Regional Network have reported output growth of 0.7 percent in Q3. This time around, we have monthly GDP figures until August, but the data are highly volatile, so we are careful not to extrapolate from the most recent figure. Instead, we focus on the change over the past three months, which is currently around 0.6 percent (calculated for June-August, relative to March-May). Indeed, there have been some weaknesses in the data released for Q3, most notably for consumer spending on goods, which contracted by 1.4 percent. However, the demand side is more volatile than actual output and we note that goods consumption rose by 1.4 percent in Q2. The levelling out (over the past two quarters) is still weaker than assumed by Norges Bank, but there are reasons to believe that consumption of services has offset some of this weakness. From other demand side components, we note that housing investments, which acted as a drag throughout H1 2018, have already troughed and rose again during July/August. That is reflected on the production side, with construction output recording a solid gain in Q3. The same goes for petroleum investments (i.e. demand from the Continental Shelf), which appears to have troughed in June. The subsequent gains have benefited supply industries; all told, manufacturing output rose by 0.6 percent in Q3. In summary, notwithstanding some weakness in consumer spending, we expect overall output growth to have maintained its pace in Q3. We foresee mainland GDP growth of 0.6 percent, up from 0.5 percent in Q2. It should be mentioned, however, that electricity transmission acted as a clear drag in Q2; subtracting 0.2 percentage points from the growth rate (owing to the drought), but it may have added 0.1 percentage points to the GDP growth rate in Q3. Thus, the average pace has probably stayed around 0.6 percent over the past couple of quarters, when we adjust for electricity transmission. This is above the potential for the economy, which we deem to be closer to 0.4 percent. As a final comment, it would take a severe downside surprise to question the outlook for another rate rise in March. However, that is not our base case; we expect Norges Bank to stick with its near-term strategy and raise the key policy rate by 25 basis points in March 2019.


Marius Gonsholt Hov

Senior Economist


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