Norway Economic Forecast

The economy picked up speed at the start of 2023; GDP expanded 0.2% quarter on quarter in Q1 2023, improving from Q4’s flatline. Looking at monthly data, Q1’s upturn chiefly reflected a robust economic performance in March, which more than offset January and February’s downbeat results. The external sector was the engine of growth in Q1, with the expansion in exports of goods and services more than doubling to 1.7% from Q4. Meanwhile, private spending plunged 5.1% s.a. qoq; the result was largely due to an unfavorable base effect from a spike in car sales in Q4. In Q2, growth should remain roughly stable. In April, the manufacturing PMI showed conditions improved at the strongest pace in six months, and inflation eased. Pulling in the opposite direction, the krone weakened markedly against the euro in April–May, and interest rates were hiked further in May—to the highest level since 2008.

Inflation inched down to 6.4% in April (March: 6.5%). Despite the downtick, it remained above Norges Bank’s 2.0% target. In the remainder of 2023, headline inflation should trend downwards thanks to tighter monetary policy and subdued activity. That said, inflation is not seen returning to target until H2 2024. Currency depreciation is an upside risk.