Norway: Strong growth in production and employment – Nordea

Erik Johannes Bruce, analyst at Nordea Markets, notes that Norway’s mainland GDP growth in Q2 rebounded as expected after the temporary weak Q1, supporting Norges Bank`s view for a September hike.

Key Quotes

“Mainland GDP grew by 0.7% in Q2. This is close to our forecast at 0.8% q/q, consensus, and Norges Bank. Q1 growth was revised up from 0.3% to 0.5% q/q. Taking into account that Q1 was revised up - together with the strong growth in Q2 - the overall growth in the first half of this year has been in line with Norges Bank`s expectations.”

“As expected, the upturn in mainland economy was broad-based. It is no surprise that manufacturing increased strongly (1,6%), while the only slowdown was in the retail sector (-0,6%) which has been struggling lately.”

“The demand picture was as usual a bit mixed, but we think for Norges Bank the most important thing is that private consumption grew at a rather healthy pace with 0,4% q/q. This is perhaps a bit weaker than Norges Bank`s latest forecast for consumption growth at 2% this year. However, the central bank probably knew that consumption growth would be a bit on the weak side when they made the June report.”

“Employment grew by 0,4% q/q, which is in line with Norges Bank. This implies a growth in employment well above population growth, meaning that there will be further pressure in the labor market.”

“We think Norges Bank will view today`s report as very much in line with its expectations. Hence, no need to deviate from the rate path which suggests a September hike.”