Norway’s economy grew faster than expected in the fourth quarter but downward revisions to earlier data likely reinforced market expectation for another interest rate cut, possibly as soon as March. Growth held up at the end of 2014 despite turmoil in the oil sector, which generates a fifth of Norway’s economy, on healthy consumption, increased exports and rising manufacturing, Statistics Norway said on Wednesday.
“The fourth quarter was a bit ahead of expectations, but the (downward) third-quarter revision puts it in line with the central bank’s expectations,” Nordea Markets economist Erik Bruce said. “We expect a March rate cut, based on the fact that the oil price is $10 per barrel below the central bank’s forecast,” Bruce said. “That will make the economy grow more slowly than the central bank predicted in December.” Growth on the mainland, or excluding the offshore oil sector accelerated to 0.5 percent on the quarter, beating forecasts for 0.4 percent while overall growth nearly doubled to 0.9 percent, beating expectations for 0.4 percent.
However, the third quarter mainland growth figure was cut to 0.1 percent from an initial estimate for 0.4 percent, putting full year growth at 2.3 percent, marginally behind the bank’s 2.5 percent projection. With oil prices falling by half since June, Norway’s mainland economic growth is expected to slow to 1.5 percent this year, according to the central bank, as energy companies slash investments by around 15 percent, halt some developments and lay off workers. The central bank has already cut rates by 25 basis points in December to boost growth and markets expect more cuts, possibly in March and June.
Still, unlike in other oil-reliant economies like Russia or Saudi Arabia, the overall impact of the crude price fall is set to be moderate as the budget only uses the returns of already saved up oil wealth, not current year revenues, limiting the fiscal impact. The rate cut has also sharply weakened the crown currency, boosting export competitiveness, and kept borrowing costs low, boosting household consumption and confidence. The crown initially firmed on the GDP data but was trading broadly unchanged by 0925 GMT.