Norway’s Economy Shrank Last Quarter as Demand Eased

By Johan Carlstrom

Feb. 19 (Bloomberg) -- Norway’s economy contracted in the fourth quarter after household and export demand fell and the global financial crisis deepened.

The mainland economy, which excludes oil and shipping, contracted 0.2 percent from the previous three months, when it grew a revised 0.3 percent, Oslo-based Statistics Norway said on its Web site today. The median forecast of 11 economists surveyed by Bloomberg was for a 0.6 percent contraction.

“The drop was due to a reduction in both domestic and foreign demand,” the statistics office said. “Increased activity in general government, particularly in civilian central government, dampened the reduction in the mainland economy.”

The mainland economy will shrink 1.7 percent this year, as unemployment rises and consumer demand weakens, the statistics agency forecast today. That would be the first economic contraction for the world’s fifth biggest oil exporter in two decades. The economy grew 2.4 percent last year.

The krone gained 1.4 percent to trade at 8.7099 against the euro as of 11:34 a.m. in Oslo.

Household consumption fell 0.5 percent in the fourth quarter from the previous three months as consumers bought less cars.

Exports, excluding oil, gas, shipping, oil platforms and planes, declined 3.5 percent in the quarter, the statistics office said. “An important factor behind this was a reduction in exports of manufacturing goods,” it said.

Negative Contribution

“We expect net trade will contribute negatively in the coming quarters, coupled with accelerated drop in consumption and investments,” Shakeb Syed, an economist at Svenska Handelsbanken AB, said in a note to clients. The bank predicts that the economy will shrink 0.5 percent this year.

Norway’s central bank lowered its key lending rate by half a percentage point to 2.5 percent this month, while the government plans to inject as much as 100 billion kroner ($14.5 billion) into banks and businesses to help revive the economy of the world’s fifth-largest oil exporter.

The government plans to spend 2.3 percent of gross domestic product on tax cuts and infrastructure, hospitals, schools and research to limit the impact of the global credit crunch.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.