Norway’s Economy Expands as Nation Exits Recession

By Josiane Kremer

Aug. 20 (Bloomberg) -- Norway’s economy unexpectedly grew last quarter as the biggest government stimulus in more than 30 years and record low interest rates rekindled domestic demand, pulling the world’s fifth-largest oil exporter out of recession.

The mainland economy, excluding oil, gas and shipping, expanded 0.3 percent in the second quarter from the previous three months, when it shrank a revised 1.3 percent, Statistics Norway said today. The overall economy slipped 1.3 percent.

“We are out of recession and growth began earlier than Norges bank had expected thanks to better private consumption and public spending,” said Bjoern-Roger Wilhelmsen, senior economist at First Securities ASA in Oslo.

The only Scandinavian country that isn’t a European Union member has been shielded from the worst of the global slump thanks to continued investment in its petroleum industries, which make up a quarter of output. Record low interest rates and a fiscal stimulus, as Prime Minister Jens Stoltenberg prepares for a Sept. 14 election, have also supported demand.

“The growth number indicates that economic activity has bottomed out,” Kyrre Aamdal, economist at DnB NOR ASA, said in a note to clients.

Increased activity in business services, wholesale and retail trade, post and telecommunications, as well as government spending, contributed to growth, the statistics office said.

Recessions Ease

The krone surged as much as 0.6 percent against the euro and traded at 8.6033 at 01.03 p.m. in Oslo, compared with 8.6218 yesterday. Against the dollar, the krone was up 0.2 percent.

The median forecast for mainland GDP of 14 economists surveyed by Bloomberg was for a 0.3 percent contraction, with two analysts forecasting growth.

France and Germany reported last week that their economies unexpectedly grew in the second quarter. The 16-nation euro area shrank 0.1 percent, the best result in more than a year.

Stoltenberg’s coalition has pledged 3 percent of non-oil gross domestic product to drag the economy out of recession. That’s helped keep a lid on unemployment and buoyed demand.

Household consumption was up by 0.6 percent in the second quarter, boosted by higher car sales, according to Statistics Norway. Imports of traditional goods rose 1.2 percent in the three months to end-June after falling for a year, while employment was unchanged, the office said.

Bank’s Message

The central bank expects the mainland economy to contract 1.5 percent this year before returning to growth in 2010. Governor Svein Gjedrem left the key rate at a record low on Aug. 12, after cutting it by a quarter point in June, and said positive developments in the country’s economy may prompt it to raise rates earlier than previously indicated.

Today’s GDP figures “confirm Norges Bank’s message from mid-August”. Wilhelmsen expects the first rate rise to come in October.

“Norges Bank seems to be right,” Eric Bruce, economist at Nordea Bank AB in Oslo, said in a note to clients. “The strong labor market figures during the summer were reflecting stronger growth. We were strengthened in our belief that the first hike will be in October and the risk of a hike already in September has increased.”

According to a survey of seven economists showed on Aug. 14 the central bank will probably raise its key interest rate this year, becoming the first central bank in the industrialized world to reverse an easing cycle.

To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net.